Early evidence suggests increased supply in 2023 with values holding firm for the farmland market. With increased demand from carbon and green-led buyers and continuing demand for residential farms and amenity land, we wanted to find out more about the predictions for the year ahead, we caught up with Graduate Surveyor, of our National Country Agency Team, Patrick Ellicott to learn what challenges he thinks he might face this coming year.
“We anticipate a modest increase of land to the marketplace this year with increased demand from carbon- and green-led buyers. We also predict demand from conservation-led bodies to increase and envisage that we will continue to see trends such as continuing demand for residential farms and amenity land, from rollover buyers and for strategic and well-diversified holdings with increasing off-market activity.
“Demand for farms and land is expected to continue to grow throughout 2023 from a diverse range of buyers. Taxation-driven ‘rollover’ buyers will continue to seek commercial-sized agricultural land holdings, often outside of their geographical regions. The current political and economic conditions may see some smaller-scale operators being ‘priced out’ of the market due to ever-increasing costs of borrowing and rising input costs.
Lifestyle buyers continue to show interest in smaller farms and farmsteads as the desire for flexible and home-based working continues. Although we have seen a recent softening in demand from this buyer type. Amenity buyers will continue to drive demand for smaller bare agricultural land parcels and following substantial demand for land holdings from corporate buyers in 2022, evidence suggests that this demand will remain. Such demand is often fuelled by their corporate social responsibility and carbon offsetting requirements. This will bolster the demand for poorer, less productive farmland which may be more susceptible to reducing subsidy payments.
“The vendor profile for 2023 is likely to remain much the same as we saw across 2022. We expect the vast majority of supply this year to arise from smaller to medium-sized farming enterprises, likely offering smaller acreages or parts of existing holdings to reduce borrowing costs and/or lower loan repayments. A good proportion is likely to come from farmers looking to retire and we expect some early retirement sales to take place that may otherwise have been planned for 2024 onwards.
“We will also likely see more institutions trading on farmland, specifically where there are limited opportunities for alternative uses or additional income generation. On balance, we believe there will be a small increase in non-farming investors offering land to the market as returns come under pressure and farmland values remain firm. With reducing yields on their capital investment, such investors may consider alternative asset classes with stronger returns on investment in the short term.
“We expect a reasonable increase in the supply of farmland to the market in 2023 over and above 2022 levels with subsidy payments set to reduce further this year and input and energy costs to remain well above average. This continued pressure combined with unstable future commodity prices will inevitably lead to an increase in supply. The increasing average age of the UK farmer, with no succession potential/options in some cases, will lead to an increase in retirement sales and supply of small to medium-sized farms and agricultural land holdings.
“Debt-related sales will also increase supply into the market if inflation remains high in historic terms, and interest rates continue to increase. In addition to this, we may see an increase in lower-grade and hill farms coming to the market where offsetting and carbon-led buyers will be prepared to pay more than agricultural value. Continuing the trend from 2022, a good proportion of trading this year will take place through private transactions, often hidden from the marketplace and thus not truly reflecting the volume of land-changing hands.
“We do, however, expect a small increase in average values in 2023 compared with last year. Average values are expected to increase for all land types albeit at varying levels depending on location, scale, quality, and accessibility. We expect arable values to increase steadily based upon the restricted supply across the country and with the pent-up demand following very limited supply over the last few years. We also expect grassland values to increase where there is demand from conservation and carbon-led buyers; this may not be seen across the country. Evidence would suggest that smaller-scale amenity farms and parcels of amenity land should maintain strong values as demand continues for more space and tangible investment.
For those considering a sale in the near future, reach out to our National Country Agency Team (NCAT) team by clicking here.
