Food security and the value of UK farmland
Making sense of the latest trends in property and economics from around the globe.
5 minutes to read
Back to the 70s
The energy price shock, soaring inflation, an exceptionally tight jobs market, expectations that it's all going to get worse: there are many reasons to compare what's going on today with the 1970s and lots of important people are doing just that.
Those conditions produced a 500% spike in the value of farmland during the decade, could we see a repeat? Probably not, at least not to that extent, according to our rural research expert Andrew Shirley. Andrew points out that farmland prices already carry a substantial premium above their productive capacity.
Still, average prices are rising at their fastest rate since 2014, with the annual growth rate of bare land hitting 14% in the year through Q1. A lack of supply and strong demand from a wide range of purchasers, particularly rollover and conservation-motivated buyers, continue to support prices. The volume of publicly advertised land for sale so far this year, for example, is about 50% below the levels seen in 2021, itself an historically sparse year.
Food security's spot close to the top of the political agenda is lending new momentum to the market. Around a third of the world's grain exports are shipped from Black Sea ports, however the issue extends well beyond grain. Open today's papers and you'll find warnings from a variety of producers and manufacturers, from the milk industry to Tate & Lyle. We expect investors to look increasingly favourably on farmland, both for its effectiveness as a hedge against inflation and its place as a source of environmental and carbon credits.
The City
Various banks set up or expanded trading hubs in Dublin, Amsterdam and Frankfurt in the run up to Brexit amid uncertainty as to whether the City of London would become ensnared in a regulatory tussle between the UK and the EU.
Officials at the Bank of England told a House of Lords committee earlier this month that they were yet to see any attempt to move "large numbers" of staff to the EU. Meanwhile, the European Central Bank is in the middle of a "desk mapping" review to check whether the new EU hubs have sufficient senior staff or activity to justify their new EU licences.
The results of that desk mapping will be interesting to read, because all evidence suggests the movement of financial services jobs out of London has plateaued. During Q1, the number of Brexit-related staff relocations to the EU has been revised down again, from 7,400 in December 2021 to just over 7,000 as March 2022 closed – significantly down from the peak of 12,500 announced in 2016, according to the latest tracker from EY.
Home Office data published in today's Times reveals about 200 foreign-based workers a week are being hired by British banks, fund managers, insurers and other City firms amid a broad-based war for talent. The data isn't broken down by nationality, but a large portion are thought to be from EU countries.
Prime central London
After a relatively quiet two years, activity is stirring in the prime central London (PCL) property market. In fact, demand was notably stronger in the first quarter of this year inside zone 1 compared to the wider London market and rest of the country.
The number of new prospective buyers in PCL was 84% higher than the five-year average during Q1. That compared to an increase of 71% across the whole of London and 42% in UK regional markets. Furthermore, the number of offers accepted in PCL was 104% higher over the same period, which was greater than a figure of 83% in London and 43% in country markets.
A sense of value is in-part driving demand. Average prices in PCL are 16% lower than they were at the start of 2016. That compares to a 9% decline in prime outer London and a 13% increase in country markets.
There is a fair amount of speculation as to when international buyers will return in meaningful numbers. While overseas activity was strong in the final three months of last year after travel rules were relaxed in October, it has been more sporadic this year, initially due to the arrival of the Omicron variant at Christmas. Given the extent of ongoing lockdowns in some parts of the world, any return of overseas buyers is likely to be gradual rather than transformational - see the piece for more.
Bristol
Demand for homes in UK cities has surged as workers untethered from five-day-a-week commutes have sought out alternative, more affordable places to live. Last year, Bristol was the third most popular city for London leavers, attracting over five thousand movers from the capital.
Demand for housing in Bristol is on the rise, with Knight Frank data showing a 33% increase in the number of prospective buyers looking to purchase a home in the city last year compared to the five-year average. It has a growing reputation as a tech hub, with tech, media, and telecommunication (TMT) firms accounting for 31% of office take-up over the past five years.
There is now pressure on local authorities to provide enough housing to meet demand. Analysis of the council’s own five-year supply pipeline from 2020 to 2025 suggests the city will fall short of its annual housing delivery requirement by more than 10%, according to our research.
In other news...
We have updated our House View. See new updates for UK Farmland, UK residential investment, UK economics, global economics and the UK residential market.
It was a landmark year for French Tech in 2021, with record levels of funding. David Bourla analyses the impact these businesses are having on the domestic real estate market.
Elsewhere - first-time buyers repelled as mortgage costs overtake rents (Telegraph), the case for the Fed hiking by half a percentage point in May (FT), quitting rates to endure, says man who coined the phrase "The Great Resignation" (FT), "The Great Resignation" may persist, says Randstad (Bloomberg), and finally, a sudden fall in consumer confidence (Times).