Farmland values in the UK are forecast to increase by an average of six per cent in 2011, which follows growth of eight per cent this year.

There is likely to be a widening gap in value growth between the best and poorest quality land, with expectations that where there is purchaser competition growth could easily exceed 12 per cent during 2011.

Demand for this low risk, income yielding asset class is gathering momentum from an increasingly diverse mix of potential purchasers who often are in competition with farmers who are looking to expand.

This growing demand, in part driven by strong commodity prices, against a lack of supply is leading to more competitive bidding situations for the well-located blocks of good quality combinable cropping land.
 
Savills research shows that the proportion of buyers with funds between £2 million and £10 million to spend increased during 2010 compared with the previous three years.

The interest from foreign investors, particularly in the East of England, has increased this year with enquiries from Italian, Indian, German and Chinese nationals. 

Christopher Miles, head of farm sales in the East comments: “In line with our research I think prices will continue rising next year, as every bit of bad news on the global economy or problems in the Eurozone will give fresh impetus to investors looking for a home for their cash while interest rates remain low.

“Strong commodity prices will also give strength to the investment rationale and to farmers looking to expand. Rising prices will be seen by some as an opportunity to offload poorer farms although we will see a marked variation in prices paid.

“Good commercial farms are the flavour of the moment and premiums will be achieved for 1000-acre plus units.

“Supply will not meet the demand. It’s a seller’s market but when the investors melt away, which they have a habit of doing overnight, there will be a correction in prices.

“More private deals are likely for residential farms where potential sellers are nervous of the state of the market, but if we can introduce buyers deals can be done.”

• PHOTOGRAPH SHOWS: Christopher Miles, head of farm sales in the East, Savills