A recent report from Savills, the international property agents, says that farmland values would be the worst hit of all UK property after Brexit, with up to a one-fifth (20%) loss of value as EU subsidies are removed.
Savills thinks that commercial farms will fair even worse than declining high streets and shopping malls with their shuttered up shops and falling rental values.
On the other hand the residential property market, over the next five years, will be strongest in the north and Midlands. The London market is likely to trail behind Manchester and Birmingham, with their higher rental yields, despite firmer house prices.
The Savills forecast predicts that buy-to-let investors in north-west properties will earn around 8.4% a year total return (rent and capital value increases), compared to a comparable return of 3.9% in London.
Whereas Savills thinks commercial farmland values will fall by 3.6% a year over the next 5 years, the fastest-growing part of the property market during that time (estimated at 10% a year) will be “urban logistics” – strategically placed warehouses (sheds) supplying consumers with goods purchased over the internet.
Direct payments from the EU to farmers currently makes up around 60% of their profits, rising to 90% for some livestock hill farms. Post Brexit these subsidies will switch from the amount of land and livestock farmers work, to payments to farmers and landowners who can deliver environmental benefits, though details on this have yet to be finalised.
Head of rural research at Savills, Emily Norton, has said:
“Where we feel values might be knocked is where it’s bare commercial land, which has low natural capital potential. Where we’ve got no opportunity to earn additional public money you’ll be highly exposed to just returns from farming and therefore it’s going to require very high levels of management skill. They will be in demand but prices will be knocked.”
Over the last decade, farmland has turned out to have been a better investment than prime central London residential property, but since the Brexit vote in June 2016 the story has changed.