Market Intelligence Report
Agricultural Rent Survey Year to 30 April 2014 Rents rise by 28%
smithsgore.co.uk
Rents rise by an aver age of 28% Our surveyors continue to be busy conducting agricultural rent reviews. Rents for all tenancy types rose by an average of 28% for reviews and new lettings in the year ending 30 April 2014. Rents for existing tenancies rose by 24% at review, compared with 25% for the year ending 30 April 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 25%, which is equivalent to 8% per year.
Key points • • •
Arable FBT rents are the highest, both in terms of % increase and in £ per acre Rents for higher quality soil continue to increase most Scottish rents have increased at their fastest rate since 2008
Average percentage change in year to 30 April (all farm and tenancy types) Includes both reviews and new lettings
Whilst commodity prices have softened recently, strong demand for land to rent continues and multiple bids at or around the same level are often received for land offered by tender. 45%
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.
40% 35% 30% 25% 20% 15% 10% 5% 0%
2012 AHA
2013 FBT
Rupert Clark Head of Rural Practice t 01798 345999 e rupert.clark @smithsgore.co.uk
2014 Scottish Tenancies
2011 – 2014 Overall average
Simon Blandford Head of Farm Management t 01962 857405 e simon.blandford @smithsgore.co.uk
Rents for existing tenancies
Growth by Farm Type 2014 Highest rises in the ar able sector
2011 to 20142 24% increase on aver age
Rents increased by an average of 24%1 which is slightly lower than the 25% average for reviews conducted in 2013, but consistent with the three-year average of 24% between 2011 and 2014.
All sectors have experienced increases, with the largest being in the arable sector, and the lowest for mixed and dairy farms.
Arable and livestock rents continue to increase the most. Arable rents rose by 28%, down from 33% in 2013; livestock rents rose by 25%, down from 27%. Dairy rents increased by 19%, up from 16% in 2013. 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 2011 – 2014
Rent review results by farm type in year to April 2014
1
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
£104
£81
29%
475
111,232
£83
£72
17%
141
33,228
£57
£47
26%
489
181,645
£78
£66
19%
455
104,005
£65
24%
1,560
430,110
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£129
£101
28%
147
23,792
Arable
Dairy
£102
£86
19%
19
3,418
Dairy
Livestock
£66
£53
25%
140
49,923
Livestock
Mixed
£86
£74
18%
102
20,642
Mixed
Overall average
£95
£77
24%
408
97,775
Overall average
£80
This is lower than the 28% increase headline as it excludes rents for new tenancies.
New rent (£/acre)
2
“2011 – 2014” and “last three years” relates to the period between 1 April 2011 and 30 March 2014.
Rents for existing tenancies
GROWTH BY TENANCY TYPE 2014 FBTs continue to show greatest rises FBT3 rents rose by 32% compared with 19% for AHA and 18% for Scottish tenancies. This is because rent review clauses in FBTs allow rents to be revised to current open market levels while AHA and many Scottish tenancies have a less open market nature. The 18% average increase for Scottish tenancies is the highest since 2008, when the figure was 19%. Rent review results by tenancy type in year to April 2014
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£107
£90
20%
80
13,732
Dairy
£94
£82
15%
11
2,127
£140
Livestock
£68
£55
23%
41
19,829
£120
Mixed
£89
£79
16%
57
10,227
AHA average
£92
£79
19%
189
45,915
Arable
£161
£118
39%
63
8,794
£80
Dairy
£112
£92
24%
8
1,291
£60
Livestock
£85
£68
30%
68
8,318
Mixed
£101
£81
25%
30
4,329
FBT average
£117
£90
32%
169
22,732
Arable
£52
£42
26%
4
1,265
Dairy
N/a
N/a
N/a
N/a
N/a
Livestock
£21
£19
19%
31
21,776
Mixed
£42
£37
13%
15
6,086
Scottish average
£30
£26
18%
50
29,127
Overall average
£95
£77
24%
408
97,775
N/a means either no or too few reviews carried out to show reliable data. 3 NB This data only includes rent reviews and excludes ‘new’ FBTs, which are covered in the rents for new Farm Business Tenancies section.
£180 £160
£100
£40
Scottish tenancies
New rent (£/acre)
Overall
Mixed
Livestock
Dairy
Arable
FBT Average
Mixed
Livestock
Dairy
AHA Average
Arable
FBT
Old rent (£/acre)
Scottish average
AHA
Mixed
Livestock
£0
Dairy
£20
Arable
Scottish tenancies
FBT
AHA
Rent review results by tenancy type in year to April 2014
All
Rents for existing tenancies
2011 - 2014 Growth lowest in dairy sector FBT rents increased by 33%, compared with 21% for AHAs and 14% for Scottish tenancies. For both FBTs and AHAs, livestock rents have increased particularly strongly in percentage terms. For arable rents, the rate of increase for FBT rents has been more than double that for AHA lettings. Dairy rents have risen less than other farm types, particularly in Scotland. Rent review results by tenancy type 2011 – 2014
4
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£89
£74
21%
285
78,101
Dairy
£83
£72
17%
87
20,785
£140
Livestock
£55
£45
29%
194
81,390
£120
Mixed
£76
£66
18%
289
67,450
AHA average
£76
£64
21%
855
247,726
Arable
£135
£95
44%
172
28,785
£80
Dairy
£99
£82
20%
39
7,913
£60
Livestock
£80
£63
29%
182
25,900
Mixed
£94
£77
25%
121
21,694
FBT average
£103
£79
33%
514
84,292
Arable
£61
£53
17%
18
4,346
Dairy
£46
£43
6%
15
4,530
Livestock4
£25
£22
15%
112
74,332
Mixed
£45
£39
14%
45
14,861
Scottish average
£35
£31
14%
190
98,069
Overall average
£80
£65
24%
1,559
430,086
One reason Scottish livestock rents per acre are lower than in England is because the average farm size is much larger in Scotland
£180 £160
£100
£40
Scottish tenancies
New rent (£/acre)
Overall
Mixed
Livestock
Dairy
Arable
FBT Average
Mixed
Livestock
Dairy
AHA Average
Arable
FBT
Old rent (£/acre)
Scottish average
AHA
Mixed
Livestock
£0
Dairy
£20
Arable
Scottish tenancies
FBT
AHA
Rent review results by tenancy type 2011 – 2014
All
Rents for existing tenancies
Growth by Region and Farm Type 2014 East Midlands and Yorkshire rents rise 34% Rents have risen in all regions and, as in 2013, they have increased the most in the East Midlands and Yorkshire and Eastern England. There has also been strong rental growth in Western England and Wales, particularly on livestock farms.
Number of reviews
£112
21%
55
7,555
£84
25%
12
1,809
£74
£63
18%
63
22,607
£87
£76
14%
19
3,854
Old rent (£/acre)
Arable
£134
Dairy
£104
Livestock Mixed Region average
Scotland
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£52
£42
Dairy
N/a
N/a
26%
4
1,265
N/a
N/a
Livestock
£21
N/a
£19
19%
31
21,776
Mixed
£42
£37
13%
15
6,086
Region Average
£30
£26
18%
50
29,127
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£151
£111
35%
33
4,909
Dairy
N/a
N/a
N/a
N/a
N/a
Livestock
£80
£62
38%
18
3,651
Mixed
£83
£66
26%
12
4,448
Region average
£118
£88
34%
63
13,008
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
£114
£87
28%
39
8,185 N/a
Area reviewed (acre)
£100
£84
19%
149
35,826
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£120
£87
39%
16
1,877
Dairy
£97
£90
8%
7
1,609
Livestock
£91
£67
46%
24
1,816
Mixed
£97
£85
17%
46
4,274
Region average
£99
£81
27%
93
9,576
N/a means either no or too few reviews carried out to show reliable data. NB These figures are based on all rent reviews and so include a range of tenancy types.
East Midlands and Yorkshire
Average percentage change
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 April 2014
New rent (£/acre)
Arable Dairy
N/a
N/a
N/a
N/a
Livestock
£57
£47
22%
4
72
Mixed
£104
£80
30%
10
1,980
Region average
£108
£83
28%
53
10,237
Rents for existing tenancies
Scotland
2011 - 2014 Eastern England has had largest rises
Average percentage change
Number of reviews
Arable
£111
£93
20%
99
17,944
Dairy
£86
£73
18%
61
12,672
Livestock
£60
£50
24%
184
89,506
Mixed
£79
£69
15%
53
12,853
Region Average
Arable
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£61
£53
17%
18
4,346
Dairy
£46
£43
6%
15
4,530
Livestock
£25
£22
15%
112
74,332
Mixed
£45
£39
14%
45
14,861
Region Average
£35
£31
14%
190
98,069
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre) 23,738
Area reviewed (acre)
£79
£67
21%
397
132,976
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
£89
£67
31%
90
18,679
Dairy
£91
£77
19%
53
11,949
Livestock
£80
£63
31%
126
9,881
Mixed
£81
£70
16%
226
31,143
Region Average
£83
£69
23%
495
71,651
East Midlands and Yorkshire
Old rent (£/acre)
Smiths Gore offices
Eastern England
Western England and Wales
Northern England
New rent (£/acre)
New rent (£/acre)
Arable
£109
£82
31%
108
Dairy
£86
£77
11%
3
577
Livestock
£65
£49
49%
42
4,818
Mixed
£79
£65
22%
71
20,360
Region average
£91
£71
31%
224
49,494
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Arable
£111
£83
33%
160
46,525 3,499
Dairy
£86
£72
20%
9
Livestock
£59
£47
27%
25
3,108
Mixed
£90
£68
35%
60
24,789
Region average
£100
£76
32%
254
77,920
Rents for existing tenancies
2011 - 2014 The effect of houses and 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 lettings5.
Not only is the rental value of better quality land higher, rents for Grade 1 and Grade 2 land have risen by the greatest percentage over the last three years. They have increased 29-30% compared with 23% for Grade 3 and 4 land.
There is very little difference in average 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 2011 – 2014
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of reviews
Area reviewed (acre)
Grade 1
£148
£114
30%
89
15,518
Grade 2
£106
£81
29%
139
42,197
Grade 3
£82
£67
23%
1,053
208,089
Grade 4
£48
£39
23%
210
87,269
Grade 5
£13
£11
20%
67
76,546
Overall average
£80
£65
24%
1,558
429,618
£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, for the reviews conducted in the year to 30 April 2014, the average rent for AHA holdings with houses was £101 per acre compared with £77 per acre for bare land. There is one exception to this which is livestock farms, where extensive equipped holdings mean the average equipped rent is lower.
5
Rents for existing tenancies
Distribution of AHA rent review results 2014 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 £80 per acre. Variation is greatest amongst livestock and mixed rents as both very low and high quality land can be used for livestock farming. Half of the arable AHA rents agreed were over £100 per acre, compared with only the top 25% of dairy rents, 18% of mixed rents and 10% of livestock rents. Distribution of AHA rents agreed in year to April 2014 100% 100%
Lowest to highest rent Lowest to highest rent 5%) (excluding the top and bottom (excluding the top and bottom 5%)
TopTop 25%25% of rents of rents
75% 75%
50% 50%
25% 25%
0% 0% £0 £0
£20
£40 £40
£60 £60 Arable Arable
£80 £80
£100 £100
£120 £120
£140 £140
New rent (£/acre) Dairy Livestock Mixed Dairy Livestock Mixed New rent (£/acre)
£160 £160
£180 £180
£200 £200
Rents for new Farm Business Tenancies6
2014 Strong rental uplift for all farm types
2011 - 2014
We let over 8,500 acres on new FBTs in the year to 30 April 2014.
Rents have risen by 60% on average in the three years to 30 April 2014.
The average letting size was 130 acres. The arable lettings averaged 125 acres, whilst livestock lettings averaged 78 acres, and mixed lettings averaged 135 acres. 19% of the lettings were over 200 acres, and there were 11 equipped farms let.
Livestock rents are lowest per acre, whilst arable rents are the highest.
Rents for new FBTs are 54% higher on average than they were under the previous letting of the holding.
New FBT rents have risen in all regions. Rents have risen most in the East Midlands and Yorkshire. Average rents for new lettings are highest in Eastern England and lowest in Northern England, where there is a higher proportion of livestock lettings.
There is considerable variation around the averages, for example, arable FBTs averaged £154 per acre in the year to 30 April 2014, whilst the top 14% of arable rents were bare land and over £200 per acre. New tenancies – FBT rents agreed by farm type in year to April 2014 New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of lettings
Area let (acre)
Arable
£154
£120
46%
35
4,377
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of lettings
Area let (acre)
Arable
£142
£95
50%
126
17,077
Dairy
£120
£67
77%
4
1,335
Dairy
£139
£69
105%
5
1,649
Livestock
£81
£54
58%
14
1,088
Livestock
£89
£56
72%
79
6,904
Mixed
£117
£77
59%
14
1,888
Mixed
£105
£73
62%
43
6,774
Overall average
£129
£90
54%
67
8,689
Overall average
£119
£78
60%
253
32,404
New tenancies – FBT rents agreed by region 2011 – 2014
New tenancies – FBT rents agreed by region in year to April 2014
6
New tenancies – FBT rents agreed by farm type 2011 – 2014
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of lettings
Area let (acre)
East Midlands and Yorkshire
£128
£76
74%
57
5,113
3,290
Eastern England
£133
£90
52%
75
12,249
1,137
Northern England
£97
£68
59%
51
7,394
£113
£78
56%
71
7,650
£119
£78
60%
254
32,406
New rent (£/acre)
Old rent (£/acre)
Average percentage change
Number of lettings
Area let (acre)
East Midlands and Yorkshire
£135
£80
72%
10
1,050
Eastern England
£138
£100
46%
23
Northern England
£93
£67
54%
9
Western England and Wales
£132
£95
55%
25
3,211
Western England and Wales
Overall average
£129
£90
54%
67
8,689
Overall average
There were not enough new Scottish tenancies to produce robust data, so analysis focuses on FBTs.
Our experience over the past year English & Welsh view
Scottish view
Nearing the top?
Falling supply, challenges and unforeseen circumstances - plenty to discuss
The level of activity on rent reviews seems to continue unabated and the headline figures of rent increases suggest that the bull run of rents has lost little, if any, of its momentum. The rate of increase for both AHA and FBT rents remains almost unchanged from the previous report. However, behind the headlines, there are now perhaps the first signs that caution about output prices is beginning to manifest itself in the rents being agreed by our teams across the country. During 2014 Smiths Gore has been involved in letting substantial areas of farm land for estates in most parts of England, over 6,000 acres has been advertised nationally including some of the largest blocks of land to come on the open market for some time. The results of these tenders have been to achieve some significant rent increases for the land owners and to provide successful farming businesses with much needed land for expansion and development. However, we are now beginning to detect that some bidders are “thinking twice” before adding that extra £20 or £30 per acre to be sure of coming out on top. Others, perhaps expecting to be out-bid by neighbours, may decide not to submit a tender at all, reducing the amount of competition for land. That said, the demand for land in many areas remains robust and rents in excess of £200 per acre for average land let by tender are not uncommon. On average, the rents for newly granted Farm Business Tenancies are continuing to increase faster than those settled under continuing tenancies (54% compared with 32%) and those under AHA tenancies (19%). There are some signs of a plateau being reached, certainly in terms of the strength and depth of open market tenders in some areas. However, rent increases negotiated freely between landlords and tenants of both AHA and FBT tenancies continue to show the underlying strength of the rental market. It is much too early to say that the era of rent increases is over, but perhaps a period of consolidation lies ahead.
Stephen Spencer Partner t 01543 266403 e stephen.spencer @smithsgore.co.uk
Two overriding messages come out of our latest report on agricultural rents in Scotland - rental levels overall are significantly lower than those south of the border and there is virtually no supply of land for new letting. Indeed the amount of land being let generally continues to fall. It is interesting to speculate on the reasons but one of the key reasons must be to some extent influenced by the shortage of market evidence. If owners had clear evidence of the rental value of land this may encourage more to make land available. The industry generally seems to have now accepted that the sterile position of so many past decades has simply got to change and we all wait with great interest the outcome of the latest tenancy review process led by Andrew Thin. Of course they will only be making recommendations to the government but let us at least hope for an outcome that creates a positive outcome for Scottish agricultural production. The results set out in this report predate the judgement of the Land Court in the recent Elliot v Roxburghe Estates rental dispute in the Borders. Everyone involved with the tenancy sector has taken note of this case as it has significance. The impact of the recent Land Court findings will however be tempered possibly by the continuing uncertainty created by the new Basic Payment Scheme now being implemented. No doubt the impact of the new scheme will become clearer with time but at present it raises more questions than answers. There are certainly going to be losers, predominantly arable and smaller intensive livestock producers, but there will also be winners with some in the marginal uplands sensibly receiving significantly greater support. These changes will gradually feed into the rental sector, masked by the prolonged transitional arrangements. Finally looking ahead there are potential price challenges for many producers to address, along with the possibility of more expensive money, and I haven’t even mentioned the outfall from the Independence vote process. But there can be no doubt that whatever the outcome the only thing that you can be sure of is that there will be unforeseen consequences. As ever there is plenty to discuss over the kitchen table and not just at rent review time.
Toby Metcalfe Partner t 0131 344 0885 e toby.metcalfe @smithsgore.co.uk
The Outlook for 2015 and 2016 Arable There were generally good yields for cereal crops at harvest 2014 and there have been good seedbed conditions for the establishment of new crops. Commodity prices have fallen for most crops as world supply remains high having not been adversely affected by any serious weather or production problems. For example, wheat prices have fallen by over £100 per tonne in the last 18 months from their peak. Forward prices for harvest 2015 are higher but it is the scarcity of land available to rent coupled with high demand for it that will remain the main driving factor for open market rents. We continue to expect high rental tenders for new tenancies. Rent reviews should be carefully considered on a farm-by-farm basis as the opportunity for growth is mixed. Beef and sheep Beef prices have fallen due to lower consumer demand, which has resulted in an oversupply of beef on the market, with cheaper imports having also added to the downward price pressure. Feed price reductions and good grass production have both however allowed feed costs to be reduced. Lower beef supply in 2015 could strengthen sale prices but, unless the current rental level is at a low base, then scope for growth at review may not be as great as it has been in the recent past. Dairy High milk output coupled with reduced demand has led to both UK and world milk prices falling. As for beef and sheep, lower feed costs will help to reduce the impact of lower milk prices on profitability. Despite this, well-equipped units to rent are still relatively rare and this means that tender rents remain strong for dairy farms. Rents at review could see an uplift but generally only if the unit has good facilities and a low capital investment requirement. Pigs and poultry This sector is likely to benefit the most from falling cereal prices. However finished pig prices have dropped when compared with a year ago and broiler prices have also fallen. UK producers are supplying more to meet domestic demand and investment in the industry is being maintained. Again reviews need to be considered carefully on a case-by-case basis.
Simon Blandford Head of Farm Management t 01962 857405 e simon.blandford @smithsgore.co.uk
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 30 April 2014 (478 rent settlements covering 108,000 acres)
(ii)
2011 – 2014: the 36 months to 30 April 2014 (1,835 rent settlements covering 468,000 acres)
The complete database now contains details of over 3,000 rent settlements, covering over 875,000 acres of land in England, Scotland and Wales with a rent roll in excess of £48 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. 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.
© Smiths Gore 2014. 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
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