In the most testing of economic circumstances, investment in rural farmland delivered a positive annual total return in 2008, at 1.7% including transactions, according to the IPD UK Rural Investment Property Index, co-sponsored by Carter Jonas. This was supported by good increases in rent amid a low transaction environment in which capital values deteriorated -0.3%.
Investment in tenanted farmland outperformed conventional commercial and investment grade residential property which returned -22.1% and -15.3%, respectively. Although the total returns were favourable relative to other sectors – and equities – they are the lowest levels seen since 1998 of -2.8%. Income returns, however, held stable in 2008, at 2.1%.
Tim Jones, Partner and Head of Carter Jonas' Rural Division, commented: “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.”
"Rural property in the Index is a mixture of farmland, houses and commercial property. The spectacular increases in farmland values since 2006 have been the main driver of returns for rural property until this year. Farmland values reached their peak in mid-2008 and then dropped back to around the same level as at the start of the year – so there was little or no increase in capital values of farmland in the Index.
“While other major asset classes were savaged in 2008, rural property fared very well in comparison, generating a rare positive return for investors and showing genuine resilience. It is a valuable hedge against general market volatility and a useful component of any investment portfolio."
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.
As at December 2008, the IPD UK Rural Investment Property Index comprised 647,421 acres of land on 243 estates with a total capital value of just under £2.1bn.