Farmland value strength set to stay in 2024

The latest Farmland Market Update from national property consultancy Carter Jonas shows strong market performance in the face of high inflation and rising borrowing costs.Data shows average arable values increased by 3.8 per cent in 2023 to £9,583/acre. Pasture rose by 3.7 per cent to an average of £7,750/acre.Andrew Chandler, Head of Rural Agency at Carter Jonas, said that while the market hasn’t been completely unaffected by current economic fluctuations, it is more resilient because of the prominence of cash buyers.“We have seen an uptick in debt-driven launches bringing more supply to the market in recent months, and growth in capital values has slowed,” Mr Chandler said. “Yet, the prominence of cash buyers means that land values are less exposed to increasingly expensive debt than other property markets.“Significantly, many landowners have sold land for development purposes over the past couple of years and need to ‘rollover’ the funds within a three-year timeframe to defer Capital Gains Tax. As a result of supply levels being historically low, many of these sellers have not yet found a new asset, resulting in a pool of ‘waiting cash’.”Supply fell back in the winter when the economic outlook improved, and inflation fell faster than expected. However, farmland values still increased moderately from Q3 to Q4; arable land values rose 0.7 per cent from Q3. Pasture land values increased at a faster rate, rising by 0.9 per cent.“Secondary and tertiary pasture values continue to outpace most other land types,” said Mr Chandler. “This is led predominantly by the South and the East of England and correlates with a more advanced natural capital market.“These evolving natural capital markets are bringing an increasing array of purchasers to the market. With the introduction of mandatory Biodiversity Net Gain on 12 February, the number of natural capital buyers will accelerate. It will also offer opportunities for landowners who wish to diversify their income streams.”Over the past year, Carter Jonas has been monitoring responses to changing support payments and concerns about food security. This scrutiny is likely to intensify in the coming year.However, public environmental schemes have evolved again, with some Sustainable Farm Incentive Standards looking to complement food production.“Some rates have shifted upwards significantly, which is likely to encourage more businesses to opt in,” Mr Chandler explained. “Defra’s most recent changes in January set out the aim of: ‘Seeing 65 per cent of farms adopt nature-friendly practices on 10 to 15 per cent of their land’.“We can expect the year ahead to be defined by accelerated structural change, with private and public environmental schemes looking more appealing. Initial signs suggest this may be less to the detriment of food production.”With a General Election expected to take place at some point this year, the agricultural sector will be paying close attention to pledges made by political parties as they campaign for votes.“We’ve already heard promises about energy prices and protecting domestic food production, and this will only accelerate to win rural votes,” Mr Chandler predicted. “I expect there will also be comments on the labour market as labour is short and wages are rising, which is a major issue for agri businesses.”