Historically rural land values have endured cycles of moderate peaks and troughs often contra-cyclically to more mainstream asset classes including residential and commercial property and the stock market. While the number of transactions is limited, the lack of rapid price rises or falls has ensured valuers of rural land have been able to source sufficient market evidence to provide robust valuations irrespective of where in a cycle the land market might be.

Today the rate at which some types of rural land and forestry are rising in value on the back of the environmental, social and governance (ESG) agenda is creating significant challenges for registered valuers; the marketplace is a tiny one, meaning often there are few strong comparables and those that are available can be quickly out of date due to the speed at which some markets are moving.

The profile of buyers is expanding to include those motivated by an ESG agenda, and we continue to see significant private investment in environmental and forestry funds. This coupled with limited supply is having the inevitable result of price increases.

Upland areas in particular – where marginal land traditionally offered limited financial returns – are the focus for many looking for the natural capital asset, and it is here we are seeing the most significant change in land values.  

Consequently, longstanding methods of valuation are being upended, and valuers are having to take into account the evidence of speculative purchases and sales of land where the buyer is perhaps hedging on the future value of carbon, or the requirement for biodiversity net gain. The value of land has long been detached from its productive capacity, however the motivations for owning land are changing.

The shift to ESG and carbon is likely to transform the tax landscape too. The agricultural value of land holdings is protected from inheritance tax (IHT) by Agricultural Property Relief (APR) or Business Property Relief (BPR). But if the increase in land value is due to non-agricultural factors these reliefs may not apply and exposure to IHT could be considerable. Unless there’s a change in statute, redefining what constitutes agricultural land, there may be major ramifications for current owners’ succession planning strategies.

Government bodies are consulting and it remains to be seen how policies evolve to reflect this market transformation. For landowners and trustees, this significant market shift and increase in values may have unintended consequences. We advise that during this period of consultation valuations are regularly updated, and regular reviews undertaken in terms of the balance between investment and trading activity taking place on farms and estates.

Further information

Contact Sarah Jackson or Clive Beer

Savills Farms, Estates & Agricultural Land

What is rural land worth?