Rural land values grew by 14.2% during 2011, despite the widespread decline in commercial property values.
The rising price of commodities has led to increased profitability in the rural sector, attracting investors to buy land, according to the IPD UK Annual Rural Property Index.
Rural capital growth compared favourably to commercial property, which saw values grow by 1.9% in 2011. Rural property returned 15.9% during the year, while commercial property returned 7.8%.
IPD added that five-year returns on rural land were 11.9%, comparing favourably with the group’s All Property Index which recorded a -0.7% return over the same period.
Land agent Smiths Gore estimated that 127,000 acres were traded in 2011, while in the late 1980s more than 300,000 acres were turned over each year.
Gerald Fitzgerald, head of valuations and investments at Smiths Gore, said: “Despite a significant increase in agricultural rents, of more than 20% on average, income returns remained low, at 1.6%, offset by the huge rise in capital values. Capital growth was 14.2% which, as always, is the main driver behind the total return of 15.9%. So the sector remains very much a capital hold, rather than an income-producing asset class.”
Mark Weedon, head of UK alternative real estate at IPD, said: “As a hedge against inflation it remains one of the most secure of the sectors we measure, which in the current market environment is quite exceptional. There are fewer safe capital holds in the UK, with each new economic crisis emerging. For the moment, rural property seems to be in a class of its own.”
daniel.cunningham@estatesgazette.com
