Farmland Review by fishergermanllp

Farmland REVIEW 2019

• Review of 2018 • Outlook for 2019 • Funding advice • Machinery auctions

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Welcome to the latest edition of our Farmland Review In this edition we look back at 2018 as a challenging year for our industry, with a range of political and economic events overshadowing rural businesses. We look ahead into 2019, detailing the key influences that will shape the marketplace as we plan to leave the European Union, providing forecasts and opinions where possible. We look forward to gaining clarity around the legislation that will set out the basis for future farming policy and agricultural support. Such policy will dictate the most appropriate actions around which businesses can grow and secure a longterm profitable future, whilst promoting best environmental practice.

Fisher German farm agency statistics • £123,500,000 – value of farm sales and acquisitions in 2018 • 11,700 acres marketed by our agents • 3,204 acres – largest farm marketed in 2018 • 2,000 acres acquired for new and existing clients • Sold or acquired farms in 22 counties across England and Wales • 21 dedicated agents active across the farmland market

Strategic advice has never been more valued. Business should look forward to embracing new technologies and innovative farming techniques to remain competitive, sustainable and resilient in a global market.

• 12 offices offering farm agency advice

Our farm agency team enjoyed a successful 2018, advising clients on farm and estate sales and acquisitions covering an exciting range of properties.

• Dedicated GIS mapping team

• National Country Agency Team covering the UK • Dedicated farm machinery auction team

• 2,500 registered buyers across the country

I hope you enjoy our Farmland Review. Please do get in touch if we can assist you in 2019. Richard Gadd National Country Agency Team 07966 481487 richard.gadd@fishergerman.co.uk

Farmland Review 2019

A review of 2018

David Merton looks back on a turbulent and challenging year in the farmland market.

The supply of farmland onto the market was severely restricted in the first quarter of 2018, about 15 – 20% lower than the same period in 2017. Due predominantly to adverse weather conditions, this left buyers with little choice of fresh opportunities on the open market.

Tax (rollover)

16%

Relocating/ downsizing

Many of those sales which had been held up were brought onto the market between April and June. By the end of June, the volume of land publicly marketed regained a similar position to the same point in 2017, with circa 70,000 acres openly marketed across Great Britain. Brexit negotiations continued, with great uncertainty, and most buyers took a ‘wait and see’ approach, showing interest only in those holdings on their doorstep or which were considered an unmissable opportunity. The market slowed, with buyers keen to avoid any unnecessary risk; however those buyers with rollover funds maintained momentum, sensitive to time limitations. Private investor

19.8%

Farmer

44%

Purchaser profile Institutional investor/ corporate

Developer/ strategic

10.45%

Lifestyle/ amenity

16%

9.75%

By the end of September, and with a flurry of market activity in the preceding three months, supply was ahead of the same period in 2017 by around 15%. Buyers retained a cautious approach, with uncertainty over future trade arrangements. The Agriculture Bill, put before Parliament on 12th September, provided a template for future farm policy across England. Buyers, and vendors to an extent, took a hesitant position, in anticipation of further detail. Heavy spring rainfall followed by a prolonged hot and dry summer placed pressures on livestock and vegetable growers in the second half of the year. Fodder reserves and poor yield expectations dampened demand for expanding holdings as cashflow, feedstock values and livestock prices took precedence over business expansion. As we approached year end, supply of land increased further, finishing ahead of 2017 by circa 20%. Farmland values continued to widen across most sectors through 2018, with arable values ranging from £6,250 to over £14,500 per acre. Pasture prices continued this trend, ranging from £5,000 to £11,500 per acre. Quality and scale, but most importantly location, drove these price differences.

Expansion

45%

Lifestyle/ amenity

Purchase motivation

14%

New entrants

Investment

14%

With around 20 – 25% of farms advertised in 2018 (generally being of poorer quality and less favourably located) still available or withdrawn from the market, we continue to see transactional evidence support strong values as buyers compete for better quality and productive land. This is not a true reflection of the current marketplace, as those poorer farms attracting low offers or failing to sell are not factored into average prices. Debt and retirement related sales increased steadily, and we forecast this trend to continue. Institutions were generally diversifying away from pure agricultural holdings and a substantial acreage could be attributed to such sales. Interest rates rose for the first time in a decade and we saw many businesses taking advice on future options to protect against further rises and increased borrowing costs. Some farmers took the opportunity to repay finance early through the sale of off-lying land parcels, where capital values had multiplied in the last decade. The largest proportion of vendors in 2018 were farmers, representing around 50% of the selling market. Notably, we saw several non-farming investors cashing in where farmland had been acquired as a ‘safe haven’ around 2008, and a sustained period of capital growth allowed for a healthy return. The profile of buyers in the marketplace continues to evolve, with farmers still representing the greatest proportion (around 44%). Lifestyle/amenity buyers and private investors continue to show great interest representing around 36% of all buyers. Motives for acquisition are predominantly tax driven, with expansion following closely. .

David Merton Head of Rural Sector 07770 333331 david.merton@fishergerman.co.uk

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SOLD

Alfreton, Derbyshire. About 165 acres of pasture land in a strategic location.

SSTC

Notehouse Farm, Herefordshire. A wellpositioned 170 acre stock farm.

SOLD

Eakring, Nottinghamshire. About 130 acres of ancient and semi-ancient woodland.

SOLD

Stourton, Warwickshire. A wellpositioned 106 acre residential farm.

SOLD

Sealand, Flintshire. About 268 acres of productive arable land.

A small selection of farms we sold in 2018 SOLD

Adstone, Northamptonshire. A 248 acre estate with historic manor house

PART REMAINING

Reasby, Lincolnshire. A commercial farming portfolio of about 3,204 acres.

SOLD SOLD

Gilmorton, Leicestershire. 133 of Alfreton Derbyshire. AboutAbout 165 acres acres ofland arable land. pasture in a strategic location.

SOLD

Grove Farm, Bucks. Mixed 170 acre arable and pasture farm with various income streams.

SSTC

Wendlebury, Oxfordshire. About 139 acres of arable and pasture land.

SSTC

Burntwood, Staffordshire. About 111 acres of productive arable land.

Farmland Review 2019

Farm machinery auctions – a much quicker and simpler method of sale While there continues to be great uncertainty surrounding the future of the Basic Payment Scheme (BPS), what we do know is that between 2021 and 2027 there will be a transition period where direct payments will be made and reduced each year to zero by 2027. The savings made by reducing these direct payments will then be used to fund the trials of the new Environmental Land Management Schemes due to commence in 2019. This move to a perceived more environmentally friendly way of farming is creating the need for some important business decisions to be made on machinery replacement needs, as the more conventional methods of farming may no longer be suitable to achieve the funding which will replace the current BPS. Grant funding has helped some make early changes through the addition of the likes of no-till drills, which in turn has made much of the machinery traditionally used for arable cropping now redundant. For some, the changes afoot are all too daunting, and this provides an opportunity to look at retirement more seriously. Whether it be retirement or simply business reorganisation to address the upcoming changes in UK farming, the on-site auction remains an effective way of disposing of farm machinery and equipment quickly and efficiently. Selling items of machinery individually can be a time-consuming process. However, a machinery auction is a much quicker and simpler method of sale. Farm auctions provide an opportunity to dispose of unwanted and surplus equipment in one clear swoop. Larger more valuable items create exposure and interest which

then benefits the sale of smaller lots. Buyers will often attend an auction with the intention of buying a particular item, but then on the day discover other items also of value to them. Fisher German’s auction team boast over 140 years of experience in selling at auction both in the UK and international markets, giving both unrivalled knowledge and the empathy required in what can sometimes be a difficult decision. The team work very closely with our regional and national farm agency teams, and can provide a service bespoke to an individual business’s requirements, ensuring a seamless transition between the land or farm sale and the machinery sale. Our aim is to exceed our clients’ expectations in preparation for, conduct of and follow up of their farm machinery auction. Fisher German’s broad service offering will ensure that our clients are fully supported following the sale. If you have farm machinery that you wish to dispose of, or machinery to be valued, please contact Jack Healy, who will be delighted to advise on your options. Jack Healy Associate Director 07551 152689 jack.healy@fishergerman.co.uk

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Secure your funding Against the backdrop of anxiety about the future profitability of farming, there is every reason to review the funding of farming businesses, whilst the present conditions prevail in terms of profitability (including historic performance), interest rates, and lenders’ appetite. If there is a difficult time ahead to endure, then knowing that the funding of the business is in place, secure and affordable, at least for the likely duration of the difficulties, is a considerable comfort and protection. Overdrafts are the funding source most vulnerable to review and to changes in lender appetite, which can mean pressure is put on funding at the time that it is most needed. Moving hard-core borrowing from overdraft to secured lending reduces the risk of the overdraft becoming a concern to the lender, and gives a structured route to the reduction of overall debt if done on a repayment basis. An overdraft facility that meets the working capital needs of the business, but which is not used for part of the year, is hard to criticise from a lender’s perspective. An under-provision of funds leading to an urgent request to increase an overdraft is often the prompt for a lender to review their overall position. Term loans today are not always what they seem, and borrowers need to understand exactly how long their loans are for. To meet the regulator’s banking capital requirements some lenders have reduced the length of loans they offer with 10 years or even 5 being the limit for some. Repayment of the loan may be calculated as if it is for a longer period of say 20 years to make the borrowing more affordable. Some borrowers can believe they have an arrangement for 20 years when they don’t. The loan will end after the 10 or 5 years and a new loan will have to be agreed. This may happen as a matter of course, but if the business is facing a challenging time when negotiation of the replacement loan occurs, the lender can offer different terms to reflect the changed risk or demand repayment of all or part of the loan. Some loans made on this basis will end during the next few years. The annual cost of debt when times are tight is a crucial measure, and can be more important than the interest rate itself on which people tend to focus. In times of plenty, borrowing short term and taking the stress of heavy annual repayments can be prudent and successful. In more straitened times it can be better to borrow longer to ensure the annual cost of interest and repayment is well within the capacity of the business. Stresstesting financial performance to understand what margin of cover there is on the repayments will help determine the amount and term of loan that can be supported. If a long-term facility has

the flexibility for capital reductions to be made without penalty this enables the business to operate at an affordable level, but if outcomes are better than anticipated debt, reductions can be made. In normal times the purpose of the loan can determine the length of term with investment. For items with a short life such as machinery, loans are generally short term whereas longer life investments such as buildings might be longer term and land purchase even longer. However, when lean times are anticipated stress-tested affordability must play a part in determining the length of term. In times of uncertainty it is helpful to maintain flexibility, and there is a trade-off in borrowing between security and flexibility. Taking a fixed rate gives certainty to the annual cost, but if for any reason the unforeseen arises and the debt must be reduced or repaid then penalties can be faced. There are pros and cons in taking a mixed bag of arrangements such as having a proportion of debt fixed and possibly for different periods and maintaining a proportion on a variable rate. This requires more investment of time and thought at the outset but can spread the risks and pay dividends. Purchasing funds for a business should be treated as any other purchase with the different models thoroughly investigated: suppliers challenged for the best deal, all the terms, not just the price, thoroughly understood and annual reviews carried out to ensure the product is still delivering the best results to the business, replacing where necessary.

Tim Shuldham Deputy Managing Partner 07785 267944 tim.shuldham@fishergerman.co.uk

Farmland Review 2019

South Central market focus Over the course of 2018 the South Central farm agency team encompassing the extensive territories covered by our offices in Banbury, Thame and Bedford have offered over 1,700 acres of land to the open market. The buyer profile has been wideranging from institutional investors to private individuals and from expanding farmers to those simply wanting a large garden! There have been a few standout sales despite the challenging market conditions. The summer saw the completion of the Adstone House Estate sale in Northamptonshire, which comprised an impressive Grade II* manor house, with outbuildings and around 248 acres of mainly pasture land. After being marketed as a whole for a period of time, the property sold in two parts for well in excess of the £4 million guide following competitive bidding. This sale demonstrated that if a property is offered in the right way, substantial demand can be created for specific elements which outweigh offering the property as a whole. The same could have also been true with Potash Farm in Buckinghamshire. This presented a diverse opportunity comprising residential, commercial, solar park and agricultural aspects. In all the property extended to 139 acres of arable land with a traditional brick farmhouse together with a fully functional business park let to a range of small commercial tenants. There was also a 2.7 MW solar park, planning permission for an electricity storage facility and a reservoir. The property was successfully sold to an investment company who were looking to benefit from the mixed range of commercial opportunities that the property presented. Meanwhile in Warwickshire Stourton Hill Farm sold for significantly above the £2.9 million guide price. The property comprised a rarely available residential farm extending to 106 acres in a desirable location with stunning panoramic views. The property had been in the same family ownership for many

decades and represented a retirement from farming. The property generated a significant level of interest and was eventually sold after competitive bidding to a family buyer who was going to enjoy all the amenity the property had to offer. Another standout sale this year was Grove Farm in Buckinghamshire. The property comprised a useful complex of agricultural and commercial buildings providing rental income together with a farm shop. The land extended in all to approximately 173 acres of arable, pasture and woodland. On bare land we have concluded a number of sales with wideranging values from circa £8,000 per acre to over £11,000 per acre for the well located, good quality land where special purchasers dominate. Matthew Allen, who heads the regional agency team, comments: ‘Whilst demand during the year has generally been strong there still remains a good range of properties available from complete farms to bare land, and modern rural properties to fully equipped agricultural and equestrian holdings.’ He goes on to say that ‘whilst the future remains uncertain there is no doubt that for the right properties across our region, when offered at the right price, demand will still outstrip supply’. Matthew Allen Partner 07810 378190 matthew.allen@fishergerman.co.uk

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Have you considered selling your property online? Fisher German has launched a new online auction service and is predicting a huge increase in the number of people selling properties and land through eBay-style platforms.

‘The platform can also reach a wider audience than the traditional auction room, with people being able to bid from anywhere in the world.

The new auction system is up and running and has already recorded its first sale successes.

‘Mistakenly some people consider auctions most suitable for distressed properties, but this method of sale is appropriate for so many types of property or land – from farms and areas of woodland to commercial properties and country houses – so has an extremely wide scope.

The platform is suitable for a wide range of properties including residential, commercial, agricultural as well as bare farmland, development sites and woodland. The online auction is similar to the traditional auction method. Solicitors draw up the legal pack, the same traditional and online marketing methods are used, and sellers are able to agree a reserve price and the length of the auction. Bids placed in the last five minutes of the auction trigger the timer to reset for a further five minutes, giving potential buyers ample opportunity to increase their offers and ensure that the maximum value is achieved for sellers. We are predicting online auctions will become increasingly popular as people look for cheaper and more convenient options to buy and sell properties. Countries such as Australia and the USA sell significantly more properties by auction, and the UK looks set to follow. Stuart Flint, partner at Fisher German, said: “We have always held traditional auctions, but we have chosen to launch our online platform in response to the needs of our clients. ‘Online auctions offer a more flexible and less pressured environment, making it favourable to many buyers as it allows them to take more consideration over their bids.

‘Online auctions are an ever increasingly popular way of purchasing goods, so it only makes sense that the property sector keeps up with this trend. ‘We are predicting an enormous increase in the number of people buying and selling properties and land on online auction platforms due to its flexibility, cost-effectiveness, transparency and speed. ‘Our new platform enables the firm to stay ahead of market trends and has a huge amount of growth potential.’

Stuart Flint National Country Agency Team 07501 720422 stuart.flint@fishergerman.co.uk

Farmland Review 2019

Looking ahead – the 2019 land market Whilst awaiting further clarity around the Agriculture Bill, and specifically the proposed Environmental Land Management Schemes, we expect the farmland market to remain calm. Progressive farmers and diversified farming businesses will continue to invest, as will those looking at land from a sporting, amenity or tax-driven perspective. With the phasing out of direct payments from 2021, we will start to see many landowners considering their medium-term business objectives. The ability to delink these payments from the requirement to farm will see some invest in new technology, some diversify into non-agricultural ventures and some look to capitalise the payments up front and retire from farming. We expect further discussions through 2019 with farmers and landowners regarding these various options as we plan ahead, and whether their existing land holdings are suitable both in terms of scale and quality for their individual objectives. no change

2019 average land value predictions 0–4% up

0–4% down

Arable 5–9% down no change

0–4% up

These figures represent the % division in opinion of all Fisher German farm agency personnel working across the UK.

0–4% down

Pasture

10%+ down 5–9% down

As soil health, productivity, environmental enhancement and greater animal welfare take priority under new farming policy, we expect buyers to demand more in-depth evidence of farming practices when looking to acquire new holdings in 2019. Natural capital has been the key phrase in this area and those with a clear understanding of where environmental value can be enhanced through better soil and water management should certainly find adaption to new policy more streamlined. The key drivers in the marketplace will continue to dictate supply and demand levels. Any increase in borrowing costs, with a future reduction in direct payments from 2021, will require farm businesses to really stress-test their operations for long-term stability. We expect lenders to start requiring more regular business performance figures from borrowers to ensure continued financial strength. We expect the volume of farmland on the open market to increase again in 2019, based predominantly on further retirement sales and a move away from bare agricultural investments for long-term and institutional investors. Some receipts will be circulated back into farmland where strategic opportunities can be forecast. Our initial

Our predictions for the year ahead: • • • •

Increased demand for strategic and well diversified holdings Small increase in supply of land to the market Softening demand for dairy and mixed farms Wait and see approach to continue in the short term, with progressive and competitive farmers bucking the trend • Greater focus on holdings where value of natural capital can be enhanced • Lifestyle and amenity buyers to bolster demand for smaller acreages forecast places a 5–10% increase in supply of land to the open market in 2019, against 2018 levels. You will have read our commentary in respect of farmland values in the 2018 land market article. With such disparity and parochial variances in values recorded, the forecast for values must be provided on a holding-by-holding basis. Generally, we consider those well located, diversified and productive holdings will retain value on the back of increasing demand. We expect a slight softening in values across poorer livestock holdings or where holdings are sited in less favourable locations. We forecast a continued and strengthening interest in smaller residential farms that provide amenity value and non-agricultural development opportunities. Strategic holdings including those with long-term residential and commercial development prospects will continue to attract great interest, as will land with mineral opportunities and mixed-use holdings with opportunities to add value. Rollover buyers will of course continue to drive farmland values in certain areas. Where such funds have been created, those monies are generally directed towards local opportunities, often within 20 or 30 miles where possible. We do not expect the current buyer/seller profile in the marketplace to alter drastically through 2019. Farmers will continue to represent the greatest proportion in both camps. We do expect increased demand from the lifestyle/amenity and some overseas buyers, closing the buyer profile in their favour. Famers and institutional investors will likely represent the majority of vendors through 2019. Richard Gadd National Country Agency Team 07966 481487 richard.gadd@fishergerman.co.uk

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Case study: A significant farming enterprise The marketing of Rainthorpe Farms which commenced in early 2018 represented the sale of one of the largest commercial arable holdings in Lincolnshire for over 20 years.

thinking and pre-sale preparation is key to all farm and estate sales and often reduces queries and thus time spent during the conveyancing process.

For the Rainthorpe family, succession discussions ultimately led to the decision to sell. Helen Clarke (née Rainthorpe) took over the farming business in 2010 following the sudden death of her father, with her involvement initially intended to be temporary. Two of Helen’s brothers had shown an interest in agriculture but moved towards alternative careers, whilst her youngest brother was training for a career in education. Seven years later with the business running smoothly but with the issue of succession outstanding, the family were forced to re-evaluate their future. Reservations over the short-term outlook for a large-scale arable enterprise, and with family members pursuing alternative careers, resulted in the difficulty decision to sell.

The initial national marketing campaign produced a strong level of interest, culminating in a request for formal expressions of interest. Shortly thereafter, offers were invited and subsequently accepted on a good proportion of the land. Further discussions allowed us to secure sales on a further three parcels of land, taking the sold acreage to around 2,400 acres. The vendors decided to let the remaining land under a farm business tenancy, and continue to receive interest from potential purchasers.

The farming business covered a total of 3,204 acres across 7 holdings together with a number of residential dwellings, general farm buildings and grain storage. With land holdings spread over a distance of 8 miles, the sale did not present itself as a traditional ‘rural estate’, typically identified as having a principal dwelling, parkland, commercial farmland and let property which generally appeals to those with funds from both within and outside the farming industry. Instead, we felt that our likely buyers would be those looking purely for a commercial rural investment opportunity of scale, or local buyers looking to acquire smaller parcels of land as investments or to expand existing holdings. Once the decision had been taken to dispose of the Rainthorpe Estate the family jointly instructed Fisher German to commence marketing early in the calendar year. The delayed spring presented us with challenges in itself, not least in the fact that we had snow on the ground for much of late February and early March. Uncertainty within the farmland market resulted in a number of conversations over how best to present the estate and how to guide values in a challenging market. The sale attracted an encouraging number of enquiries. The creation of a detailed and comprehensive data room was essential for a sale of this magnitude. Interested parties were able to access all relevant detail from cropping history and drainage plans to tenancy agreements and EPCs. Such forward

Robert Hurst said: ‘The opportunity to be involved in one of the largest sales in the country has once again allowed Fisher German to demonstrate their national presence and strength in the farmland market. The sale required careful consideration of the current marketplace and a close working relationship with the client throughout. This ensured the estate was presented to the market in the very best light and the clients were informed of progress and involved every step of the way.’

Robert Hurst Partner 07501 720419 robert.hurst@fishergerman.co.uk

Rachel Ashworth Senior Associate 07855 077152 rachel.ashworth@fishergerman.co.uk

Farmland Review 2019

Your key contacts:

Richard Gadd National Country Agency Team 07966 481487

richard.gadd@fishergerman.co.uk

Stuart Flint

Alasdair Dunne

National Country Agency Team

07501 720422

07501 720412

stuart.flint@fishergerman.co.uk

alasdair.dunne@fishergerman.co.uk

Ben Longstaff

Matthew Allen

Ashby

Banbury

07917 064657

07810 378190

ben.longstaff@fishergerman.co.uk

matthew.allen@fishergerman.co.uk

Molly Dickson

Edward Clark

Bedford

Chester

07741 264143

07718 524819

molly.dickson@fishergerman.co.uk

edward.clark@fishergerman.co.uk

Anthony Mayell

Jack Healy

Hereford

Doncaster

07836 646472

07551 152689

anthony.mayell@fishergerman.co.uk

jack.healy@fishergerman.co.uk

Hugh Maxfield

William Young

Knutsford

Market Harborough

07788 144709

07810 378192

hugh.maxfield@fishergerman.co.uk

william.young@fishergerman.co.uk

Charles Meynell

Rachel Ashworth

Stafford

Newark

07836 212307

07855 077152

charles.meynell@fishergerman.co.uk

rachel.ashworth@fishergerman.co.uk

Matthew Barker

Stephen Rutledge

Worcester

Thame

07788 412186

07919 693401

matthew.barker@fishergerman.co.uk

stephen.rutledge@fishergerman.co.uk

Holly Parry

Gillian Pattinson

Ripon

Hexham

07501 720416

07584 685696

holly.parry@fishergerman.co.uk

gillian.pattinson@fishergerman.co.uk

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