US farmland has outperformed other US real estate assets over the past 15 years as illustrated in Graph 9. The National Council of Real Estate Investment Fiduciaries (NCREIF) Farmland Index showed a total return of 13% for agricultural properties bought as investments over the past 15 years with the high commodity prices over the past three years contributing to exceptional performance.

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^{Source: IPD, NCREIF Savills Research}

The dip in the five year performance illustrates the exposure to climatic and price volatility but also shows the resilience of farmland to recessions compared with commercial and residential property. These asset classes recorded significantly negative total returns during 2008 and 2009 due to falling capital values in these sectors.

Although there has been volatility in farmland investments it has not been as significant as commercial and residential property as shown on Graph 9. This illustrates the relatively low risk combined with a strong return. Apart from forestry, farmland has been the least volatile but annualised returns over the past 15 years more than doubled.

The risk and return profile of US commercial and residential investments show more volatility and a lower return over the past 15 years. Our analysis points to a levelling out of this volatility over the past three years as performance has improved, also shown in Graph 10.

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^{Source: IPD, NCREIF Savills Research}

In the UK, the trend has been similar, but slightly more muted, with the investment performance of farmland (in hand farming and let land) outperforming most other assets over the past 10 years and has been comparable with alternative assets over the past 15 to 30 years.

The strong performance of farmland, its relatively low risk over the medium to long term and its inverse correlation to alternative assets ensures it provides added value to a mixed asset portfolio. We expect the investment performance of farmland to remain strong although we do expect it to become more comparable with commercial and residential property over the next few years as the macro economic situation improves.