Rural farmland outstrips traditional property, says IPD

08:40 | 03.07.09

The IPD Rural Investment Property Index showed a positive annual total return of 1.7% over 2008, supported by good increases in rent amid a low transactional environment where capital values declined -0.3%.

Commercial property returned -22.1% and residential -15.3%.

Although rural land returns were positive compared to other sectors, they are the lowest levels seen since 1998 of -2.8%. Income returns held stable at 2.1% in 2008.

Tim Jones, head of the rural division at Carter Jonas – one of the Index’s sponsors – said: ‘Rural property remains in demand and there is a case for optimism; rents reviews last year with increases of 20% to 30% were not uncommon, while investors continued to seize opportunities to generate improved returns from the uplift in capital and revenue generated by converting secure tenancies from the Agricultural Holdings Act to Farm Business Tenancies.’

Gerald Fitzgerald, head of property investment and valuations at Smiths Gore – also an Index sponsor – said: ‘Demand for rural land over the medium-term looks to be holding up. It is required to feed an ever-increasing population coupled with additional demands such as development, environmental and infrastructure.

While return on income will continue to be in the order of 2%, there will be significant opportunities for capital appreciation for strategic land.’

The IPD UK Rural Investment Property Index measures the ungeared total returns of a direct investment sample of tenanted farm land, compiled from valuation and management records for individual farms and estates held by institutional and private investors.

It comprises 647,421 acres on 243 estates with a capital value of £2.1bn. Data is collected from investors and agents and audited by IPD.

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