Farmland property has delivered a 9% return for 2010 according to the IPD UK Rural Property Investment Index.
This is 60 basis points higher than the 8.4% delivered in 2009 but well below the UK commercial property total return of 15.2% despite outperforming it for the three previous years.
A statement from the IPD said the inherent stability of the rural market, which did not see returns dip into negative territory during the downturn, meant a less substantial recovery in 2010.
Over a three-, five- and 10-year period, the index has outperformed UK commercial property, and the main subsector indices measured by IPD. Against gilts and equities, it has outperformed on all but a three-year basis.
Phil Tily, managing director of the UK and Ireland, said: “The return was driven by capital growth of 7.2% and an income return of 1.6%, which has actually declined 20bp since 2009.
“The predominantly capital-based return in part reflects the premium being placed on the security of the underlying cash flow.
“In addition to the market return, significant premiums have been reported on transactions, with a gradual strategy of selling off parcels of land reaping noticeable rewards to investors, boosting overall investor returns to 12.8%.”
Tily added: “The general avoidance of any significant downturn has helped rural property comfortably outperform other asset classes and different forms of property over the past 10 years. In addition, rural property has a relatively stable return profile and counter-cyclical benefits when combined with other forms of real estate.
“At the sector and regional level, we are seeing some quite significant divergences, with the rising prices of commodities driving up the returns for intensive arable and cereals, which delivered 16% and 10%, respectively, in 2010. Offsetting this is the more subdued performance of dairy and mixed cropping, which returned 6.5% and 7.5%, respectively.”
The index, which is sponsored by Carter Jonas and Smiths Gore, covers 488 properties worth £2.2bn.
bridget.o’connell@estatesgazette.com
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