UK farmland prices have dropped back below £8,000 an acre following an average 3% decline in values in the first quarter of 2016, owed largely to growing uncertainty around the UK referendum.

The fall in values was the greatest quarterly decline since the 5% drop that was recorded following the collapse of Lehman Brothers in Q4 2008, the latest analysis report from Knight Frank shows.

The volume of farmland advertised for sale, in terms of acres, at the end of March, fell by a quarter compared with the corresponding period last year, and yet a recent survey by Farmers Weekly shows that in spite of the uncertainty and fall in values, 60% of farmers will be voting to leave the EU on 23 June.

The report also looked at what has happened to farmland prices since the UK joined what was known as the European Economic Community (EEC) in 1973.

Data collated from the Ministry of Agriculture / DEFRA shows that land values increased sharply around the time the UK joined the EEC in 1973, even managing to beat the hyper-inflation of the 1970s. Over the long term that trend has continued with land values outpacing inflation. But the sobering trend for farmers is how agricultural commodity prices have failed to keep up

The report also points out that more investors are now looking much further afield and for value-add opportunities such as diversified income streams or development potential.

Prime country houses

The study also reveals that prime country house prices rose by 0.3% on average in the first quarter of 2016, taking annual growth to 2.4% – down from 5.2% in 2014. However, there was a notable rise in activity in the first quarter of the year, with Knight Frank figures showing a 24% rise in sales volumes across the prime country market, compared with the same period in 2015.

Activity was focused on the sub-£1m market, which showed strongest price growth of 4% across the last 12 months. Homes worth £5m-plus saw values fall by 2.7% in the same period.

“From weighing up the hugely complex issues surrounding the EU referendum, to coping with a slump in agricultural commodity prices and working out what the implications of the latest changes to the planning system could be for them, estates, farms and other rural businesses are having to take some extremely big decisions,” said Andrew Shirley, head of rural research at Knight Frank.

Looking ahead, Clive Hopkins, Knight Frank’s head of farms and estates, believes that whatever happens with the referendum farmland will remain an attractive asset class.

“I don’t foresee a glut of land on the market or a significant drop in prices,” he said.

However, Rupert Sweeting, head of country house sales, is not so optimistic when it comes to country housing market, particularly in the short-term, as some buyers to adopt a ‘wait and see’ approach until after the vote.