In our latest publication on the Farmland Market, we highlighted the strength of the UK economy and alluded to the ‘shock absorbers’ of any economic downturn. Fast forward three months and this does slightly feel like a case of the commentator's curse.

While the comments made in the report remain true (note the level of fiscal stimulus on offer), there is an added sense that a test such as the Covid-19 pandemic will reaffirm the value of agricultural land and the role it ultimately plays in providing immediate food security.

Historically, times of economic uncertainty have proven fruitful for farmland investors as the appeal of a defensive, tangible asset has boosted land values. The chart below highlights the ensuing responses of farmland following these periods, the most notable being rapid growth post the credit crunch of 2008. In addition, no correction in values was recorded as was the case in other property markets and notably for residential assets.

Farmland value responses following economic downturns

^{Source: Savills Research}

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.

Farmland supply followed its usual Q1 trend, emerging from a sluggish winter hibernation. Just over 11,000 acres were brought to public market, 1 per cent up on Q1 2019. 

Supply typically peaks towards the end of Q2, at which time a better indication of seller sentiment and market activity can be understood. However, with an inevitable slowdown in economic activity expected as a result of government control measures, it is possible land will become increasing harder to buy as restrictive marketing practicalities influence vendor decisions to sell until lockdown is over and a general confidence returns.   

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 the vast majority of agreed deals remain on track. 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.

Many economic forecasters are suggesting the impact of Covid-19 will be V-shaped, implying an economic recovery could be relatively faster than that seen in previous recessions. But with the depth and length of the shape likely to be governed by the effectiveness of control measures both here and around the world, there are still large question marks over the magnitude of any downturn and the flow on effects of accessing funds for buyers.

The fundamentals of the farmland market remain strong, as do the ‘shock absorbers’ of the UK financial sector. Scarcity of supply, land use competition and a likely renewed focus on investment diversification strategies are positive. What is less clear is the quantum of funds available as investors make sense of any potential losses and assess their next move in what is an understandably uncertain time.  

Further information

Read more: Spotlight: The Farmland Market