26 August 2015, Owning a classic car is hot property as their values continue to soar, but owning an estate will produce investors the second best return, according to the Carter Jonas Model Estate 2015 report.
||Total return asset performance (to 31.12.14)
Source: Carter Jonas: The Model Estate 2015
Classic cars once again produced the highest one year total return of 31.2%. The sector’s impressive performance is illustrated with the three year annualised return of 25.2% per annum and a five year return of 19.0% per annum.
The Model Estate, notionally within the geographical triangle of the M4, M40, and M5 motorways, totals 3,168 acres, has a Grade II-listed manor house, farmhouse, six let farms with 371 acres of grassland; in-hand farms with 71 acres of grassland; three further farmhouses, four cottages, 14 commercial properties, a telecoms mast, syndicate shoot, and fishing rights.
Ranked third in 2013 (the exercise is now into its fifth year), the Model Estate’s performance and increasing land values have seen it ranked second of the seven assets analysed and its total return increase year on year by 13.1% to £37.2 million (31 December 2013: £32.9 million). In 2014, it produced a total return of 13.1%, ranking it second in the report. Its performance was improved when the manor house and commercial sectors were excluded, illustrating the strengthening and stable performance of agricultural land as an asset class.
The UK commercial sector recorded a 12.7% total return, driven by continuing capital value growth in London and also increasingly by the prime regional office markets. These regional hotspots are forecast to witness continuing rental growth and yield compression during 2015.
The UK residential sector produced a total return of 6.6%, in part driven by growth of London’s market and specifically outer prime central London - such markets as Wandsworth, Fulham and Barnes. Affordability remains a key issue within the capital with increasing volumes of young families now exiting London with the realisation that record pricing differentials have reached a plateau but still represent a boost for outward movers’ power in the regions.
Equities produced a total return of 0.4%, the third lowest of the seven assets analysed. The volatility of equities is evident when reviewing their longer-term performance: 6.9% per annum for the two years, 7.3% per annum for the three year, and 5.1% per annum for the five year annualized total return.
Fine wine witnessed another year of poor performance, recording -7.7%. With less than 1% of the worldwide wine market classified as investment grade, the market remains very restricted. The sector is renowned for its volatility - recent years of poor performance have resulted in the two, three and five year annualised figures recording negative figures of -4.3%, -5.9%, and 0.1% per annum respectively.
Gold recorded the lowest total return figure of -10.7% for the second consecutive year, reversing its historic performance of pole position. Its rapid fall from glory is now clearly evident, with the two year total return per annum figure of -16.5%, three year of -10.5% and only the five year annualised total return figure recording a minimal although positive 0.7% per annum.
Our aim with the Model Estate is to put it and agricultural land into a wider context, enabling an assessment of its performance against other asset types. An increase in its value of 13.0% from its 2013 level was due to an impressive 24.3% total return on the let farms element of the estate, partly due to a conversion of an AHA (Agriculture Holdings Act 1986) tenancy to a FBT (Farm Business Tenancy). The residential element of the Model Estate also performed well producing a return of 19.7%. This was boosted by the conversion of an old commercial building to residential, which was subsequently let. These variances illustrate the impact that different components have on the estate’s performance. Taking a longer-term view, the diversity of the holding is a useful hedge against risk when compared to a single asset class.
The 13% rise in capital value across the Model Estate exceeded the average increase of 8.5% recorded through the UK in 2014. The supply of openly marketed land remained restricted, and average land prices reached £10,000 per acre – higher in some regions. During 2015, we have seen that values have continued to rise at a more sustainable pace. We forecast that values of prime land will continue to rise by 5-7% per annum over the next five years, as the appetite for top quality stock remains in high demand. Despite the continuing increase of average land values, cautionary signals regarding the sustainability of the rate of increase of land values, including the ongoing appetite of investors to continue to chase stock and the future of the Euro, are emerging throughout the sector.
The Model Estate, with its mix of property types, development potential, and mineral resource opportunities, shows that owning an estate will produce better returns than specifically commercial or residential property. The classic car market continues to outperform all our comparison assets and is one of the best performing assets in the last decade. However, past experience shows these values can evaporate almost instantly as tastes for particular marques change. Values also rely on the assets never being used, unlike the Model Estate.