Page 1

Market Intelligence Report

Smiths Gore Agricultural Rent Database Year to 30 April 2012 Agricultural rents up 28%

smithsgore.co.uk


Agricultur al rent database This review provides details of the average rents agreed at rent reviews, re-lettings and new lettings in:

(i) 2012: the 12 months to 30 April 2012 (555 rent settlements covering 158,000 acres)

(ii) 2009 - 2012: the 36 months to 30 April 2012 (1,282 rent settlements covering 373,000 acres)

Average percentage change in year to 30 April (all farm and tenancy types) 45%

The complete database now contains details of over 2,000 rent reviews, covering almost 600,000 acres of land in England, Scotland and Wales with a rent roll of over ÂŁ28 million per annum. It is one of the most comprehensive 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 individual rent reviews, and we also carry out 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 can be found at the end of this report.

Rupert Clark Head of Rural Practice Petworth office t 01798 345999 rupert.clark @smithsgore.co.uk

Rents that were reviewed in the year to 30 April 2012 rose by an average of 28%.

Simon Blandford Head of Farm Management Winchester office t 01962 857405 simon.blandford @smithsgore.co.uk

40% 35% 30% 25% 20% 15% 10% 5% 0% 2010

AHA

2011

FBT

2012

Scottish Tenancies

2010-2012

Overall average


GROWTH BY FARM TYPE 2012 Continuing strong growth in all farming sectors

2009 - 20121

24% aver age increase

Rents for all types of tenancy agreed in the 12 month period to 30 April 2012 increased by an average of 28%. 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 below, which shows the rent agreed at each review.

The average increase in rent settlements agreed in the last three years has been 24%.

Arable and livestock rents continued to increase the most (33% each) but dairy rents dropped back from a 21% increase in the year to October 2011. Whilst commodity prices have softened from recent highs, the medium-term outlook for reviews remains positive but landlords and tenants should check local comparable rents and assess accurate forward budgets before serving a rent review notice.

All sectors have experienced increases, with the largest being in the arable sector and the lowest for mixed and dairy farms.

For the average sized farm in the database, this has meant an increase in rent of £3,500 a year– so £10,000 over a three-year rent review cycle.

New rents agreed by farm type 2009 – 2012 New rent (£/acre)

New rents agreed by farm type in year to April 2012 New rent (£/acre)

Old rent (£/acre)

Percentage change

Number of reviews

Area reviewed (ac)

Arable

£96

£70

33%

155

36,201

Dairy

£80

£70

16%

53

11,445

Livestock

£63

£47

33%

206

71,268

Mixed

£70

£60

20%

141

39,289

Overall average

£75

£59

28%

555

158,202 1

Old rent (£/acre)

Percentage change

Number of reviews

Area reviewed (ac)

Arable

£90

£69

29%

329

67,840

Dairy

£76

£66

15%

151

31,596

Livestock

£52

£40

28%

495

198,366

Mixed

£68

£58

18%

307

74,860

Overall average

£68

£55

24%

1,282

372,661

“2009 – 2012” and “last three years” relates to the period between 1 May 2009 and 30 April 2012

New rent (£/acre)

Distribution of rents agreed in year to 30 April 2012

1

Lowest rent to highest rent (exluding the top and bottom 5%)

25% quartile1

50% quartile

75% quartile

Arable

£70

£82

£101

Dairy

£58

£76

£89

Livestock

£33

£63

£81

Mixed

£55

£64

£75

This is the number above which lies the highest 25% of the data

• • •

The top 25% of arable rents are all over £101 / acre Livestock rents are the most variable - due to the quality of grazing and buildings Some rents for mixed holdings are now over £100 / acre


GROWTH BY TENANCY TYPE 2012

FBTs continue to show greatest rises

2009 - 2012

Livestock rents increase most

The difference between national average FBT rents and AHA rents remains about £20 per acre. However this masks some very high FBT rents of over £200/acre.

For AHA and Scottish tenancies, these rates of increase are consistent or slightly below the three year average. However, FBT rental growth has been significantly higher than the three year average (40% v 31%), influenced by farmers bidding more to retain FBT land and also strong results from recent open market lettings.

Across all types of tenancy, livestock farm rents increased the most in percentage terms.

New rents agreed by tenancy type in year to April 2012

New rents agreed by tenancy type 2009 - 2012

Percentage change

Number of reviews

Area reviewed (ac)

Arable

£87

£70

25%

85

25,315

Dairy

£82

£70

21%

31

7,402

Livestock

£59

£48

28%

74

27,864

Mixed

£68

£59

16%

94

29,516

AHA average

£73

£61

23%

284

90,097

Arable

£109

£72

46%

64

10,159

Dairy

£87

£81

10%

17

2,519

Livestock

£81

£58

47%

87

15,023

Mixed

£84

£70

31%

36

5,954

FBT average

£91

£67

40%

204

33,654

Arable

£71

£63

13%

6

728

Dairy

£40

£37

7%

5

1,524

Livestock

£31

£23

12%

41

28,271

Mixed

£41

£37

14%

11

3,819

Scottish average

£37

£31

12%

63

34,342

Overall average

£76

£59

28%

551

158,093

AHA

Old rent (£/acre)

FBT

New rent (£/acre)

Overall FBT rents have increased by 31%, compared with 22% for AHAs.

Scottish Tenancies

Scottish Tenancies

FBT

AHA

Farm Business Tenancy rents rose by 40% 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 this type of tenancy. Scottish rents increased by an average of 12%, at least in part affected by the uncertainty caused by the Moonzie Case.

New rent (£/acre)

Old rent (£/acre)

Percentage change

Number of reviews

Area reviewed (ac)

Arable

£79

£64

24%

169

44,352

Dairy

£78

£68

17%

88

17,516

Livestock

£51

£42

27%

156

66,940

Mixed

£66

£56

18%

179

50,232

AHA average

£68

£56

22%

592

179,041

Arable

£103

£76

35%

151

22,055

Dairy

£87

£78

13%

43

6,791

Livestock

£77

£57

39%

166

27,986

Mixed

£84

£74

21%

89

13,769

FBT average

£88

£69

31%

449

70,601

Arable

£76

£67

15%

9

1,265

Dairy

£40

£37

9%

19

7,250

Livestock

£26

£20

17%

125

75,938

Mixed

£41

£37

13%

39

10,856

Scottish average

£33

£28

15%

188

95,309

Overall average

£70

£56

24%

1,233

344,950


GROWTH BY REGION AND FARM TYPE 2012

East Midlands and Yorkshire rents rise by 46%

2009 - 2012

Eastern England, East Midlands and Yorkshire top rises

Rents have risen in all regions, with the highest rises in the East Midlands and Yorkshire. New rents agreed by region and farm type 2009 - 2012 Area reviewed (ac)

£97

£68

Dairy

n/a

n/a

34%

32

6,038

n/a

n/a

n/a

Livestock

£62

Mixed

£74

£40

78%

17

1,126

£65

14%

4

1,354

Region average

£84

£59

46%

55

8,732

Arable

£108

£77

37%

74

19,244

Livestock

£57

£39

38%

12

2,673

Mixed

£81

£64

37%

34

15,968

Region average

£95

£69

37%

120

37,885

Arable

£89

£82

9%

5

1,243

Dairy

£80

£72

13%

25

5,423

Livestock

£64

£51

29%

70

33,085

Mixed

£76

£65

18%

13

3,224

Region average

£70

£59

23%

113

42,975

Mixed

Arable

£71

£63

13%

6

728

Region average

Dairy

£40

£37

7%

5

1,524

Arable

£76

Livestock

£31

£23

12%

41

28,271

Mixed

£41

£37

14%

11

3,819

Region average

£37

£31

12%

63

34,342

Arable

£75

£60

29%

38

8,949

Dairy

£89

£77

22%

21

4,283

Livestock

£82

£61

37%

66

6,111

Mixed

£68

£60

14%

79

14,923

Region average

£76

£62

25%

204

34,267

Overall average

£75

£59

28%

555

158,202

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 (EM&Y&H)

Arable

New rent (£/acre)

Number of reviews

Eastern England (SE&E)

Percentage change

Northern England (NE&NW)

Old rent (£/acre)

Scotland

New rent (£/acre)

Western England & Wales (SW,WM&W)

Western England & Wales (SW,WM&W)

Scotland

Northern England (NE&NW)

Eastern England (SE&E)

East Midlands and Yorkshire (EM&Y&H)

New rents agreed by region and farm type in year to April 2012

Old rent (£/acre)

Percentage change

Number of reviews

Area reviewed (ac)

Arable

£83

£63

28%

106

18,627

Dairy

£87

£71

22%

10

1,776

Livestock

£60

£43

56%

27

5,150

Mixed

£75

£66

14%

22

5,495

Region average

£78

£60

31%

165

31,048

Arable

£105

£79

32%

126

30,421

Dairy

£69

£62

10%

1

672

Livestock

£55

£39

34%

19

3,619

Mixed

£81

£66

32%

50

20,818

Region average

£94

£72

32%

196

55,530

Arable

£91

£73

20%

17

4,530

Dairy

£78

£68

16%

64

10,655

Livestock

£56

£45

28%

189

78,448

£68

£57

20%

33

10,556

£64

£52

24%

303

104,190

£67

15%

9

1,265

Dairy

£40

£37

9%

19

7,250

Livestock

£26

£20

17%

125

75,938

Mixed

£41

£37

13%

39

10,856

Region average

£33

£28

15%

192

95,309

Arable

£77

£62

27%

72

12,996

Dairy

£84

£74

16%

57

11,242

Livestock

£68

£55

32%

135

35,210

Mixed

£70

£61

16%

164

27,136

Region average

£72

£61

22%

428

86,584

Overall average

£68

£56

24%

1,284

372,661


The effect of houses and farm buildings

Scottish view

Over the last three years, equipped holdings have continued to have higher rents than bare land lettings, with a greater premium for FBTs when compared with AHA tenancies. Tenancy type Bare Land Equipped

Arable

Dairy

Livestock

Mixed

Overall average

AHA

£71

£51

£58

£61

£64

FBT

£101

£86

£77

£75

£86

AHA

£86

£81

£48

£67

£69

FBT

£115

£88

£77

£98

£93

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. New rent (£/acre)

Old rent (£/acre)

Percentage change

Number of reviews

Area reviewed (ac)

£73

£60

20%

193

81,004

Averagely equipped

£66

£55

21%

336

146,086

Poorly equipped

£56

£45

22%

180

69,676

Overall average

£65

£54

21%

709

296,766

Well equipped

The effect of land quality – premium rents for premium land Rents for Grade 1 and 2 land have risen by the greatest percentage over the last three years. Average Grade 1 rents are now 57% higher than Grade 3, compared with 44% before these reviews were undertaken. New rent (£/acre)

Old rent (£/acre)

Percentage change

Number of reviews

Area reviewed (ac)

Grade 1

£116

£89

29%

41

15,030

Grade 2

£93

£70

28%

121

26,808

Grade 3

£74

£62

23%

840

175,691

Grade 4

£48

£38

28%

202

55,981

Grade 5

£11

£9

20%

92

103,053

Overall average

£69

£56

24%

1,296

376,563

Outlook is for rents to continue to rise to reflect profitability Rents rose by an average of 12%, a lower increase than in 2011, 2010, 2009 and 2008. Values have continued to rise on more recently reviewed rents. We have had a poor summer and autumn but a lot of reviews were carried out before the full impact was felt. In respect of the longer-term view, forward prices for wheat look strong for the next couple of seasons. I would expect the upward trend to continue on arable rents. Many livestock and dairy rents also had some headroom, though rising feed prices and a less certain price outlook could prove a limiting factor. Agricultural tenancy legislation and rents continue to be live topics in the political debate. The Scottish Tenant Farming Forum undertook a widespread consultation process on the basis of rent reviews and, despite lobbying for significant change by the Scottish Tenant Farmers Association, made the recommendation to the Scottish Government that there should be no change to the rent review formula set out in Section 13 of the 1991 Act. The Forum considered that the widely publicised Moonzie case had added clarity to the process, and that no change is needed. Quite separately, the Land Reform Review Group, set up by the Scottish Government, is considering, amongst a wide range of other possible reforms, the extension of the Right to Buy for all tenant farmers. This is unsettling for landlords and, if put into effect, will be the final nail in the coffin for the tenanted sector. Our database now contains details of over 300 agreements since 2007, covering almost 150,000 acres in Scotland. It is one of the most comprehensive databases available in Scotland. Robert Gladstone Partner Dumfries office t 01387 27439 robert.gladstone @smithsgore.co.uk


English view Upward pressure on AHA and FBT rents likely to continue This has been an exceptional year by any standards. A severe Spring drought in some areas, followed by the wettest Summer and what was to become the wettest year on record, against a backdrop of historically high commodity prices in many sectors. Most landlords had taken the opportunity to serve notice in 2011 to enable a review in 2012 and, in the early part of the year, there were many examples of FBT rents rising by 50-75% and AHA rents by 30-35%. Even in the Autumn strong rent settlements continued, despite the problems caused by the weather, although there is evidence of a slightly more cautious approach now being taken by both parties. In the challenging dairy sector milk prices have ended the year more or less where they began and, despite all that happened in between, rents have continued to rise (albeit at a slower rate than in other sectors) underpinned by the generally strong market conditions and stiff competition for land. With tender rents for FBTs in most sectors still often exceeding £200/acre it is hard to see the upward pressure on both AHA rents and FBT rents at scheduled rent review subsiding.

The outlook for 2013 and 2014 Should I serve a rent review notice? 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. 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 2013 price currently high at £180/t for November wheat. But low area drilled due to weather. Despite challenges in 2012, the outlook is still looking strong. Dairy Further consolidation of industry is likely and only the top 10-20% of producers are making sustainable margins. Capital investment requirement is still a major factor. The outlook is mixed and depends on the quality of milk contract as well as the farm and tenant. Beef and Sheep Downward pressure on lamb/beef prices. Domestic supply still tight but prices unlikely to rise to 2010/11 values. Concern over feed costs and ability to control fixed costs. Pigs & Poultry Generally, improving demand has seen growth in the market and improved prices. Increasing feed costs, which account for 2/3rds of cost of production, will restrict profitability.

Stephen Spencer Partner Lichfield office t 01543 266403 stephen.spencer @smithsgore.co.uk

Simon Blandford Head of Farm Management Winchester office t 01962 857405 simon.blandford @smithsgore.co.uk


Contacts If you would like to discuss rent reviews or options for letting land, please do not hesitate to contact us: Scotland Robert Gladstone t 01387 274395 robert.gladstone@smithsgore.co.uk North Philip Coles t 01325 370511 philip.coles@smithsgore.co.uk East Midlands and Yorkshire & Humber David Goodson t 01733 559306 david.goodson@smithsgore.co.uk West Midlands and Wales Stephen Spencer t 01543 251221 stephen.spencer@smithsgore.co.uk South East and East of England Rupert Clark t 01798 345980 rupert.clark@smithsgore.co.uk South West Charles Dixon t 01392 294892 charles.dixon@smithsgore.co.uk To discuss the sale or purchase of agricultural land please contact: Giles Wordsworth National Head of Farm Agency t 01865 733302 giles.wordsworth@smithsgore.co.uk

smithsgore.co.uk

Agricultural Rents Database  

Agricultural Rents Database