Farmland property has outperformed commercial markets for the third consecutive year, delivering 8.2% last year, according to the IPD UK Rural Property Investment Index. The annual return is more than double the 3.5% delivered by commercial property, and considerably improved on 2008's 10-year low of 1.7%. This improvement has been driven by capital growth, pulled back from 40 basis points depreciation in 2008 to 6.3% last year.
The index, which is IPD's first established valuation-based index and has a 29-year history, measures the ungeared performance of a tenanted farm land worth just under £2bn compiled from valuation and management records for individual farms and estates held by institutional and private investors.
All regions delivered positive total returns in 2009, led by the South East which saw double-digit performance, at 14.0%. The biggest year-on-year improvement was in the North West & North East which in 2008 saw -5.0%, the lowest total return recorded by any region since 1991. Performance bounced back with strong capital growth, to return 7.3% in 2009.
The West Midlands saw the strongest income return, 60 basis points above the all UK average, at 2.4%. Despite a strong performance in 2009, returning 11.0% and second only to the South East, Yorks & Humberside saw the highest volume of net disinvestment in the UK, at 5.7% of year end capital value.
There continued to be net disinvestments from tenanted farmland in 2009. Slightly down on 2008, this stood at 1.3% of year end capital value. Only three areas in the UK saw positive investment levels: the South East, West Midlands and North West & North East.
Asset Class Comparisons
Rural property outperformed the main commercial markets as well as bonds, which delivered 3.5% and -0.3%, respectively, while underperforming residential property (11.0%) and equities (30.1%). However, over the three, five and 10-year picture, rural property consistently outperformed all asset classes.
The IPD UK Rural Property Investment Index was comprised of 515,355 acres in 223 estates with a capital value of just under £2bn. Data is collected from investors and managing agents and audited by IPD. All year-end valuations used in the index are conducted by qualified valuers working to RICS guidelines. Confidential tenant names are not disclosed to IPD.