English Farmland Is Hot Property

Scant supply and rising commodity prices help boost values
Photograph by UPPA/Photoshot

The Stubton Estate in Lincolnshire is 1,814 lovely acres of rapeseed and winter wheat. The estate went on the market in February for £16.8 million ($25 million) and attracted about a dozen potential buyers, according to Strutt & Parker, the real estate broker handling the sale. The asking price per acre is more than double what land in the area changed hands for in 2008.

Rural land across England has produced some of the best returns in Europe since the financial crisis began, appreciating by 51 percent from 2008 through 2012, data compiled by agent Knight Frank show. Millionaires’ mansions in London rose 19 percent, the rest of the U.K. housing market lost value, and U.K. stocks fell 8.7 percent during the same period. Even as stocks, up about 10 percent so far this year, enjoy their best start since 1998, investors are likely to keep bidding up prices of farmland, drawn by its relative scarcity, rising commodity prices, and tax breaks. “No one wants to sell land, and there’s a weight of money waiting to get into it,” says Tim Atkinson, a partner at real estate agent JHWalter.

The U.K. had 23,552 square miles of arable land at the end of 2011, less than one-third the size of Nebraska. About 1 billion pounds of U.K. farmland changed hands last year, representing the fewest number of acres since 2003, figures from property broker Savills show. Prices are staying high this year because of all the “frustrated buyers” from 2012, says Will Parry, the broker at Strutt & Parker handling the Stubton Estate sale. Lincolnshire, which starts 100 miles north of London, is the U.K.’s most active farmland market. Prices rose by 10 percent to 15 percent last year, according to Savills, and may rise an additional 40 percent in the next five years.

Even BlackRock, the world’s largest money manager, has benefited from the boom. In December it sold the 992-acre Waite Farm, about 30 miles east of Stubton toward the North Sea coast, for almost £12,000 an acre with buildings, according to brokers. That was about quadruple the U.K. average of five years ago, based on data compiled by Savills. Desmond Cheung, co-manager of BlackRock’s World Agriculture Fund, said in December that Waite Farm provided good returns for investors, while declining to comment further.

While farming is a tiny slice—0.6 percent—of the British economy, the sector is thriving, thanks to rising commodity prices. Wheat is up 44 percent in the past three years, and rapeseed prices have climbed 60 percent. Total income from farming in Britain was £5.69 billion in 2011, the latest annual data available, up 25 percent from a year before when adjusted for inflation, according to the Department for Environment, Food and Rural Affairs. It was the best performance since the mid-1990s.

Another draw is a tax break that allows owners to pass along land to their heirs without paying an inheritance tax, as long as the land is actively farmed. An investor typically rents out the farm for an amount equal to about 2 percent of the land’s value annually. And farmland has an enduring appeal that’s hard to match. At the Stubton Estate, Parry stands near the 5,000-ton grain storage building waiting to show around more interested parties. Inside is what he calls “what feeds the world,” a 12-foot-high pile of corn. Buying farmland is about “preserving wealth,” he says. “This is your cash crop. It’s what the world lives on.”