Market Intelligence Report
Smiths Gore Agricultural Rent Database Year to 31 October 2012 Rents up 30%
smithsgore.co.uk
Rents rose by an aver age of 30% Rents for all tenancy types have continued to perform strongly, continuing the rising trend we have seen in recent years.
Average percentage change in year to 31 October (all farm and tenancy types)
The increase of 30% in the year to 31 October 2012 is the greatest annual increase we have seen in the last five years and demonstrates resilience in the agricultural rental market despite significant economic challenges in other sectors. Key points
• •
The top 25% of arable rents are all over £125 / acre Dairy rents are in a relatively narrow band between £69 - 91 / acre (this is the middle 50% of rents) Livestock rents are the most variable, due to the quality of grazing and buildings Some rents for mixed holdings are now greater than £100 / acre
AHA
FBT
Distribution of AHA rents agreed in year to 31 October
Scottish Tenancies
Overall Average
Lowest to highest rent (excluding the top and bottom 5%)
Distribution of rents agreed in year to 31 October 2012 £/acre £120 £100 £80
New rent (£/acre)
• •
£60 £40 £20
Rupert Clark Head of Rural Practice Petworth office t 01798 345999 e rupert.clark@smithsgore.co.uk
Simon Blandford Head of Farm Management Winchester office t 01962 857405 e simon.blandford@smithsgore.co.uk
£0 0
25
50
Arable
Dairy
Livestock
75
Mixed
Livestock Mixed Lowest rent to highestArable rent Dairy (excluding the top and bottom 5%)
100
GROWTH BY FARM TYPE 2012 Continuing strong growth in all farming sectors
2009 - 20121 27% aver age increase
Rents for all types of tenancy agreed in the 12 month period to 31 October 2012 increased by an average of 30%. This is greater than in 2011 and 2010. Due to the diversity of farms there is considerable variation in the rents agreed, as illustrated by the distribution of rents graph on the previous page, which shows the rent agreed at each review.
The average increase in rent achieved by reviews conducted within the last three years has been 27%.
Arable and livestock rents continued to increase the most, 38% for arable and 33% for livestock rents. Dairy rents increased by 18%, compared with an average increase of 16% in the year to April 2012.
All sectors have experienced increases, with the largest being in the arable sector, and the lowest for mixed and dairy farms.
New rents agreed by farm type in year to October 2012
New rents agreed by farm type 2009 – 2012
For the average sized farm in the database, this has meant an increase in rent of £4,100 a year – so £12,300 over a three-year rent review cycle.
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
£97
£72
£79
£68
33%
474
102,863
17%
166
38,765
29%
542
190,662
20%
406
89,815
1,588
422,105
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£105
£75
38%
217
48,653
Arable
Dairy
£88
£75
18%
70
18,647
Dairy
Livestock
£58
£44
33%
255
92,709
Livestock
£56
£43
Mixed
£82
£67
23%
184
39,298
Mixed
£75
£63
Overall average
£81
£62
30%
726
199,308
Overall average
£76
£59
27%
1 “2009 – 2012” and “last three years” relates to the period between 1 November 2009 and 31 October 2012.
GROWTH BY TENANCY TYPE 2012 FBTs continue to show greatest rises Farm Business Tenancy rents rose by 44% as rent review clauses in the tenancies allow rents to be revised to current open market levels. Agricultural Holding Act rents rose by 23% reflecting the less open market nature of reviews under this type of tenancy. Scottish rents increased by an average of 18%. For AHA and Scottish tenancies, these rates of increase are consistent or slightly above the three year average. However, Farm Business Tenancy rental growth has been considerably higher than the three year average (44% v 38%), influenced by farmers bidding more to retain FBT land and also strong results from recent open market lettings. New rents agreed by tenancy type in year to October 2012
Scottish Tenancies
FBT
AHA
New rents agreed by tenancy type in year to October 2012 New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£79
£65
23%
101
32,245
Dairy
£82
£71
17%
40
11,505
Livestock
£55
£45
30%
90
38,271
Mixed
£77
£65
19%
109
23,100
AHA average
£72
£60
23%
340
105,121
Arable
£132
£87
55%
108
14,815
Dairy
£109
£88
25%
23
5,007
Livestock
£77
£58
45%
95
15,271
Mixed
£98
£76
32%
63
11,460
FBT average
£105
£75
44%
289
46,552
Arable
£60
£52
16%
7
1,552
Dairy
£53
£50
7%
7
2,136
Livestock
£34
£24
19%
62
38,528
Mixed
£43
£37
15%
12
4,738
Scottish average
£39
£31
18%
88
46,954
Overall average
£81
£62
30%
717
198,627
£140
£120
£100
£80
£60
£40
£20
£0
Arable
Dairy
Livestock AHA
Mixed
AHA average
Arable
Dairy
Livestock
Mixed
FBT average
Arable
FBT rent (£/acre) New rent (£/acre) Old rentOld (£/acre) New rent (£/acre)
Dairy
Livestock
Mixed
Scottish tenancies
Scottish average
Overall All
2009 - 2012 Livestock rents increased most The difference between national average FBT rents and AHA rents, has increased to £27 per acre. Overall FBT rents have increased by 38%, compared with 21% for AHAs. For each tenure type livestock rents have increased strongly in percentage terms.
New rents agreed by tenancy type 2009 - 2012
Scottish Tenancies
FBT
AHA
New rents agreed by tenancy type 2009 - 2012 New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£80
£65
23%
236
68,400
Dairy
£78
£68
17%
95
21,787
Livestock
£53
£43
26%
177
76,528
Mixed
£71
£61
18%
246
58,692
AHA average
£70
£59
21%
754
225,407
Arable
£117
£81
45%
223
31,808
Dairy
£95
£79
21%
49
9,077
Livestock
£78
£58
41%
198
31,714
Mixed
£91
£75
28%
125
20,221
FBT average
£97
£72
38%
595
92,820
Arable
£71
£62
15%
13
2,444
Dairy
£45
£41
9%
21
7,862
Livestock2
£30
£23
19%
125
78,076
Mixed
£41
£36
13%
34
10,899
Scottish average
£36
£30
16%
193
99,282
Overall average
£76
£60
27%
1,542
417,510
2 Scottish livestock rents per acre are lower than in England as the average farm size is much larger in Scotland.
£140
£120
£100
£80
£60
£40
£20
£0
Arable
Dairy Livestock Mixed AHA
AHA Arable average
Dairy Livestock Mixed
FBT Arable average
FBT rent (£/acre) New rent (£/acre) Old rent Old (£/acre) New rent (£/acre)
Dairy Livestock Mixed Scottish Overall average Scottish Tenancies
All
GROWTH BY REGION AND FARM TYPE 2012 Eastern England rents rise by 39% Rents have risen in all regions, with the highest rises in Eastern England and East Midlands and Yorkshire.
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£88
£68
29%
36
7,170
Dairy
£85
£71
20%
27
7,145
Livestock
£61
£48
31%
87
45,994
Mixed
£73
£57
34%
19
6,018
Region Average
£72
£57
29%
169
66,327
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£97
£63
46%
41
8,013
Dairy
£103
£86
21%
24
5,290
Livestock
£71
£56
30%
66
5,915
Mixed
£81
£69
19%
90
11,925
Region Average
£84
£66
27%
221
31,142
n/a means either no or too few reviews carried out to show reliable data NB These figures are based on all reviews, and so include a range of tenancy types
East Midlands and Yorkshire
New rent (£/acre)
Smiths Gore offices
Eastern England
Western England & Wales
Northern England
Scotland
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac) 1,552
Arable
£60
£52
16%
7
Dairy
£53
£50
7%
7
2,136
Livestock
£33
£23
19%
60
38,381
Mixed
£43
£37
15%
12
4,738
Region Average
£38
£30
17%
86
46,807
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£105
£78
35%
65
13,770
Dairy
n/a
n/a
n/a
n/a
n/a
Livestock
£66
£41
81%
25
1,507
Mixed
£85
£69
20%
43
9,550
Region Average
£91
£69
38%
136
25,404
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£123
£86
44%
68
18,149
Dairy
£84
£72
17%
9
3,499
Livestock
£68
£56
29%
17
913
Mixed
£107
£77
42%
20
7,067
Region Average
£109
£79
39%
114
29,628
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£90
£70
28%
48
9,582
Dairy
£80
£68
18%
65
12,328
Livestock
£57
£46
28%
201
89,758
Mixed
£81
£64
32%
30
8,032
Region Average
£68
£55
26%
344
119,701
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£84
£62
33%
100
19,824
Dairy
£87
£75
18%
60
12,935
Livestock
£73
£56
32%
150
13,029
Mixed
£74
£64
16%
221
32,158
Region Average
£77
£63
24%
531
77,946
n/a means either no or too few reviews carried out to show reliable data NB These figures are based on all reviews, and so include a range of tenancy types
East Midlands and Yorkshire
New rent (£/acre)
Smiths Gore offices
Eastern England
Western England & Wales
Northern England
Scotland
2009 - 2012 Eastern England and East Midlands and Yorkshire top rises New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£71
£62
Dairy
£45
£41
15%
13
2,444
9%
21
Livestock
£29
7,862
£22
18%
123
77,930
Mixed Region Average
£41
£36
13%
34
10,899
£35
£30
16%
191
99,136
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
£93
£70
30%
150
28,499
Dairy
£87
£72
21%
11
2,139
Livestock
£64
£44
62%
36
5,601
Mixed
£82
£68
18%
62
14,077
Region Average
£86
£66
31%
259
50,316
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac) 42,514
Arable
Arable
£114
£82
38%
163
Dairy
£84
£72
17%
9
3,499
Livestock
£61
£48
30%
32
4,344
Mixed
£89
£67
39%
59
24,649
Region Average
£101
£74
36%
263
75,006
The effect of houses and farm buildings
The effect of land quality – premium rents for premium land
Over the last three years, equipped holdings have continued to have higher rents than bare land lettings, although the premium paid for buildings has reduced on arable FBT lettings.
Not only is the rental value of better quality land higher, rents for Grade 1 and 2 land have risen by the greatest percentage over the last three years. Average Grade 1 rents are now 62% higher than Grade 3, compared with 47% before these reviews were undertaken.
£140 £121
£117
£120
Grade 1
£100 £85 £80
£101
£96
£94
£97
£85
£80
£78
£77
£71
£60
£97
£66
£61
£55
£74 £66
£72
£49
£40
£20
£0 Arable
Dairy Bare AHA
Bare AHA
Livestock Bare FBT
Equipped AHA
Mixed
Overall average
Equipped FBT
Bare FBT Equipped AHA Equipped FBT
Rental values of equipped holdings are affected by the quality and quantity of buildings available. Over the last three years, rents on poorly equipped holdings have remained lower than those on well or averagely equipped holdings. Percentage growth rates are similar regardless of building quality. New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Well equipped
£74
£60
23%
218
98,121
Averagely equipped
£72
£60
22%
446
182,272
Poorly equipped
£61
£47
23%
195
73,947
Overall average
£70
£57
22%
859
354,341
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
£130
£94
37%
38
14,117
Grade 2
£99
£72
30%
170
41,901
Grade 3
£80
£64
25%
1,084
201,009
Grade 4
£52
£40
32%
230
73,186
Grade 5
£11
£9
21%
82
96,107
Overall average
£76
£59
26%
1,604
426,321
Our experience over the past year Scottish view
English and Welsh view
Rents continue to rise despite more challenging conditions
Upward pressure on AHA and FBT rents likely to continue
A number of forces were pulling at each other through 2012 - the weather, the demand from farmers to rent land and rising costs of production.
Rent increases have shown little sign of easing back during the course of 2012, despite the problems caused in many areas by it being the wettest year on record.
The weather throughout 2012 could best be described as depressing. Incessant rain and low cloud made arable production very challenging with sodden soils making field operations impossible. Drainage issues were highlighted along with the need on many farms to address drainage repairs that have perhaps been left to another day for too long. The impact was not as immediate but just as damaging in the livestock sector with fodder production significantly down, an issue which will impact on reviews in 2013. As ever however it is an ill wind - it is fair to say that some regions of Scotland fared better than others, benefiting from good prices and good production so there are some regional differences. These conditions will have had a more significant impact on the November reviews.
With product prices generally buoyant, most landlords served notices to bring about a review in 2012 and will be glad that they did so. The 12 month lead-in time for both AHA and FBT reviews causes a degree of momentum to affect rent settlements. Whilst prices are high and there is (despite the weather) a general underlying optimism, this momentum may partly help to explain why, with patchy crops and a shortage of fodder in some areas, significant rent increases and high tender rents continue to be agreed.
Despite the weather dampening enthusiasm in the farming sector in 2012, the general view that the medium-term looks encouraging continued to prevail. Good or better quality land continued to command strong interest. Against this 2012 also saw strong growth in costs, exacerbated by the weather conditions, which will squeeze margins. Rent reviews in 2013 will be impacted by the tough conditions of 2012. The livestock sector in particular has incurred additional costs, there are those drainage issues that need to be addressed and many cereal farmers will be looking in disappointment at patchy crops in heavier fields. However, it is amazing how some sunshine changes the outlook and encourages people to look forward and the prevailing view is that the outlook is positive and in such conditions, rents will continue to rise.
Toby Metcalfe Partner Edinburgh office t 0131 344 0885 e toby.metcalfe@smithsgore.co.uk
It is important to note that many of the rent reviews recorded in this report will have been concluded before the worst of the winter flooding. There are some signs that rent increases will be smaller in 2013 (and some high FBT rents may even reduce) as the effect of the bad weather is translated into poor results at harvest 2013. The difference between AHA rents and FBTs continues to grow, with average increases of 23% and 44% respectively. AHA rents are set largely by reference to a shrinking pool of comparable evidence, and the huge lag behind FBT rents adds further weight to the argument that they are becoming an increasingly unreliable indicator of the true land rental market. An increasing number of rent reviews are involving consideration of renewable energy installations such as PV cells and wind turbines. Both landlord and tenant should expect to see some financial benefit from the existence of these schemes, with the amount of any rent increase depending on the relative risk and investment of the parties.
Stephen Spencer Partner Lichfield office t 01543 266403 e stephen.spencer@smithsgore.co.uk
The outlook for 2014 and 2015 Should I serve a rent review notice?
About the agricultur al rent database
This is not a straight forward question to answer. It very much depends on the current rent passing, how you expect the sector’s profitability to change over the next 12 months, and your attitude to risk! For Agricultural Holdings Act and Scottish 1991 Act tenancies, the sector’s profitability is particularly important, as the link between agricultural economics and rents is stronger.
This review provides details of the average rents agreed at rent reviews, re-lettings and new lettings in:
The sector commentary below shows that over the last six months typical profitability has changed in many sectors so the comment above, about current rent passing, is more pertinent than before. Arable Although UK weather dominates farmer concerns at home, the world picture is a cause for concern. Improving crop conditions and increasing corn planting in the US, coupled with better mainland Europe prospects, could further dampen arable farm margins. Dairy Still further consolidation of the industry is expected. Only the top 10 to 20% of producers are making sustainable margins. Feed price and forage quality concerns continue and capital investment requirements are still major factors. Beef and Sheep Volatility abounds! Beef prices are strong but how sustainable? Lamb prices are under pressure. Domestic supply is still tight but “horsegate” still permeates consumer consciousness. Concern over feed costs and ability to control fixed costs continues. Pigs & Poultry Generally, improving demand has seen growth in market and improved prices. Volatility in feed costs (which account for 2/3rds of cost of production) continues to erode profitability.
Simon Blandford Head of Farm Management Winchester office t 01962 857405 e simon.blandford@smithsgore.co.uk
(i) 2012: the 12 months to 31 October 2012 (734 rent settlements covering 202,000 acres)
(ii) 2009 - 2012: the 36 months to 31 October 2012 (1,610 rent settlements covering 427,000 acres)
The complete database now contains details of over 2,500 rent reviews, covering over 700,000 acres of land in England, Scotland and Wales with a rent roll in excess of £36 million per annum. It is one of the most comprehensive databases available in Great Britain. Please note that the rents shown are averages and that there can be considerable variation in rent either side of the average depending on the location and quality of the holding and its fixed equipment. Some rents have dropped, usually when properties are taken out of the tenancy agreement, and others increased by well over 100%. This analysis focuses on what might therefore be described as trends. Our surveyors use the database as a source of information when they are conducting reviews, and we carry out performance reviews for estates and portfolios against the database. Demand for farmland for rent remains very strong, due to competition between farmers seeking to expand and spread fixed costs. If you are a landowner, landlord, tenant or are looking to contract or share farm land, please contact our local team to discuss the options available to you. They can advise you on the best course of action to suit your circumstances. They will also have details of land in your area that is available to rent. Their contact details are at the end of this report.
Contacts If you would like to discuss rent reviews or options for letting land, please contact:
Scotland Toby Metcalfe t 0131 344 0885 e toby.metcalfe@smithsgore.co.uk
Western England and Wales Stephen Spencer t 01543 266403 e stephen.spencer@smithsgore.co.uk
North Philip Coles t 01325 370511 e philip.coles@smithsgore.co.uk
South East and East of England Rupert Clark t 01798 345999 e rupert.clark@smithsgore.co.uk
East Midlands and Yorkshire & Humber David Goodson t 01733 559306 e david.goodson@smithsgore.co.uk
To discuss the sale or purchase of agricultural land, please contact: Giles Wordsworth National Head of Farm Agency t 01865 733302 e giles.wordsworth@smithsgore.co.uk
Smiths Gore offices
smithsgore.co.uk