Asset Bay

Land values rise by 16% in the past year

Agricultural land values are almost back to the record highs seen at the end of 2015.

The average value of bare farmland in England and Wales increased by a further 4% in the second quarter of 2022, according to the Knight Frank Farmland Index.

Land prices have risen by 8% so far this year and 16% over the past 12 months. This is the strongest rate of annual growth since 2014, outperforming other property asset classes, equity values and matched only by gold.

A lack of supply and strong demand continue to support values. There has been an 11% drop in the supply of land to the previous year, which was already a record low.

Competition from a wide range of buyers for the scarce amount of land available means guide prices are often being exceeded.

Tax-driven buyers looking to reinvest the proceeds from development or compulsory purchase sales remain significant players, but they are having to increasingly fight off interest from the growing number of environmentally motivated purchasers.

Some of these are looking at farmland with an altruistic eye and hope to boost biodiversity and make more space for nature via rewilding or other wildlife-friendly land management practices. Others are focusing more on alternative revenue streams such as carbon payments derived from tree planting or soil management schemes.

In the short to medium term this imbalance between supply and demand looks unlikely to shift meaning more upwards pressure on prices, especially as new environmental schemes and regulations, such as biodiversity net gain and nutrient neutrality, kick in.