Low supply, resilient prices and private sales are key features of the 2020 Scottish farmland market
28th October 2020
Strong market in the South West of Scotland.
Travel restrictions impacting the North East, though natural capital still a pull for buyers.
In line with the rest of Great Britain, last year's record low supply of Scottish farmland will almost certainly be topped in 2020 as the combination of Brexit, agricultural policy reform and the Covid-19 pandemic weigh on the market. Yet, according to Savills latest research, despite this uncertainty Scottish farmland values have remained strong with more deals being done privately, highlighting the underlying confidence in rural investments and the ongoing resilience of the sector.
According to Savills database* only 95,160 acres had been publicly brought to the GB market as at 30 September. Over half of this activity occurred between July and October, continuing the momentum seen in June as the market emerged from lockdown. In Scotland the supply of publicly advertised farmland was 58% down on the five year average to the end of September, to only 14,663 acres.
However, although the statistics continue to show a dramatic fall in the supply of acres being offered for sale on the open market, Savills Head of Rural Agency in Scotland Evelyn Channing says there is more transactional activity in the Scottish market than these statistics suggest.
She said: "While publicly marketed supply does remain at an all-time low, privately advertised and off-market sales have been an alternative avenue to sale for some vendors. So far this year we have agreed sales and purchases on as many acres privately as on the open market".
"The results reveal a continued appetite from farmers for quality land and well equipped units. In addition there has undoubtedly been a shift in sentiment towards rural living as a result of Covid-19 with a remarkable uptick in interest for houses in the country and amenity farmland as urban-based buyers seek more green space away from major centres. Indeed Scottish farms, both large and small, look set to continue to attract buyers from all over the UK. Meanwhile, rural estates with notable residential components are also attracting interest at the higher end of the market.
"The pandemic does not appear to have stalled the ESG agenda which continues to be the driver for many new buyers. The continued demand for land with forestry planting potential, along with natural capital and environmental motives, are beginning to gain traction across the UK market, particularly further up the hill in Scotland, where the insatiable demand for land suitable for planting is pushing values upwards significantly."
SOUTH WEST SCOTLAND
The South West has seen the most buoyant market in Scotland since the sector reopened in June, following the lockdown period. Savills rural agency expert in Dumfries, Sian Houston said: "Generally farming buyers are investing in order to expand existing enterprises, or to relocate to larger or better equipped farms.
"There is significant demand for marginal land, from both farming and forestry buyers, which is creating competition and pushing prices upwards. Everything is generating interest, from small parcels of bare land and farmhouses with a few acres to larger commercial farms. This market is driven by key factors such as the value for money on offer in the south west, the demand for these properties outweighing supply and its comparatively temperate climate making it popular to both farming and forestry interests.
"In addition, as a result of the pandemic demand has been further boosted by the surge of buyers from urban areas who are looking for a change of lifestyle ."
NORTH EAST SCOTLAND
Rory Galloway who heads up Savills rural agency for the North East of Scotland said: “Our good quality, large mixed farms of say 500 acres and above have always piqued the interest of English buyers looking for value for money, so local sellers are understandably concerned about the ability of southern buyers to travel up to the North of Scotland and take a look in current circumstances. How certain locations emerge from travel restrictions will impact on how quickly new farms appear on the open market in 2021. However we are doing quite a bit virtually and are continuing to talk to buyers from all over the UK and further afield about opportunities in the North East. Residential farms and estates below £1m in particular have seen a lot of interest from lifestyle purchasers.
“Meanwhile, the oil sector continues to provide mixed fortunes for the farmland sector - despite the turmoil, there still is a desire from wealthy oilmen to purchase landholdings with sporting or natural capital potential, both because of tax benefits and the environmental and social responsibility reasons for doing so."
VALUES AND OUTLOOK
The Savills Farmland Values Survey continues to show market resilience, with minimal changes to the end of September 2020. Great Britain's average ‘'all types'' farmland indicator remains unchanged at £6,690 per acre with prime arable down 0.1% to £8,690 per acre. Grade 3 arable was up 0.2% to £7,323 per acre while grade 3 pasture land was unchanged at £5,384 per acre.
Angus Locke, Savills rural researcher says: “Farmland values have been relatively static over the past 18 to 24 months with lower transaction volumes providing less market evidence and volatility in pricing. In reality, values achieved remain highly localised and primarily driven by location, asset quality and soil type.
“Looking ahead, trade and policy reform are expected to develop in detail before the year end. The sector is set for radical change, however we expect the demand fundamentals to remain strong and the market steady with such low supply.
“Volatile stock markets and the recent inflation of gold prices highlight the current uncertainty across investment markets, as the financial ramifications of the pandemic continue to emerge. Farmland however, both here and globally, has shown resilience throughout this period, with business interruption limited and stability in capital values.
“Furthermore, times of economic uncertainty have proven fruitful for farmland investors and our analysis shows in the seven years following the global financial crisis, farmland outperformed UK equities, gold and bonds.
“As investors revisit portfolio allocation over the coming months and years, the appeal of uncorrelated and inflation hedged alternative assets like farmland may be bought into focus. Momentum behind a ‘green recovery' is likely to complement this, as society and governments recognise the importance of the land based sector in mitigating the effects of climate change."
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