Rural property, notably let estates, farms and forestry, has been a comparable investment to alternative property assets and financial instruments over the past 20 years (see above). It has delivered a healthy annualised total return of around 10% only beaten by mainstream let residential portfolios with an annualised total return of 11.4% over the same period.

The scenario is pretty similar over the past 10 years albeit at a slightly lower level of return (8% to 9%), but the star performer was forestry with an annualised total return of almost 16%. Short term, the performance of rural assets, mainly because of pressure on capital values of farmland, has weakened. The exception being forestry, where the underlying fundamentals are based on the growing demand for sustainably produced timber required for house building around the world.

It is worth noting that rural assets have advantages over other assets based around taxation and ownership benefits. Farmland is a tangible asset, a good inflation hedge and its performance is relatively recession proof. This last point results in a low or negative correlation with other traditional asset classes such as stocks and bonds, giving an interesting portfolio diversification. For investors the prime attraction for holding agricultural land is the long term capital appreciation as income yields are historically modest compared to commercial property.

The mix of assets on rural estates is fundamental to its income and investment performance. Although income generation and retention of the core estate are the key objectives for many estate owners and managers, the Agriculture Bill heralds a new era in the rural economy, challenging everything from tenancy arrangements to supply contracts.

The key is to spread risk and have a balanced asset portfolio that meets its performance objectives. Our market intelligence and work for existing clients shows that finding land and property in or near towns and cities or overseas is a clear investment strategy.

WHY INVEST IN FARMLAND?

There are strong reasons to own and/or invest in farmland including:

• Investment performance – driven by capital growth (over the past 10 years, the value of GB farmland has, on average, increased by just over 50%)

• Opportunity to diversify an investment portfolio. Farmland is inversely correlated to many other assets and therefore tends to perform when other assets are under pressure

• Low-risk investment in a very transparent market place and in a relatively stable political, economic (albeit with a degree of uncertainty in the short term) and cultural environment. Entry and exit from the market is relatively easy to achieve

• Income generation – land-based opportunities extend beyond food production and diversified income sources mitigate exposure to commodity price volatility and include:

– Energy

– Forestry

– Diversification and non-farming opportunities, including leisure and tourism enterprises

– ‘Natural capital’ assets and the developing market for payments for ecosystem services from both public and private buyers

– Property rental from residential and commercial assets

• Lifestyle – ownership provides somewhere to live, work and play, and fulfils an aspiration ‘to own a piece of the countryside’

• Taxation advantages – these include Inheritance Tax relief and the rollover of capital gains into farmland

• Strategic development potential, especially where land borders settlements, offering additional capital growth

• Capital availability – assets, such as minerals, residential properties, off-lying land, can be used to release capital

These attributes outweigh the constraints, which include:

• Limited opportunities to achieve farm businesses of scale in the UK

• Relatively low income yields

• Generally a lack of product in a constrained market place