2020-06-03
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The impact of coronavirus on the rural property market

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Posted by Jennie Wheildon on 03 June 2020

Transcript


Can you please tell our listeners a bit about yourself and what your role is at Savills. Associate Director in the Rural Research department at Savills, specialising in policy analysis, covering topics such as the agricultural transition from direct support to public money for public goods and the impacts of Covid-19 on the rural sector.

I run an arable farm in Lincolnshire in partnership with my family. Qualified as a chartered surveyor following degrees in Agriculture and Estate Management

What effect is the current situation having on the rural market?

The lockdown and stay at home policy has stopped viewings and led to planned property launches being postponed

Less than 0.5% of farmland is marketed each year.

2019 saw the lowest ever recorded annual supply of land to the market

For the first quarter of 2020, the Savills Farmland Values Survey reported no change in values across any region or land type in Britain. Average prime arable land values remain at £8,715 per acre and average Grade 3 land types range from £7,293 and £5,384 per acre for arable and grassland respectively.

Historically, times of economic uncertainty have proven fruitful for farmland investors as the appeal of a defensive, tangible asset has boosted land values.

Interest in bare land assets suggests confidence from commercial farming businesses, particularly with a slightly more bullish outlook on agricultural commodities.

Alternatively, interest in farmland for development seems to be weakening as investors reassess the medium to longer-term prospects of funding development projects.

The fundamentals of the farmland market remain strong, as do the 'shock absorbers' of the UK financial sector. Scarcity of supply, land use competition etc.

Coronavirus has come off the back of a slow market due to uncertainty caused by Brexit and a difficult winter for farming.

What comments do you have about these compounding factors? The attractiveness of farms for marketing, due to be a delay anyway?

Perhaps a small silver lining to the current crisis is that domestic food security is rising up the political agenda and there's growing public recognition once again that agriculture is a genuinely essential service.

Farm gate sales

Locally to me, I have seen farmers going back to farm gate sales and direct selling to the public online to fill the supply chain gap – what else can farmers do to maximise this unprecedented market?
Examples of self-service vending machine/locker styles sales.

Initiatives like 'Farms to Feed Us', connecting people with farmers and food producers.

Delivery arrangements appear to be a capacity issue for many. Volunteers helping many, but a long term plan may be needed.

Fruit and veg businesses are forming partnerships with local bakers to broaden product range into 'village shop', small bag flour etc.

Sustainable business

Is there scope to diversify into processing/meals and cater for the "convenience" meal market which will be likely to re-emerge when people get back to work and have more pressure on their time.

Off the back of Brexit we have all been discussing the need for farmers to look at diversification – do you think that still stands and if so what might be good options?

Yes, diversification is still a sound business strategy. In contrast, tourism and some retail farm diversifications have been impacted by the Covid-19 restrictions the majority of farmers have not to a significant extent. Although there are significant exceptions within the dairy and potato sectors
One element of a business supporting the other during challenging trading conditions is the essence of diversification.

Governments approach towards onshore renewable energy diversification has become more favourable, although low oil prices could affect energy prices and viability.

Outdoor activities (park runs, bike hire, etc.) can more easily modify to meet social distancing and hygiene rules—even pumpkin patches.
Space and fresh air will be at a premium, and more domestic tourism is likely in the short to medium term.

In preparation for restrictions being eased, existing enterprises should look at what they offer and work out where the pinch points are, which would be affected by social distancing. Often the point of the transaction or facilities such as shower blocks on camping sites.

Finance options

Should those in the rural market be looking at the finance options available at the moment and using this time to plan for the loss of the subsidy payment?
Important to plan for the loss of subsidy payments
Some were viewing the potential to take the BPS as a capitalised lump sum as a source of finance for investment and repositioning, but talk of a "farmers exit scheme" makes this look unlikely.
There may be a place for loan finance if businesses need additional capital to implement their plans.

The level of debt as a whole in UK farming is exceptionally low in comparison with other industries. With an estimated total land value of over £200 billion and long term agricultural debt at around £14 billion, the loan to value ratio is below 7%. In most markets, it is forced sales that often lead to a glut of supply and prices coming under pressure as a consequence….. At least, for now, this isn't the case in UK farming … most sales are by choice and when sellers have confidence in the market.

Boosting productivity is another key element of preparing for a future without direct support. There have been productivity grant schemes already, and it is expected that there will be more support in this area.

Positive predictions

Looking forward, are there any positive predictions for the rural property market?

Movement restrictions since March have meant that inevitably activity is much reduced. Still, we are seeing some encouraging signs that lead us to be cautiously positive about the market going forwards:

Frustrated Buyers – The shortage of quality supply before the crisis saw eager buyers becoming frustrated. Our new applicant registrations and web traffic are growing, and some buyers are now desperate to get out and look at properties.

Foreign interest – partly due to the weakness of sterling but also because this sector has always had a high level of international participation, we are receiving numerous approaches from overseas investors.

The appeal of country living – under the current circumstances, the appeal of space, fresh air and a healthier lifestyle has accelerated the wish to move to the country for many families in towns and cities.

Our projections at the end of 2019 showed three possible outcomes, based on several variables (Coronavirus wasn't one of them obviously)

All three scenarios indicate a relatively benign outcome by the end of the next five years or so.

The truth is it is too early to tell what will happen to prices – there are simply too many macro-economic unknowns.

However, what we have learnt so far from this year…. Is that

It may be the hugely important role agriculture plays in the UK economy and society is recognised and appreciated once again….

The best farming businesses will thrive, and the best farms and land will always be a prized commodity.

There is also undoubtedly a genuine interest in the environmental agenda….. Natural capital and carbon management are well and truly in the limelight. The rise in more ethical and conscientious investing is a fascinating new dynamic for our market – that may well provide a lifeline to otherwise less desirable, poorer quality land into the future

Exit

So far this year it looks like the records are set to be broken again, with just over 14,000 ac for the first four months to April across Great Britain. That is 56% lower than the five-year average. The only time our records show April supply was less, was in 2001 – during the Foot and Mouth outbreak.

Insight from our agents suggests it is still too early to assess the impact any downturn may have on the farmland values. New deals continue to be agreed, and over 90% of the sales Savills agreed pre- lockdown have gone through or are still progressing with very few attempted renegotiation of terms.

 

About the author

Jennie Wheildon

Senior Associate

Jennie advises on commercial property including land acquisition and disposal, landlord and tenant, refinance and charging, residential development and site set up, overage and clawback agreements.

Jennie Wheildon

Jennie advises on commercial property including land acquisition and disposal, landlord and tenant, refinance and charging, residential development and site set up, overage and clawback agreements.

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