Market Intelligence Report
Agricultural Rent Survey Year to 30 April 2013 Rents rise by 30% - the fastest rate we have recorded
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Cover image - passing storm near Shap, Cumbria, England, UK
Rents rise by an aver age of 30% Rents for all tenancy types have risen at the fastest rate we have seen since 2007, when this period of rent reviews started. It demonstrates the strong demand and resilience in farming, despite significant economic challenges in other sectors. As a firm, we agreed more rents in this 12 month period than in any other ‘year’ since 2007. Given the volume of settlements we agree, we can now use our database to break the market down further, and look at rent reviews of existing and new tenancies. Rents for existing tenancies rose by 25%, up from 23% for the year ending 30 April 2012. Rents for new Farm Business Tenancies, with ‘new’ tenants and new tenancies with existing tenants, rose by 59% compared with the previous rent; it was 74% for the year ending 30 April 2012. This illustrates the competitiveness of the market; rents have soared because of strong demand from farmers due to underlying profitability and relatively few rental opportunities. The average FBT rents in this report are well below some of the rents that grab the headlines. This reflects the diversity of holdings and land, and that many landlords consider other factors than the highest rent when selecting tenants, such as supporting existing tenants.
Key points • • •
Arable FBT rents are the highest and are increasing fastest Rents for higher quality soil continue to increase most Scottish rents continue to rise more slowly than elsewhere in Great Britain
Average percentage change in year to 30 April (all farm and tenancy types) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
2011
2012 AHA
FBT
Rupert Clark Head of Rural Practice Petworth office t 01798 345999 e rupert.clark @smithsgore.co.uk
2013 Scottish Tenancies
2010-2013 Overall average
Simon Blandford Head of Farm Management Winchester office t 01962 857405 e simon.blandford @smithsgore.co.uk
Rents for existing tenancies
Growth by Farm Type 2013 High rises in all sectors
2010 - 20131 24% increase on aver age
Rents for all types of existing tenancies increased by an average of 25% in the year to 30 April 2013, up from 23% in 2012 and the 22% average for 2009 to 2012.
Rents have risen by 24% on average in the three years to 30 April 2013.
Arable and livestock rents continued to increase the most. Arable rents rose by 34%, up from 26% in 2012, and livestock rents by 26%, the same as in 2012.
For the average sized farm in the database, this has meant an increase in rent of £3,800 a year – so £11,400 over a three-year rent review cycle. All sectors have experienced increases, with the largest being in the arable sector, and the lowest for mixed and dairy farms.
These figures are averages and, as stated before, there is considerable variation around the averages, as illustrated by the graph at the end of the existing tenancies section. Rent review results by farm type in year to April 2013
Rent review results by farm type 2010 – 2013
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£99
£73
34%
149
40,414
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£91
£70
30%
367
90,230
Dairy
£81
£69
17%
73
18,554
Dairy
£81
£69
17%
146
32,854
Livestock
£53
£44
26%
179
64,578
Livestock
£52
£43
25%
444
183,354
Mixed
£77
£64
21%
173
38,905
Mixed
£74
£63
19%
383
86,405
162,451
Overall average
£72
£59
24%
1,340
392,843
Overall average
£76
£61
25%
574
1
“2010 – 2013” and “last three years” relates to the period between 1 May 2010 and 30 April 2013.
Rents for existing tenancies
Growth by Tenancy Type 2013 FBTs continue to show greatest rises FBT2 rents rose by 35% compared with 22% for AHA and 13% for Scottish tenancies. This is as rent review clauses in FBTs allow rents to be revised to current open market levels while AHA and Scottish rent tenancies have a less open market nature, although this should change following the Moonzie case, which will apply across Great Britain.
Rent review results by tenancy type in year to April 2013
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
£160
Arable
£77
£64
20%
80
26,835
£140
Dairy
£80
£70
16%
47
11,240
Livestock
£48
£40
34%
70
30,702
Mixed
£75
£64
18%
101
23,218
AHA average
£70
£59
22%
298
91,996
Arable
£134
£89
55%
60
11,183
Dairy
£105
£82
28%
16
4,308
Livestock
£76
£62
25%
62
9,159
Mixed
£90
£72
28%
53
10,731
FBT average
£101
£75
35%
191
35,381
Arable
£59
£51
15%
8
2,353
£120 £100 £80 £60 £40
£38
£34
13%
80
34,733
Overall average
£76
£61
25%
569
162,109
AHA
FBT
Old rent (£/acre)
2
NB This data excludes ‘new’ FBTs, which are covered in the rents for new Farm Business Tenancies section.
Scottish Tenancies
New rent (£/acre)
Overall
Scottish average
Scottish Average
4,956
Mixed
19
Livestock
16%
Dairy
£42
Arable
£48
FBT Average
Mixed
£0
Mixed
24,417
Livestock
3,006
43
Dairy
10
14%
Arable
5%
£24
AHA Average
£46
Mixed
£49 £27
Dairy
Dairy Livestock
Livestock
£20
Arable
Scottish tenancies
FBT
AHA
Rent review results by tenancy type in year to April 2013
All
Rents for existing tenancies
2010 - 2013 Growth lowest in dairy sector In these three years, FBT rents have increased by 31%, compared with 22% for AHAs and 14% for Scottish tenancies. For both FBTs and AHAs, livestock rents have increased particularly strongly in percentage terms. Dairy rents have risen less than other farm types, which is expected given the tight margins and long-term economic challenges faced by the sector. Industry figures show that only the top 25-33% of dairy farmers are making sustainable profit margins. Rent review results by tenancy type 2010 - 2013
90
20,017
Livestock
£52
£43
29%
175
78,734
Mixed
£72
£62
18%
250
58,142
AHA average
£71
£60
22%
748
223,328
Arable
£117
£80
47%
117
20,378
Dairy
£93
£79
18%
40
8,111
Livestock
£75
£61
27%
139
25,690
Mixed
£92
£76
24%
95
17,213
FBT average
£94
£72
31%
391
71,392
Arable
£67
£59
14%
16
3,374
Dairy
£45
£43
6%
16
4,727
Livestock3
£24
£21
15%
115
77,183
Mixed
£44
£38
15%
38
11,050
Scottish average
£34
£30
14%
185
96,334
Overall average
£72
£59
24%
1,324
391,054
£140 £120 £100 £80 £60 £40 £20 £0
AHA
FBT
Old rent (£/acre)
3
One reason Scottish livestock rents per acre are lower than in England is as the average farm size is much larger in Scotland.
Scottish Tenancies
New rent (£/acre)
Overall
18%
Scottish Average
£70
Mixed
£81
Livestock
Dairy
£160
Dairy
66,435
Arable
233
FBT Average
22%
Mixed
£66
Livestock
£80
Dairy
Arable
Arable
Area reviewed (ac)
AHA Average
Number of reviews
Mixed
Percentage change
Livestock
Old rent (£/acre)
Dairy
New rent (£/acre)
Arable
Scottish Tenancies
FBT
AHA
Rent review results by tenancy type 2010 - 2013
All
Rents for existing tenancies
Growth by Region and Farm Type 2013 East Midlands and Yorkshire rents rise 39% New rent (£/acre)
Scotland
Rents have risen in all regions, with the highest rises in the East Midlands and Yorkshire, and Eastern England.
Percentage change
Number of reviews
Arable
£79
£66
20%
23
5,038
Dairy
£83
£71
17%
30
6,271
Livestock
£53
£44
31%
74
36,303
Mixed
£72
£62
16%
20
5,385
Region Average
£66
£56
24%
147
52,996
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£89
£65
34%
42
9,117
Dairy
£91
£75
20%
24
5,778
Livestock
£74
£60
22%
44
3,080
Mixed
£78
£67
17%
99
13,946
Region Average
£81
£66
22%
209
31,920
NB These figures are based on all rent reviews, and so include a range of tenancy types.
Smiths Gore offices
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£59
£51
15%
8
2,353
Dairy
£49
£46
5%
10
3,006
Livestock
£27
£24
14%
43
24,417
Mixed
£48
£42
16%
19
4,956
Region Average
£38
£34
13%
80
34,733
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Area reviewed (ac) East Midlands and Yorkshire
Old rent (£/acre)
Eastern England
Western England & Wales
Northern England
New rent (£/acre)
Old rent (£/acre)
Arable
£105
£74
42%
29
7,635
Livestock
£65
£48
60%
7
172
Mixed
£76
£60
26%
16
6,477
Region Average
£91
£66
39%
52
14,284
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£121
£87
40%
47
16,270
Dairy
£86
£72
20%
9
3,499
Livestock
£62
£51
24%
11
606
Mixed
£105
£75
48%
19
8,141
Region Average
£106
£78
38%
86
28,517
Rents for existing tenancies
Old rent (£/acre)
Percentage change
Number of reviews
Arable
£81
£66
22%
35
7,495
Dairy
£80
£69
17%
60
11,208
Livestock
£54
£45
26%
166
88,331
Mixed
£75
£65
16%
31
8,385
Region Average
New rent (£/acre)
Old rent (£/acre)
Percentage change
Arable
£67
£59
14%
16
3,374
Dairy
£45
£43
6%
16
4,727
£65
£55
23%
292
115,418
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£82
£63
28%
81
17,556
Dairy
£90
£77
19%
53
11,683
Livestock
£74
£60
25%
115
9,689
Mixed
£75
£66
15%
206
28,061
Region Average
£78
£65
21%
455
66,989
NB These figures are based on all rent reviews, and so include a range of tenancy types.
Smiths Gore offices
Number of reviews
Area reviewed (ac)
Livestock
£24
£21
15%
115
77,183
Mixed
£44
£38
15%
38
11,050
Region Average
£34
£30
14%
185
96,334
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Arable
£84
£65
30%
104
23,219
Dairy
£85
£74
16%
8
1,737
Livestock
£57
£42
58%
23
4,625
Mixed
£79
£67
19%
56
15,363
Region Average
£79
£63
29%
191
44,944
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Area reviewed (ac) East Midlands and Yorkshire
New rent (£/acre)
Eastern England
Western England & Wales
Northern England
Scotland
2010 - 2013 Eastern England has had largest rises
Arable
£108
£81
35%
131
38,586
Dairy
£86
£72
20%
9
3,499
Livestock
£59
£47
31%
25
3,526
Mixed
£87
£66
36%
52
23,547
Region Average
£97
£73
34%
217
69,158
Rents for existing tenancies
2010 - 2013 The effect of houses and farm buildings Equipped AHA holdings with houses and buildings continue to have higher rents than bare land lettings4.
Rents for equipped holdings are affected by the quality and quantity of buildings available. Tenants will pay more for better buildings and equipment.
There is very little difference in FBT rents being paid for bare or equipped land. We think this is because the buildings and equipment being offered frequently do not suit the tenants’ needs. Rent review results by tenancy type and equipped 2010 - 2013 £140 £120 £100
£80
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Well equipped
£71
£60
21%
197
89,671
Averagely equipped
£73
£61
20%
435
183,331
Poorly equipped
£59
£48
21%
174
67,222
Overall average
£69
£58
20%
806
340,224
The effect of land quality – premium rents for premium land
£60
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.
£40 £20
New rent (£/acre)
£0 Bare AHA Arable
4
New rent (£/acre)
Equipped AHA Dairy
Bare FBT Livestock
Mixed
Equipped FBT Overall average
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed (ac)
Grade 1
£131
£96
39%
25
10,992
Grade 2
£94
£72
30%
155
43,638
Grade 3
£78
£65
23%
904
174,828
Grade 4
£45
£37
20%
186
75,090
Grade 5
£12
£10
20%
79
90,733
Overall average
£72
£59
23%
1,349
395,280
There is one exception to this which is livestock farms, where extensive equipped holdings mean the average equipped rent is lower.
Rents for existing tenancies
Distribution of AHA rent review results 2013 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 £65 per acre. Variation is greatest amongst livestock rents as both very low and high quality land can be used for livestock farming.
Rent review results for AHA tenancies by farm type in year to April 2013
£120 £120
Newrent rent(£/acre) (£/acre) New
£100 £100 £80 £80 £60 £60 £40 £40
Top 25% of rents
£20 £20 £0 £0
0% 0%
25% 25%
50% 50%
75% 75%
Arable Dairy Livestock Mixed Dairy Livestock Arable Mixed5%) Lowest to highest rent (excluding the top and bottom
Lowest to highest rent (excluding the top and bottom 5%)
100% 100%
Rents for new Farm Business Tenancies5
2013 Strong rental uplift for all farm types
2010-2013
We let just under 12,000 acres on new FBTs in the year to 30 April 2013, which is an average size of 115 acres. The arable lettings averaged 122 acres, whilst livestock lettings averaged 55 acres; mixed lettings at an average of 174 acres were largest. 18% of the lettings were over 200 acres, and there were 13 equipped farms let.
Rents have risen by 56% on average in the three years to 30 April 2013.
Rents for new FBTs are 57% higher on average than they were under the previous letting of the holding.
New tenancies – FBT rents agreed by farm type in year to April 2013 New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of lettings
Area let (ac)
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of lettings
Area let (ac)
Arable
£135
£90
48%
60
7,305
Arable
£123
£84
42%
115
14,266
Livestock
£83
£50
74%
24
1,329
Livestock
£89
£53
77%
69
6,741
Mixed
£103
£65
67%
18
3,129
Mixed
£98
£69
66%
33
5,408
Overall average
£117
£76
57%
102
11,763
Overall average
£108
£73
56%
217
26,416
New tenancies – FBT rents agreed by region in year to April 2013
5
New tenancies – FBT rents agreed by farm type 2010 – 2013
New tenancies – FBT rents agreed by region 2010 – 2013
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of lettings
Area let (ac)
East Midlands and Yorkshire
£129
£82
78%
26
1,520
Eastern England
£125
£89
39%
35
Northern England
£110
£64
77%
21
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of lettings
Area let (ac)
East Midlands and Yorkshire
£112
£74
55%
65
5,339
5,349
Eastern England
£123
£83
48%
61
10,300
3,078
Northern England
£99
£69
60%
48
7,147
£100
£64
60%
50
5,110
£110
£73
56%
224
27,896
Western England & Wales
£99
£69
35%
21
2,131
Western England & Wales
Overall average
£118
£76
59%
103
12,078
Overall average
Scottish tenancies have been excluded as there were not enough new tenancies to produce robust data.
Our experience over the past year English & Welsh view
Scottish view
Positive outlook for rents
Thirst unquenched
We have continued to settle rents, for both AHAs and FBTs, in 2013 with no evidence of tenants or their agents seriously holding out for standstills or reductions, despite some clouds on the horizon.
It will not come as a surprise to anyone that the weather last summer had a significant impact on agriculture in Scotland. At the time the impact was felt most immediately by the arable sector but there was also a big impact on the livestock sector which has spilled over into this year. In our experience the challenges created by the weather were fully understood by all of our clients and there was a realism about any rent review discussions scheduled for this year. Increases have come about as a result of constructive negotiations and in the main simply reflect the inflationary increase experienced over the preceding three years.
The difficulties of last year’s weather may be tempering landlords’ ambitions in some cases, where cropping has been affected, but parties are generally aware that the rent being agreed applies for three years and so needs to reflect more than just one bad (or good) year. Given the above, and the generally positive outlook for farming, there is little down-side risk for landlords serving notice for reviews in 2014. However, both landlords and tenants should take care with holdings where the rent is heavily reliant on an agri-environment scheme which is due to expire in 2014 or 2015. There is potentially a 1-2 year period with no grant income and no guarantee of future agri-environment income thereafter.
Stephen Spencer Partner Lichfield office t 01543 266403 e stephen.spencer @smithsgore.co.uk
It is interesting to reflect on whether the slight slow down in the pace of rental increases in Scotland is driven only by the weather or if other factors are at play. It is I think fair to report that the mood of farming tenants generally remains buoyant. There is an expectation that the historically long and almost uninterrupted increase in farming incomes will continue on the back of a growing population. This mood is reflected by the rental offers received as a result of open market reletting exercises we have undertaken for clients this year. There is no doubt that the thirst for more land to rent is a very long way from being quenched and this will undoubtedly continue until there is a game changer either in terms of the supply of land to rent or the underlying economics. Neither show any sign of changing in the near future. In broadest summary the drivers continue to be the desire of tenant farmers to grow and spread fixed costs and landowners wish to rationalise the asset. Behind all the headlines there are plenty of constructive examples of the two parties working together to agree rent reviews, consider ways of improving performance and delivering their objectives to mutual advantage.
Toby Metcalfe Partner Edinburgh office t 0131 344 0885 e toby.metcalfe @smithsgore.co.uk
The Outlook for 2014 and 2015 Should I serve a rent review notice? Our view on the main sectors is positive but we recommend, as we have said before, careful assessment of the current rent, what level a new rent might be and your attitude to risk.
Arable 2013 has been a better autumn and input costs have eased. Although there are some challenges in terms of commodity prices, we think there is a positive outlook. Strong rents at reviews and for new tenancies are likely to continue.
Beef and sheep
After a tough start to the year, a good summer and better forage stocks have given the sector a boost. We expect UK supply of beef and sheep to remain tight, which will support prices. The upwards pressure on feed costs has eased. Key to profitability is control of fixed costs. There is a more positive outlook than there was last year and there is still scope for rent increases but pick the unit!
Dairy
There has been downward pressure on prices but this is now changing and lower feed costs and better quality forage has made the outlook more positive. We expect consolidation of the industry to continue as only the top slice of producers are making sustainable margins. The amount of capital investment needed on a unit is a key factor in determining rental levels but for good units we continue to expect strong rent settlements.
About the agricultur al rent survey This report provides details of average rents agreed at rent reviews, re-lettings and new lettings in: (i) 2013: the 12 months to 30 April 2013 (691 rent settlements covering 176,000 acres) (ii) 2010 - 2013: the 36 months to 30 April 2013 (1,610 rent settlements covering 428,000 acres) The complete database now contains details of over 2,700 rent settlements, covering over 750,000 acres of land in England, Scotland and Wales with a rent roll in excess of ÂŁ39 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 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. 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. Demand for farmland for rent remains very strong, due to competition between farmers seeking to expand and spread fixed costs.
Simon Blandford Head of Farm Management Winchester office t 01962 857405 e simon.blandford @smithsgore.co.uk
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
East Midlands and Yorkshire & Humber David Goodson t 01733 559306 e david.goodson@smithsgore.co.uk
North Philip Coles t 01325 370511 e philip.coles@smithsgore.co.uk
Western England and Wales Stephen Spencer t 01543 251221 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: Giles Wordsworth National Head of Farm Agency t 01865 733302 e giles.wordsworth@smithsgore.co.uk
Smiths Gore offices
smithsgore.co.uk