Market Intelligence Report
Agricultural Rent Survey - England & Wales Year to 31 October 2014 Rents rise by 24%
smithsgore.co.uk
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2
Rents rise by an aver age of 24% Given that many commodity prices reduced during the three years to 31 October 2014, wheat by 24% and lamb by 6%, we have seen the headline rates of increase in farm rents slow. But not by as much as you might expect because some significant farm input costs have fallen too, so farm profitability, which is what rent settlements are based on, has not been as affected. In October 2014 ammonium nitrate fertiliser was 24% cheaper than three years earlier and red diesel was 10% cheaper1. At rent review all these factors, as well as comparable rents, are considered and debated. Against this background, rents for all tenancy types in England and Wales rose by an average of 24% for reviews and new lettings in the year ending 31 October 2014. A year previously this figure was 30%2. Rents for existing tenancies rose by 20% at review, compared with 26% for reviews concluded in the year ending 31 October 2013. If we calculate an annual change by looking at rents that were reviewed both this year and three years ago, they have risen by an average of 17%, which is equivalent to 5.7% per year.
Key points • •
FBT rents continue to rise faster than Agricultural Holdings Act rents Rents for new lettings continue to increase by more than rent reviews
Average percentage change in year to 31 October (all farm and tenancy types) Includes both reviews and new lettings
45% 40% 35% 30% 25%
Despite this rental growth the income return on let land remains low; in 2013 it was a 1.4% return on the landlord’s capital employed3.
20%
Rents for new Farm Business Tenancies (FBTs) agreed in the year to 31 October 2014 were 48% higher on average than they were under the previous letting of the holding.
10%
The average FBT rents in this report are below some of the rents that grab the headlines. This reflects the diversity of holdings and land, and that many landlords consider factors as well as rent when selecting tenants, such as the tenant’s business plan, skills and husbandry.
15%
5% 0%
2012
2013 AHA
2014 FBT
2011 – 2014
Overall average
All figures in this report relate to England and Wales unless otherwise stated.
Since October the red diesel price continued to slide, in January 2015 it was 30% cheaper than in October 2011. We continue to collect data on settlements in Scotland but will not publish it whilst the sector addresses the mechanism for rent reviews through the Agricultural Holdings Review Group. 3 Source: IPD Rural Property Index, year ending 31 December 2013. 1 2
Rupert Clark Head of Rural Practice t 01798 345999 e rupert.clark @smithsgore.co.uk
Simon Blandford Head of Farm Management t 01962 857405 e simon.blandford @smithsgore.co.uk
1
LE
T
LE
T
LET IN 2014
Petworth, West Sussex
Otterburn, Northumberland
During 2014 we advertised more land to let in the main national publications than any other agent.
LE
Gr antham, Lincolnshire
West Dean, West Sussex
190 ac
Predominately arable land
730 ac
T
LE
T
An upland livestock farm with farmhouse and buildings
Chulmleigh, Devon A mixed farm
2
405 ac
LE
T
An equipped mixed arable and livestock farm set within the South Downs National Park
558 ac
An arable, dairy and livestock farm
1,763 ac
Rents for existing tenancies
Growth by Farm Type 2014 Highest rises in the livestock sector
2011-20145 25% increase on aver age
Rents increased by an average of 20%4, which is lower than the 26% average for reviews conducted in 2013.
All sectors have experienced increases, with the largest being in the livestock sector, and the lowest for dairy farms.
Livestock rents increased the most, rising by 22%, but down from 31% in 2013; arable rents rose by 20%, down from 29%; dairy rents increased by 21%, up from 16% in 2013.
The period covered by this report has seen the highest milk prices in real terms since 1997, followed by a decline back to prices last seen in 2007 due to global oversupply and the Russian ban on dairy imports from the European Union.
The rents for mixed farms continue to increase by less than both predominantly arable and predominantly livestock units. These figures are averages and, as stated before, there is considerable variation around the averages, as illustrated by the graph of AHA rents at the end of the existing tenancies section. Rent review results by farm type in year to October 2014 New rent (£/acre)
4
Rent review results by farm type 2011-2014
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£112
£95
20%
149
28,156
Arable
£108
£85
27%
452
100,009
Dairy
£97
£81
21%
25
5,666
Dairy
£90
£77
17%
130
29,892
Livestock
£79
£66
22%
107
17,742
Livestock
£68
£55
29%
386
108,293
Mixed
£83
£71
17%
106
17,413
Mixed
£84
£71
20%
404
77,869
Overall average
£94
£80
20%
387
68,977
Overall average
£88
£72
25%
1,372
316,064
This is lower than the 24% increase headline as it excludes rents for new tenancies.
5
‘2011-2014’ and ‘last three years’ relates to the period between 1 November 2011 and 31 October 2014.
3
Rents for existing tenancies
Growth by Tenancy Type 2014 FBTs continue to show greatest rises FBT6 rents rose by 21% compared with 19% for AHA tenancies. FBT rents remain 20% or more above AHA rents. This is because rent review clauses in FBTs allow rents to be revised to current open market levels while AHA tenancies have a less open market nature.
Rent review results by tenancy type in year to October 2014
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£102
£88
17%
100
23,084
Dairy
£92
£80
16%
18
4,342
£140
Livestock
£72
£58
25%
45
10,363
£120
Mixed
£74
£63
18%
71
12,872
AHA average
£87
£74
19%
234
50,660
Arable
£134
£110
25%
49
5,072
£80
Dairy
£109
£81
33%
7
1,325
£60
Livestock
£84
£71
20%
62
7,379
Mixed
£102
£88
17%
35
4,541
FBT average
£105
£88
21%
153
18,317
Overall average
£94
£80
20%
387
68,977
£180 £160
£100
£40
AHA
4
N.B. This data only includes rent reviews and excludes ‘new’ FBTs, which are covered in the rents for new Farm Business Tenancies section.
New rent (£/acre)
Overall
FBT average
Mixed
Livestock
Dairy
FBT
Old rent (£/acre)
6
Arable
AHA average
Mixed
Livestock
£0
Dairy
£20
Arable
FBT
AHA
Rent review results by tenancy type in year to October 2014
All
Rents for existing tenancies
2011-2014 Growth lowest in dairy sector FBT rents increased by 31%, compared with 21% for AHAs. For both FBTs and AHAs, livestock rents have increased particularly strongly in percentage terms. For arable rents, the rate of increase for FBT rents was double that for AHA lettings, indicating continuing profitability in the sector. Dairy rents have risen less than other farm types, particularly for farms let on AHA tenancies. Rent review results by tenancy type 2011-2014
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£89
£75
20%
285
74,021
Dairy
£84
£73
16%
94
22,509
£140
Livestock
£57
£46
29%
196
80,308
£120
Mixed
£78
£67
18%
281
57,398
AHA average
£77
£66
21%
856
234,236
Arable
£140
£103
40%
167
25,989
£80
Dairy
£103
£86
21%
36
7,383
£60
Livestock
£79
£64
28%
190
27,985
Mixed
£97
£79
24%
123
20,470
FBT average
£105
£81
31%
516
81,828
Overall average
£88
£72
25%
1,372
316,064
£180 £160
£100
£40
AHA
FBT
Old rent (£/acre)
Overall
FBT average
Mixed
Livestock
Dairy
Arable
AHA average
Mixed
Livestock
£0
Dairy
£20
Arable
FBT
AHA
Rent review results by tenancy type 2011-2014
All
New rent (£/acre)
5
Rents for existing tenancies
Growth by Region and Farm Type 2014 East Midlands and Yorkshire rents rise 24% Rents have risen in all regions and, as in 2013, they have increased the most in the East Midlands and Yorkshire and Northern England. There has also been strong rental growth in Western England and Wales, particularly on livestock farms.
Old rent (£/acre)
Average percentage change
Number of reviews
Arable
£126
£106
22%
67
7,795
Dairy
£96
£78
24%
11
1,652
Livestock
£75
£64
18%
62
11,601
Mixed
£115
£95
24%
9
1,610
Region average
Area reviewed (acre)
£102
£86
20%
149
22,658
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£79
£67
19%
15
2,207
Dairy
£92
£81
15%
9
2,163
Livestock
£85
£70
23%
24
2,204
Mixed
£79
£69
16%
76
9,615
Region average
£81
£70
18%
124
16,188
N/a means either no or too few reviews carried out to show reliable data. N.B. These figures are based on all rent reviews and so include both AHAs and FBTs.
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New rent (£/acre)
East Midlands and Yorkshire
New rent (£/acre)
Smiths Gore offices
Eastern England
Western England and Wales
Northern England
Rent review results by region and farm type in year to October 2014
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£99
£85
17%
30
7,524
Dairy
£107
£88
23%
4
1,700
Livestock
£84
£65
34%
19
3,884
Mixed
£82
£67
26%
15
4,810
Region average
£92
£76
24%
68
17,919
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£111
£95
18%
37
10,630 N/a
Dairy
N/a
N/a
N/a
N/a
Livestock
N/a
N/a
N/a
N/a
N/a
Mixed
£90
£84
8%
6
1,378
Region average
£107
£92
17%
46
12,212
Rents for existing tenancies
2011-2014 the East of England has had largest rises
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£108
£91
21%
115
19,256
Dairy
£86
£73
18%
62
12,782
Livestock
£60
£51
23%
198
92,102
Mixed
£79
£69
15%
47
11,856
Region average
Arable
£79
£67
21%
422
135,997
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
£95
£71
31%
78
13,869
Dairy
£94
£81
16%
51
11,182
Livestock
£80
£63
31%
123
10,344
Mixed
£83
£71
17%
238
30,949
Region average
£85
£70
23%
490
66,344
Smiths Gore offices
Eastern England
Western England and Wales
Northern England
New rent (£/acre)
East Midlands and Yorkshire
Rent review results by region and farm type 2011-2014
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£109
£84
29%
124
28,543
Dairy
£98
£83
18%
7
2,278
Livestock
£68
£52
47%
46
5,010
Mixed
£80
£66
22%
81
22,588
Region average
£92
£73
30%
258
58,419
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£114
£90
30%
135
38,341 3,650
Dairy
£88
£73
21%
10
Livestock
£62
£51
25%
19
837
Mixed
£101
£76
37%
38
12,475
Region average
£105
£83
30%
202
55,303
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Rents for existing tenancies
2011-2014 The effect of houses and 2011-2014 farm buildings
The effect of land quality - premium rents for premium land
Equipped AHA holdings with houses and buildings continue to have higher rents than bare land lettings7.
As would be expected, rents are highest for the best quality land.
For FBTs the picture is more mixed, as the average rent is higher for bare than for equipped arable and dairy land but lower for bare livestock and mixed land. We think this is because the buildings and equipment being offered may not suit the tenants’ needs and as tenants will offer high rents for flexible land that helps them expand their businesses.
Rents for Grade 2 land have increased the most over the last three years, by an average of 30%. Grade 3 land is the most common and accounts for 57% of the land which has been reviewed.
Rent review results by tenancy type and equipped 2011-2014 New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Grade 1
£142
£113
26%
94
15,215
Grade 2
£113
£86
30%
117
32,798
Grade 3
£86
£71
23%
990
178,641
Grade 4
£57
£45
29%
139
55,022
Grade 5
£17
£14
22%
32
34,386
Overall average
£88
£72
25%
1,372
316,064
£160 £140
New rent (£/acre)
£120 £100
£80 £60 £40 £20 £0 Bare AHA Arable
Equipped AHA Dairy
Bare FBT Livestock
Mixed
Equipped FBT Overall average
Looking specifically at holdings with houses, in the year to 31 October 2014 the average rent for AHA holdings with houses was £95 per acre compared with £75 per acre for bare land. 8
7
There is one exception to this which is AHA livestock farms, where extensive equipped holdings mean the average equipped rent is lower.
Rents for existing tenancies
Distribution of rents 2014 AHA Rents
2011-2014 Ar able FBT Rents
Each point on this graph shows an actual rent agreed. If you look at ‘25%’, this is the point at which 25% of rents are lower and 75% are higher; for arable farms this is £77 per acre. Variation is greatest amongst livestock rents as both very low and high quality land can be used for livestock farming.
The graph below shows the distribution of bare arable FBT rents for the three years to 31 October 2014 and 2011. In the earlier period you can see that only 12% of rents were over £150 per acre, now 39% are.
44% of the arable AHA rents agreed were over £100 per acre, compared with only the top 33% of dairy rents, 7% of mixed rents and 13% of livestock rents. Distribution of AHA rents agreed in year to October 2014
Distribution of bare Arable FBT rents (reviews and new lettings) 100%
% of all farms (excluding the top and bottom 5%)
Lowest to highest rent (excluding the top and bottom 5%)
100% Top 25% Top 25% of rents of rents
75%
50%
25%
0% £0
80%
60%
40%
20%
0% £20
£40 Arable
£60 Dairy
£80
£100
Livestock
New rent (£/acre)
£120 Mixed
£140
£160
£30
£60
£90
£120
£150
£180
2008-2011
£210
£240
£270
£300+
2011-2014
New rent (£/acre)
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Rents for new Farm Business Tenancies
2014 Strong rental uplift for all farm types
2011-2014
We let over 12,300 acres on new FBTs in the year to 31 October 2014, and advertised more land to let in the key national farming publications and property portals during 2014 than any other agent.
Rents have risen by 54% on average in the three years to 31 October 2014.
The average letting size was 129 acres. The arable lettings averaged 144 acres, whilst livestock lettings averaged 67 acres, and mixed lettings 143 acres. 24% of the lettings were over 200 acres, and there were 24 equipped farms let. Rents for new FBTs are 48% higher on average than they were under the previous letting of the holding.
Livestock rents are lowest per acre, whilst arable rents are the highest. New FBT rents have risen in all regions. Rents have risen most in the East Midlands and Yorkshire, where average rents for new lettings are also highest. Average rents for new lettings are lowest in Northern England, where there are a higher proportion of livestock lettings.
There is considerable variation around the averages, for example, arable FBTs averaged £158 per acre, whilst the top 23% of arable rents were over £200 per acre and mostly in the east. New tenancies: FBT rents agreed by farm type in year to October 2014
Arable
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of lettings
Area let (acre)
£158
£124
48%
48
6,928
Arable
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of lettings
Area let (acre)
£149
£107
49%
156
20,995
Dairy
N/a
N/a
N/a
N/a
N/a
Dairy
N/a
N/a
N/a
N/a
N/a
Livestock
£121
£70
41%
31
2,066
Livestock
£97
£60
59%
94
7,344
Mixed
£171
£98
49%
15
2,150
Mixed
£124
£75
57%
52
7,555
Overall average
£148
£103
48%
96
12,359
Overall average
£129
£87
54%
307
37,543
New tenancies: FBT rents agreed by region in year to October 2014
10
New tenancies: FBT rents agreed by farm type 2011-2014
New tenancies: FBT rents agreed by region 2011-2014 New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of lettings
Area let (acre)
East Midlands and Yorkshire
£143
£93
78%
78
9,181
3,836
Eastern England
£130
£98
35%
100
12,910
2,135
Northern England
£113
£66
61%
58
8,323
£122
£84
43%
72
7,131
£128
£87
54%
308
37,546
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of lettings
Area let (acre)
East Midlands and Yorkshire
£172
£118
78%
28
4,869
Eastern England
£125
£102
23%
35
Northern England
£149
£69
54%
18
Western England and Wales
£155
£100
32%
15
1,519
Western England and Wales
Overall average
£148
£103
48%
96
12,359
Overall average
Our experience over the past year
Rents
Tenanted Sector
26,900 acres of land on FBTs was nationally advertised in the main national agricultural publications and property portals in England and Wales during 2014, which is a slight increase on the 25,200 acres marketed in 2013.
The tenanted land sector is hugely important to agricultural businesses in England and Wales, providing a well-balanced way for many landowners and farmers to share the risks and rewards of farming. It also provides an ideal way for farming businesses to grow and adapt, and for new blood to enter the industry.
We marketed 6,400 acres of it, which was 24% and more than any other agent. In our previous Survey we ventured that, whilst there was still an underlying strength and optimism in the land rental market, there were possibly some early signs of caution creeping into rent settlements. The cause of this was the volatility and the general decline in output prices across most sectors. This prediction seems to be borne out in the latest figures. Whilst strong rent increases continue across the board, the rate of increase has slowed. The significant reduction in some costs of production has played its part in supporting farm profitability (and so rents) in what might otherwise have been a very difficult 12 months. FBT rents are always more volatile than AHA rents. They are driven by local or regional supply and demand issues, often more so than by the wider economy or even by farm commodity prices at any given point in time. The rate of FBT rent increases has therefore dropped from around 39% to 31% whereas AHAs have moved down only from 21% to 18%, reflecting the longer term stability in the AHA market based on the three yearly review mechanism8. The dairy sector has endured a difficult few months, after a period of historically high milk prices, and those businesses remaining will be stronger and well placed to benefit from the widely predicted upturn when normal global trading conditions return. This underlying strength, and the long-term view being taken by many in the industry, perhaps helps to explain the continued growth in dairy rents, albeit at a slower rate than other sectors.
8
These figures are for rent reviews and new tenancies.
For the past 20 years people have been free, more or less, to agree whatever tenancy terms suit their own situation. That might involve long or short term lengths, or a preferred way of sharing the responsibilities to repair the farm. Farm Business Tenancies can be adapted to any situation and have been responsible for keeping the tenanted sector relevant and in good health since 1995 - a time when it looked destined to wither and die. Quite rightly, the performance and suitability of FBTs should be kept under review, and both landowner and tenant bodies have made recent public comments on how the system could be improved. Away from the headlines, constructive and serious debate is taking place to ensure that successful and innovative farming businesses have access to land on terms which both suit them and which encourage landowners to make it available to them. The government is advised on agricultural tenancy matters by the cross-industry Tenancy Reform Industry Group and, with a general election looming, TRIG’s role is as important as ever. That is to ensure, by consensus, that necessary reform is brought about which maintains the delicate balance between landlord and tenant and encourages the on-going availability of farmland to let.
Stephen Spencer Partner t 01543 266403 e stephen.spencer @smithsgore.co.uk
11
The Outlook for 2016 and 2017 Arable We do not expect higher prices for the 2015 harvest as expectations for 2015 and beyond are for falls. The carry-over from 2014’s bumper crop coupled with tougher export competition, due to the strength of sterling, means that little grain has been traded and stocks are high. However, falling fuel and fertiliser prices have helped off-set the lower price expectations. Demand remains strong for quality land and equipped holdings, especially from farmers looking to spread their costs, and we feel that bidders are generally becoming more realistic, and paying more attention to budgeted costings. Dairy Falling prices across the world and weakening demand internationally have hit the UK dairy sector over the past 12 months. Although prices have stabilised into 2015, the industry has been significantly affected. Marginal producers are selling milk below cost of production and even top producers are being affected, despite being able to feed quality forage. Intensive and extensive systems are being affected. Milk production levels in the UK have barely started to reduce, adding to the downward price pressure. We are seeing a number of notable herds take the decision to cease production and this will have a knock-on effect if they switch to beef production. There is still good demand for well-equipped holdings; rents for FBTs remain strong as some farmers see expansion as the only way forward. Beef and sheep The resurgence in beef and lamb prices into the new year offered a welcome injection of optimism to an otherwise depressing year in the sector. Plentiful, quality forage has helped reduce feeding costs but lower CAP Basic Payment Scheme payments and the likely loss of Entry Level Stewardship payments for many does not bode well for 2015 and beyond. Lamb prices are also likely to be hit by the strength of sterling and weak export demand. We continue to expect strong demand for productive units but there will be downward pressure on rents for extensive / environmental grazing lettings. Pigs and poultry The fall in grain prices has reduced feeding costs for most producers. Demand for UK produced pigs and poultry has remained strong and alleviated some of the strong export competition. This needs to continue, especially from supermarkets, if UK producers are to keep their market share in the face of strong export competition. Reviews and tenders will need to be considered on a case-by-case basis.
Simon Blandford Head of Farm Management t 01962 857405 e simon.blandford @smithsgore.co.uk
12
About the agricultur al rent survey This report provides details of average rents agreed at rent reviews, re-lettings and new lettings in: (i)
2014: the 12 months to 31 October 2014 (493 rent settlements covering 84,000 acres)
(ii)
2011-2014: the 36 months to 31 October 2014 (1,698 rent settlements covering 358,000 acres)
The complete database now contains details of over 3,700 rent settlements, covering over 950,000 acres of land in England, Scotland and Wales with a rent roll in excess of ÂŁ53 million per annum. It is one of the most comprehensive databases available in Great Britain. Average rents Please note that the rents shown are averages and that there can be considerable variation either side of the average depending on the location and quality of the holding and its fixed equipment, as we show on page 9 (distribution of rent review results). 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. How we use the database 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.
Š Smiths Gore 2015. Whilst every effort has been made to ensure the accuracy of this report, its information may not be comprehensive and recipients should not act upon it without seeking full professional advice. As a general report, this material does not necessarily reflect the view of Smiths Gore in relation to particular properties. All rights conferred by law of copyright, by virtue of international copyright conventions and all other intellectual property laws are reserved by Smiths Gore. No part of the report may be reproduced in any form, without the prior written consent of Smiths Gore to the form and content within which it appears.
Contacts 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. 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
East Midlands and Yorkshire David Goodson t 01733 559306 e david.goodson@smithsgore.co.uk
Northern England Philip Coles t 01325 370511 e philip.coles@smithsgore.co.uk
West Midlands and Wales Stephen Spencer t 01543 266403 e stephen.spencer@smithsgore.co.uk
South West Charles Dixon t 01392 294892 e charles.dixon@smithsgore.co.uk
South East and East of England Rupert Clark t 01798 345999 e rupert.clark@smithsgore.co.uk
To discuss the sale or purchase of agricultural land, please contact: Smiths Gore offices Giles Wordsworth National Head of Farm Agency t 0207 409 9490 & 01865 733302 e giles.wordsworth@smithsgore.co.uk 13
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