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RURAL REPORT
SUMMER 2010
THE
A U N I Q U E G U I D E T O T H E I S S U E S T H A T M A T T E R T O L A N D O W N E R S
election focusWhat the coalition means
for the countryside
RURAL PROPERTY MARKETSAgricultural land prices
treble in a decade
Renewable energyWhy feed-in tariffs are
set to boost your income
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THE RURAL REPORTEditor - Andrew [email protected] - Caroline [email protected] & art direction - [email protected] - Anthony [email protected] - 4 Print LtdPublished by Knight Frank LLP
ANDREW SHIRLEYAndrew is head of rural research at KnightFrank. Previously he was property andbusiness editor at Farmers Weekly 06
ANTHONY ELLISAnthony is a freelance photographer recentlyback from assignment in Afghanistan. His workhas been published in The Independent 08
CHRISTOPHER SMITHChristopher is Knight Frank’s renewable energyexpert. He advises some of the UK’s largestlandowners including the Crown Estate 10
JAMES DEL MARJames heads Knight Frank Rural Consultancy.Specialising in strategic investment andmanagement issues, he advises rural propertylandowners - from charities to funds to private clients 12
Published by Knight Frank LLP. ©Knight Frank LLP. This report is published for general information only and not to be relied upon in any way. Although high standards have been used in thepreparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damageresultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation toparticular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form and content within which it appears.Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a listof members’ names.
KnightFrank.co.uk/rural 03THE RURAL REPORT
Welcome to the first issue of The Rural Report, Knight Frank’s focus on the issues that matter to ITS rural clients and their advisOrs
Energy team is a good example of howKnight Frank can help its clients cope withthe changing economic, environmental andpolitical landscape.
Planning policy is another area where thecountryside and its inhabitants are set toexperience fundamental change, both at alocal and national level. The governmentwants to devolve more decision making tolocal communities and has alreadyannounced that it plans to scrap theInfrastructure Planning Commission andget rid of Regional Spatial Strategies. Wehave specialist teams ready to advise onwhat all this could mean for your business.
Our special focus on page 4 looks atother areas where the new government’spolicies will impact on rural communitiesand asks key lobby groups and businessleaders what the coalition’s prioritiesshould be. Ultimately, however, as one ofour contributors - The Crown Estate’sChristopher Bourchier - explains, whateverpoliticians do to facilitate change theresponsibility for achievement lies with us.
I do hope you enjoy reading The RuralReport and please get in touch with me orany of my colleagues if we can help youachieve your goals. You can find all ourcontacts at the back of the magazine.
Sandy DouglasKnight Frank Rural Consultancy
contents
contributors
04 News reviewWhat the Westminster coalition means for the countryside
06 Market analysisThe continuing rise of farmland values
08 Client case studyManaging Enfield’s Green Belt
10 Business opportunitiesMaking the most of renewable energy
12 The Big InterviewThe CLA’s William Worsley talks to The Rural Report
14 Final WordPlan long term to protect the capital value of your estate
Launching a new magazine is alwaysexciting, but never more so than duringtimes of profound change. Barely six weeksinto the new era of political partnership atWestminster and we are already seeingearly signs of what it means to berepresented by a coalition governmentbattling to cut a huge national deficit.
Some of what we have seen isunwelcome, the increase in Capital GainsTax being a particularly pertinent examplefor many rural property owners. But wherethere are challenges there are alsoopportunities. The Rural Report’s widevariety of articles and contributors capturesome of that spirit of optimism.
Landowners are well placed to help thenew coalition deliver on its promise toincrease the generation of energy fromrenewable sources and increase theprovision of affordable rural housing. Butas CLA president William Worsley pointsout in our interview with him on page 12,the challenge is to persuade government towork in partnership with those who can help.
Renewable energy in particular offerslandowners huge potential to boost theincome from their farms or estates, and welook at the opportunities available in moredetail on page 10. Our new Renewables and
Comprehensive accounts & property software flexibly designed for ease of use.
Take control of your strategy, financial and diary records with our KEY management software tools for farms, estates and rural business.
Landmark is delighted to support Knight Frank and its clients.
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04 KnightFrank.co.uk/rural 05THE RURAL REPORTTHE RURAL REPORT
Well hung at Westminster
3 Renewable energyOliver Harwood - CLA chief surveyorand renewables advisor
Both coalition parties damned the outgoingadministration for poor performance on thedelivery of renewables (the UK lags secondfrom bottom of the European league table withmarginally more renewable capacity per headthan Malta). The initial coalition agreementcontained significant indications of the waythe agenda may develop, but it was by nomeans comprehensive. The parties have so faragreed to implement the full establishment offeed-in tariff systems in electricity, as well asthe maintenance of banded ROCs, andmeasures to promote a huge increase inenergy from waste through anaerobicdigestion. They also agreed to increase thetarget for energy from renewable sources,subject to the advice of the Climate ChangeCommittee. From the CLA’s perspective, thislooks welcome, but, as always, the devil will liein the detail and we are working hard to bringthe question of renewable heat and theprevious administration’s welcome proposalsfor an incentive to use wood fuel for heat,which accounts for half our energy use, to theattention of the new team.
4 Institutional landownersChristopher Bourchier - Director ofthe rural estate, The Crown Estate
The rural land management priorities of thecoalition have now been confirmed, with astrong focus on sustainability - in a broadcontext. In practical terms, key priorities forlandowners include increasing foodproduction, while reducing environmentalimpacts; ensuring new property developmentsare energy efficient, carbon efficient anddesigned with quality of life as a priority;increasing renewable energy output, matchingproduction technologies to appropriatelocations. These priorities signal opportunitiesfor rural businesses, subject to achievingcommercial competitiveness in a highlyvolatile global marketplace. The greatestbenefits will accrue to those able to worksuccessfully in partnership, whetheraddressing food production, propertydevelopment or renewable energyprogrammes. Clearly, the new coalitiongovernment will be working to facilitateprogressive change - but the responsibility forachievement rests with us.
5 Birds and wildlife in the countrysideMark Avery -policy director RSPB
Budget cuts may have bigger impacts onwildlife than on the people who are makingthem. The likelihood of environmentalpayments to landowners being reducedalongside the budgets of Natural England andthe Environment Agency could easily feedthrough to falling wildlife numbers. Will therebe a sell-off of public land? What future for theForestry Commission? We live in interestingtimes.
Farmland birds are still suffering and thesuccess of the Campaign for the FarmedEnvironment depends on farmers’ access toenvironmentally friendly grants. A White Paperon wildlife is promised - we hope it kick-startsthe restoration of UK habitats. Wetlands,heaths and woods store carbon, providerecreational opportunities, alleviate floodrisks, clean up polluted water and boostwildlife numbers. Two of the best ministers wehave had for wildlife were John Gummer andMichael Meacher - their politics were milesapart but they both did very good jobs fornature. The RSPB looks forward to working withall politicians who care for nature.
6 Rural communitiesBen Stafford -policy director CPRE
The Campaign to Protect Rural England soughtto influence the manifestos of all the politicalparties. As a charity we take no view onwhether the election result was a positive onefor rural communities. The Conservatives andLiberal Democrats were successful in manyrural or largely rural constituencies, but thelack of an outright majority in parliament forany party also means that individual MPs of allparties can be much stronger champions fortheir communities. CPRE has a range ofpriorities for the new government, in areasincluding planning and housing, protectingand improving our countryside and bestlandscapes, improving public transport in thecountryside and tackling litter and fly-tipping.But our first priority in terms of the socialissues facing the countryside would beaffordable housing. In too many areas peopleare priced out of the countryside, andcommunities suffer as a result.
7 Tenant farmersGeorge Dunn - chief executiveTenant Farmers’ Association
The TFA is hopeful that the government’s callfor a “new politics” will extend to developing anew partnership approach with the farmingcommunity based on mutual trust, sharedvision and practical delivery. This must includea greater understanding of the tenanted sectorin agriculture. Urgent work needs to be done toreview the operation of the AgriculturalTenancies Act 1995, which, after 15 years, hasfailed to provide a stable framework for the letsector. With short lengths of term (typically fiveyears or less) tenants lack the ability to plan forthe long term either in relation to theiragricultural activities or in relation to theirdesire to take part in diversification activitiesand agri-environment schemes.
8 The rural economyAllan Wilkinson - head of agricultureHSBC Bank plc
We are in new territory and it is too early tomake any real conclusions, but the ruralagenda seems to be really low on the list of thecoalition's early priorities identified so far. UKagriculture has thankfully not felt the ravagesof the recession, but it is becoming clear thatwe will all have to contribute to redressing theUK’s large deficit. What of these deficits - willthey look at Single Farm Payments? Futurefractions of support dependent on individualmember government support may bevulnerable.
The only tangible mention from the coalitionof something that farmers and land owners canexplore is anaerobic digestion - a subject thatseveral businesses are assessing at present.
1 Simon Hart MP 2 Peter Kendall
3 Oliver Harwood 4 Christopher Bourchier
5 Mark Avery 6 Ben Stafford
7 George Dunn 8 Allan Wilkinson
Unusually for the new coalition, theDepartment for Environment, Food and RuralAffairs is an entirely blue affair, with all theministers drawn from Conservative ranks.Looking at the new recruits’ CVs (see right)there appears to be some genuine agriculturalinterest - as one of our contributors points out“some of them even shoot”. Hopefully moreemphasis is put on the food and rural affairspart of their brief, which under the previousadministration seemed to suffer at the expenseof the environment.
From the perspective of farm incomesWestminster has had, historically, relativelylittle influence. But with the EU’s CommonAgricultural Policy due to be reformed in a fewyears’ time and serious issues such as bovineTB facing the sector, a more farmer-friendlyteam will be helpful.
The Conservative Nick Herbert, long tipped
The Rural Report looks at what the Conservative Liberal Democrat pact means forthe rural property owner and asks lobby groups and businesses what impact thecoalition will have on their sectors and where its priorities should lie
to take charge of DEFRA, finds himself insteadin charge of policing at the Home Office. Theefforts of rural lobby groups to earn MrHerbert’s ear might not be in vain, however,if he addresses the serious dearth of ruralpolicing.
Renewable energy will be a key incomegenerator for rural landowners and theappointment of the pro-renewables LiberalDemocrat Chris Huhne to run the Departmentof Energy and Climate Change looks positive.The coalition already seems very keen to buildon the incentives introduced by the Labourgovernment (see p10), with increased supportfor anaerobic digestion a priority.
Planning policy, covered by Tory Eric Picklesat the Communities and Local Governmentministry, has proved the bane of many ruralbusinesses. At first glance, the Conservative’saim to hand more control over planning
decisions to local communities seemssensible, but there is a danger that it could endup being a charter for NIMBYism. The provisionof affordable housing is high on both parties’agendas. Involving landowners profitably inthe process could prove very beneficial.
Of course, the real impact for most of us willcome from the Treasury as it battles to cut theUK’s national deficit, not just through theinevitable tax rises - landowners shouldalready be taking advice on the potentialimpact of the hike in Capital Gains Tax - but viagovernment cost cutting in areas such asmatch-funding farm support payments and theRural Development Agencies. In just a fewweeks of government, £6bn has already beensaved by the coalition, but there isundoubtedly much more pain to come.
News Review: What the election means for the countryside
1 Hunting and field sportsSimon Hart - new Tory MP and formerchief executive of the Countryside Alliance
As far as hunting, shooting and other ruralactivities are concerned the formation of thenew government is very positive. We have aDEFRA ministerial team that is extremelysupportive of rural issues and for the first timein many years contains people who actuallyshoot. Likewise at the Home Office NickHerbert’s appointment as policing minister willensure that the position of legitimate firearmsusers is robustly defended. We now haveministers who understand the hugeconservation benefits provided at no cost tothe taxpayer by shooting and other ruralactivities. Nor does the Conservative LiberalDemocrat coalition preclude the repeal of theHunting Act. The new government will facehuge challenges on the economy and manyother issues and hunting cannot be at the topof its agenda, but a free vote on repeal is aConservative manifesto commitment thatshould be delivered when the time is right.
2 AgriculturePeter Kendall - presidentNational Farmers Union
The coalition government begins its work at atime of stark economic difficulties. I want to beabsolutely clear that the NFU is committed toplaying its part in the “hard and difficult work”that the new Prime Minister has talked about.But it is imperative that any cuts that have tobe made do not inhibit the ability of farmersand growers to compete. Farmers now want tosee action on specific policy issues. Forexample, decisive steps must be taken to stopthe needless waste and distress being causedby bovine TB, and I am encouraged by thecommitment both coalition partners havemade in the past to pursuing a science-basedand comprehensive approach to tackling thedisease, including measures to controlbadgers. Another key priority will be reform ofthe Common Agricultural Policy (CAP), and it isimperative that food production remains at itsheart. Environmental considerations willcontinue to play an important part of the CAP,but agriculture must not be seen merely as ameans to deliver environmental goods. I trustthat the coalition parties will put theirdifferences over Europe to one side andnegotiate effectively in the interest of Britishfarmers.
what does the election result mean for...
Knight Frank can help you plan for the futurewhatever the colour of government. All the ruralteam’s contacts can be found at the end of themagazine or at knightfrank.co.uk/rural
To read more from our commentators please go to knightfrank.co.uk/rural
The new DEFRA TeamCaroline Spelman MP - Secretary of state. Worked in agricultural sector for 15 years.Jim Paice MP - Minister of state for agriculture and food. Former farm manager and shadowfarm minister.Richard Benyon MP - Parliamentary under-secretary for natural environment and fisheries.Family owns 14,000-acre Englefield Estate.Lord Henley - Parliamentary under-secretary. Tory peer and landowner.
KnightFrank.co.uk/rural
06 KnightFrank.co.uk/rural KnightFrank.co.uk/rural 07THE RURAL REPORTTHE RURAL REPORT
Market analysis: Agricultural land values
Farmland rules the roostEnglish farmland has comfortably outperformed other property and investmentasset classes over the past decade, according to the Knight Frank Farmland Index.Andrew Shirley, Knight Frank’s head of rural property research, looks at thenumbers
Main picture: Lawn Farm, Tisbury, Wiltshire, is forsale at £6m and includes 470 acres of farmland
Anybody who happened to buy Englishfarmland 10 years ago either made a veryshrewd investment or was extremely lucky.While the FTSE 100 index of leading shares hasfallen in value by over 20% during that period,agricultural land has almost trebled in value.According to our farmland index it increased bya further 7% in the second quarter of this year,taking total growth for 2010 to 13%.
As the graph opposite clearly shows eventhe price of the best residential property incentral London has not managed to keep upwith its less glamorous rural cousin, ablemerely to double in price.
The farmland market proved more resilientduring the credit crunch than otherinvestments and it might have been expectedthat stock markets, which took a huge beatingduring the economic downturn, would haveoutperformed farmland as they bounced backfrom long-term lows. This, in fact, hasn’tproved to be the case and farmland hascontinued to outperform, while equity marketsappear to be suffering another loss ofconfidence - this time driven by the economiccrisis in Greece and other EU countries. Overthe past 12 months very few mainstreaminvestments have bettered agricultural land’s20% rise in value.
At the beginning of the last decade, whichwas when I first started following the farmlandmarket, an acre of decent, but not outstanding,farmland was generally considered to be worthabout £2,500/acre. Since then prices havegrown steeply and the average price offarmland in England, according to our farmlandindex, now sits at £5,769/acre. Many sales, ofcourse, realise far more than this and£7,000/acre is not uncommon.
Phenomenal growth
What has driven this phenomenal growth?Unlike the early 1970s when the UK’s entry intothe Common Market saw the advent of heavilysubsidised agriculture (see graph), there is noone factor behind the rise. Put simply though itall comes down to old-fashioned supply anddemand. The amount of land for sale hassteadily declined while interest from manydifferent sorts of buyer has remained strong.
Ten years ago 226,000 acres of farmland
were sold in England alone, according to thethen Ministry of Agriculture, Fisheries and Food.Last year, under 150,000 acres were advertisedpublicly across Great Britain, about 30% fewerthan in 2008. So far this year, the amount ofland put on the market is down by a further30%. Since new legislation was introduced in1995, agricultural tenancies are now far moreflexible than they were previously. This makes itmuch easier for farmers to continue living intheir house, while somebody else farms the land.
In the years prior to the credit crunch, the so-called “lifestyle” farmer, flush with his Citybonus and looking for a picturesque pad in thecountry, helped drive up the price of farms. Thistype of buyer naturally faded away along withthe bonuses, but there is no doubt they will beback.
At the peak of the economic boom, farmlandalso caught the eye of investors entranced byspiralling commodity prices and desperate tojump on any rising market. Many of theirpurchases were in cheaper overseas markets, buttheir mere presence and a few strategic purchasesin the UK helped to push up prices here.
Most funds in fact bought very little land,quickly realising that farmland is not anespecially liquid or readily available commodityto trade in. The recession and lack of finance putmany of their plans on hold, but some are nowstarting to remerge. However, as my colleagueClaire Glover highlights elsewhere in thisarticle, it is wealthy private individuals, fromboth the UK and overseas, who are currently themost active non-farming buyers. While equityand other investment markets remain volatileand interest rates low, farmland offers atangible, resilient and often tax-friendly homefor their money.
It is sometimes said that the farmlandmarket is now entirely divorced fromagricultural commodity prices, but this is nottrue. While there is certainly no directcorrelation between land values and, say,wheat prices, and it is difficult to justify payingcurrent values based on the agricultural returnalone, farmer confidence still plays a huge rolein pushing up prices. When cereal prices rosein 2008 so did land values, along, inevitably,with large machinery purchases. Successfulfarmers will always continue to expand.
In addition, UK agriculture has a very
For more information on agricultural land valuesplease contact Andrew Shirley [email protected] or on 020 7861 5040. To read our latest agriculturalresearch or to subscribe to our quarterly RuralBulletin please visit www.knightfrank.co.uk/rural
MARKET focus: farms, estates andequestrian properties
I am currently seeing a lot of interest inproperties dedicated to polo or farms withpolo facilities. This year we have already sold£15m worth of property, which included 14polo pitches, three arenas, 190 stables, but onlyabout 15,000 sq ft of residentialaccommodation. One of the most interestingsales was Lynt Farm at Inglesham, Wiltshire.This 300-acre farm was bought for around the£2.5m guide by two dairy farmers who will use some of the land for feeding their cows.The part of the farm that made it a viablebusiness, however, was 80 acres of polo fields,which the farmers immediately re-let. Anincredibly rich Asian businessman with apassion for polo paid around £3.5m forGadbridge Farm, near Windsor, which was aprestigious 32-acre polo set up. Demand forpolo facilities is outstripping supply and thereis likely to be strong bidding for 140-acreSaddlewood Manor, Gloucestershire, whichincludes a polo pitch. The guide is £[email protected] 020 7861 1373
Market analysis: Agricultural land values
Very few good estates have been up for salepublicly over the past 12 months. Those thathave come to the market have subsequentlysold very well. Properties up to, and around£10m, are proving especially popular -Enstone Court in Oxfordshire, sold earlier this year, being a good example. There has been a particular dearth of well-located estates over the £10m mark for sale, which has frustrated buyers. In thissort of undersupplied market a proactivemarketing campaign is proving mosteffective. We achieved a very good resultwhen we decided to sell 1,300-acre ComptonCastle in Dorset by public auction - aninterested party made a very acceptable offer prior to the sale to avoid having to bid.Two newly launched estate packages that will sell well this summer are 902-acre WestLodge in Dorset, guided at around £12m, and245-acre Beaurepaire in Hampshire, guidedat £[email protected] 020 7861 1064
Prior to the credit crunch people with wealthto spare were snapping up pretty residentialfarms, now bare land is what they seem to belooking for. We are currently seeing hugedemand from a wide range of buyers, but inparticular from private non-farmingindividuals, including a significant number ofoverseas buyers looking for a safe long-terminvestment. Many see it as a hedge againstinflation and more reliable than stocks andshares and other less tangible investments.Recent strong sales have included three salesof land in the Cotswolds that achievedbetween £8,000 and £10,000/acre. The1,500-acre Showsley Estate inNorthamptonshire, which was a combinationof vacant possession and tenanted land, alsoachieved a strong price. Another interestingtest of the market will be 250 acres of Grade 3arable land suitable for potatoes that we areselling in Northumberland. It will be guidedat around £6,000/[email protected] 020 7861 1069
Asset performance over thelast decade
English farmland
Prime central London houses
Prime country houses
FTSE 100
Source: Knight Frank Residential Research
FarmlandHead of farmland salesClaire Glover
EquestrianHead of equestrian salesRobert Fanshawe
EstatesHead of estate salesClive Hopkins
healthy balance sheet. Its low debt-to-capitalratio meant that banks remained happy toloan even during the credit crunch when mostother industries were starved of finance.
Despite its strong price growth, UK farmlandstill remains cheap compared with some EUcountries such as Denmark, Ireland andHolland. This has encouraged many farmersfrom these nations to buy land in the UK. Therelative weakness of sterling against the eurohas been an added bonus for anybody whohas bought over the past 36 months.
Nobody wants to pay more tax than theypossibly have to and the availability ofAgricultural Property Relief - thankfullyuntouched so far by the new government - onall or part of the value of a farmhouse is acontinuing motivator for many farm acquisitions.
The Future
The big question now is can farmland pricescontinue to grow? Investors hoping for riseson the scale of the past 10 years might bedisappointed, but judging by the increase wehave already seen so far in the first six monthsof this decade, a doubling of values by 2020looks very realistic.
All the factors that have driven demand andrestricted supply will remain in play and some,such as concerns over food security, may evenbe accentuated.
Commodity prices remain stagnant at themoment, but most forecasts point to aninevitable recovery as the global demand forfood increases and climate change, urbangrowth and land degradation put morepressure on the remaining resources. If wesee another commodities boom, similar tospring 2008 when wheat prices threatened tobreak through the £200/t barrier, demand forland will surely soar.
As William Worsley, president of the CountryLand and Business Association, points out inour interview with him on page 12, new land-based environmental markets may alsodevelop, creating yet another reason to ownfarmland. If landowners can prove that theirfarmland is sequestering damaginggreenhouse gases, getting paid for thatservice is not as far fetched as it would havesounded just a few years ago.
350
300
250
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Inde
x (Q
4 19
99=1
00)
19451947
19491951
19531955
19571959
19611963
19651967
19691971
19731975
19771979
19811983
19851987
19891991
19931995
19971999
20012003
20052007
20092010
£6,000
£5,000
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Average price of English farmland(£/acre)Source: Knight Frank Residential Research/DEFRA
12 months 5 years 10 yearsFarmlandPrime London housesPrime country housesFTSE 100
183%104%
32%-22%
109%61%
1%3%
20%16%4%
13%
08 KnightFrank.co.uk/rural 09THE RURAL REPORTTHE RURAL REPORT
Managing the Green BeltKnight Frank is well known for managing traditional country estates, but the firm’sexpertise is proving increasingly valuable to a far wider range of clients. The RuralReport visits the London Borough of Enfield to find out why
Words: Andrew ShirleyImage: Anthony Ellis
Client case study: The London Borough of Enfield
right of succession, the farms on the Enfieldestate are mainly rented under less flexibletraditional Agricultural Holdings Acttenancies.
A key issue that needed to be resolvedwhen Knight Frank took over involved anumber of longstanding covenants imposedby some of the estate’s previous owners,including the Duchy of Lancaster. Theseeffectively prevented the promotion of newopportunities for agricultural diversificationacross the holding, making it difficult torealise the true income potential ofredundant land and buildings.
“The situation was unusually complicatedwhen we took over the management,”admits Alastair. “Our first step was to get togrips with what was on the ground byimplementing a full landlord and tenantcompliance audit, which scrutinised everyproperty and tenancy agreement. We couldthen start to introduce a consistentmanagement approach across the portfolio.One of the biggest problems was that therewas no clear ownership policy in place, sowe worked with Enfield to find out what itreally wanted to achieve as a landowner.
“We came up with three clear objectivesthat involved managing the estate in a fullycommercial, but environmentally andsocially sensitive manner; protecting andenhancing the Green Belt and facilitatingaccess to it where appropriate by the localcommunity.
“One of our first recommendations was tosort out the issue of the covenants andregularise any breaches. After a complexprocess this has now been achieved with afinal settlement between all parties agreed.
“Many of the long-term issues weencountered when we arrived have beenresolved so we can now concentrate on theday-to-day running of the estate, carryingout a programme of much-needed repairwork and enhancing its long-term viability,”says Alastair. “Enfield as a landowner hasmoved from being reactive to proactive.”
A recent success was to negotiate thesurrender of an AHA tenancy on a 560-acrefarm, which was owned by The LondonBorough of Enfield and Hertfordshire County
Council, with its tenant who had moved toCanada a number of years ago. “It was a veryunusual case and involved two councils, twolandlords, three farmers and four sets ofagents,” points out Alastair.“ In the end weachieved a very good result, agreeing afavourable rate for the surrender and re-letting the farm for a significantly higherrent under a farm business tenancy. The valueof the farm has also increased by up to 50%.”
Using an external consultant like KnightFrank to make these kind of changes iseasier says Peter. “Acting at arm’s lengthand using experts who have comparableexperience from other estates that theymanage across the UK enables us todemonstrate best value.”
One of the interesting challenges of anestate owned by a borough council,particularly one in the Green Belt, is thatlocal residents understandably take a keeninterest in how it should be managed , saysPeter. “On the one hand many people wanttheir council tax to be as low as possible, onthe other many expect you to look after theGreen Belt and provide as much publicaccess as possible.
“Every decision we make is closelyscrutinised by the many and variedinterested parties.” As an agent Alastairagrees: “You do have to be very aware of allthe different sensitivities in the borough andwork hard to build relationships.”
But making the right decisions is whatKnight Frank is all about and the EnfieldGreen Belt portfolio is now quite differentfrom when the firm took over themanagement four years ago. “I am apassionate believer in bringing inspecialists to manage complex estates,”says Peter. “What has been achieved hereproves that the approach really works whenyou choose the right partner.”
Alastair Paul can be contacted [email protected] or on 01488 688 548. Alastair is part of Knight Frank’sInvestment Land Management Team andspecialises in managing land as an investment.Knight Frank Rural Consultancy can advise on allaspects of land and estate ownership.
“Our first step was to get to grips with what was on the ground by implementing a full landlord andtenant compliance audit”
Making a plan - Alastair Paul (right) and PeterCook discuss future strategies for the LondonBorough of Enfield’s Green Belt estate
Gazing over the London Borough of Enfield’spicturesque 3,000-acre farming estate it iseasy to forget that we are in the Green Belt,neatly sandwiched between the busy M25motorway and the sprawl of north London.
The rolling arable and pasture fieldsinterspersed with oak trees and woodlandare more reminiscent of the deepestcountryside than gritty urban fringe farming.Only the hum of the motorway and thesilhouettes of the BT Tower and CanaryWharf on the horizon reveal how close weare to the city.
But as Peter Cook, the manager of theborough’s Green Belt portfolio, and KnightFrank’s Alastair Paul discuss the estate, itquickly becomes clear that the bucoliclandscape belies some serious managementchallenges.
Running a rural estate is obviously notpart of a London borough’s usual skill set,so in 2006 Enfield shrewdly decided to lookfor a specialist external consultant toimprove the effectiveness of themanagement of its Green Belt propertyassets.
Knight Frank’s rural consultancy andmanagement specialisms were just what thecouncil needed. In addition, the firm wasalready on the Office of GovernmentCommerce’s shortlist of approvedbusinesses (those that have satisfiedgovernment as to their abilities and ethics)able to offer management services. Thismeant it was ideally placed to assist at shortnotice.
“It is a very complex estate, which is whywe really needed to work with a firm thathad wider experience of the problems wewere facing,” explains Peter. “On mostproperties of this size you would expect justthree or four farming tenants. We have 12,ranging in size from 60 acres to 600 acres.In total, there are about 70 separateproperty interests in the portfolio.”
Apart from the number of tenants, thetype of tenancy agreements in place alsomakes it difficult to maximise the returnfrom the estate. Unlike many countycouncils’ rural estates, where the farms arelet under smallholding tenancies with no
KnightFrank.co.uk/rural
10 KnightFrank.co.uk/rural 1 1THE RURAL REPORTTHE RURAL REPORT
Business opportunities: Renewable energy feed-in tariffs
KnightFrank.co.uk/rural
Transform your estate income with renewable energyBoosting the annual income of your estate or farm by many thousands ofpounds and getting paid to use electricity that you have generated yourselfseems too good to be true, but that is exactly what is on offer under the newrenewable feed-in tariff scheme. Christopher Smith, head of Knight Frank’snew Renewables and Energy department, explains the deal on offer to rurallandowners
FITs, as the new payments are widely known,are now available to anybody who sets up aneligible renewable energy project on theirproperty. Different renewable energy sources,such as hydro or wind, attract different levelsof payments (see examples in table below) andthe rates also vary depending on how muchpower your scheme can supply – generally thesmaller the scheme the higher the rate.
In order for your electricity to be meteredand to qualify for FITs, your power supply mustbe connected to the National Grid - being closeto an appropriate connection point is thereforebeneficial - but there is no compulsion toactually supply any electricity if you can use itall yourself. In fact, this is where the numbersreally start to stack up, especially if you arerunning an energy intensive enterprise such asa dairy herd or food-processing business,because you will also be saving on the cost ofbuying electricity from your usual supplier -currently around 10p/kWh.
Payback time for the cost of the generatingequipment reduces substantially in thesecircumstances - in some cases to under threeyears. The benefits are also likely to carry ongrowing as the future cost of wholesaleelectricity could rise substantially. Again, thecloser the point of consumption to the point ofgeneration the better.
One of the most attractive aspects of FITs isthat the rate of payment is index linked andguaranteed for up to 25 years from the dateyou join the scheme. This sounds an incrediblygenerous move by the government, but,cleverly, the payments are funded by theelectricity generating companies who willultimately recoup the cost from bill payers.
Because the government has to ensure 40%of the energy produced in the UK is carbon-freebefore 2020 under the Kyoto agreement, it iskeen to see as much renewable energygenerated as quickly as possible. The FITscheme can reward those who sign up early.For example, anybody installing a wind turbinewith a generating capacity of under 1.5kWbefore March 2012 will receive a higher initialtariff than those who join at a later date.
This sliding scale of payments does not applyto anaerobic digestion, hydro and larger windschemes, which attract the same initial rateuntil at least March 2021.
FITs are available for electricity generatedfrom wind, water, solar (photovoltaic) andanaerobic digestion. This means that the vastmajority of estates or farms will be able tobenefit in some way.
Knight Frank Renewables Estate
To highlight the opportunities available wehave created a model estate that utilises asmuch renewable energy as possible (seeillustration and table below).
In total, the estate is creating almost £1m ofincome a year before interest and tax. If theelectricity produced was used on the estatethis would rise to closer to £1.1m. We have alsonot included the benefits of the nitrogen-richby-product and heat from the anaerobicdigester. In reality, you would be unlikely toinstall all of the different technologies as thecost benefits vary widely. There would be nopoint, for example, installing expensive andless productive photovoltaic panels if you
could get planning permission for some windturbines. And, of course, not every technologyis suitable for every property (see our pros andcons table).
Although start up costs can look expensive,the guaranteed (as long as you keepgenerating) income stream from FITs meansbanks will look favourably at providing thefunding required. There are also capital taxallowances available.
Our estate also generates revenue fromleasing land to a wind farm operator for fiveturbines. The annual rent for each turbine is£15,000. Following the introduction of FITsthese schemes may become less popular asthe turbines used tend to be much bigger andcause huge amounts of public controversy. FITs
are also capped at five megawatts, so largerwind farm schemes will not qualify for the scheme.
Next year new incentives for the productionof renewable heat will be introduced and thesecould be another source of income for ourestate, which already uses waste timber fromits woodland to generate heat for the mainhouse using a biomass boiler. This savesapproximately £10,000 a year in heating costs.
The new coalition government has alreadybeen very positive about increasing the amountof energy provided from renewable sources andthere really is no reason why every rural propertyowner shouldn’t benefit in some way. Andremember, if you’re not generating your ownelectricity you will be subsidising somebodyelse who is.
For full details of feed-in tariffs and an initial siteassessment please contact Christopher Smith.Christopher can also advise on all aspects ofrenewable energy generation including planningand property-related issues such as lease andaccess agreements. He can be contacted [email protected] or on 01179 452 630
FIT tariff rates (p/kWh)* and life (years)
Anaerobic digestion 9.0 - 11.5 20
Hydro 4.5 - 19.9 20
Solar photovoltaic 29.3 - 41.3 25
Wind 4.5 - 34.5 20
* Add 3p/kWh for all electricity supplied to the nationalgrid (large schemes can negotiate a higher supplement)
WindPros: Short-payback time, easy managementCons: Needs reliable wind and planningconsent, local opposition can be fierce
Solar photovoltaicPros: Planning consent generally not neededfor rooftop schemes, suitable for propertiesin environmentally sensitive areasCons: Long payback time if not usingelectricity yourself
HydroPros: Consistent energy production, requireslittle managementCons: Very site specific, potentially a longway from usage or connection point
Anaerobic DigestionPros: Works well in energy-intensive farmingsystems that create a lot of waste, by-productcan be used as fertiliserCons: Requires specialist management foroptimum output, large acreage needed forfeedstock
renewable Pros and cons
* Income figures will vary based on local conditions and equipment performance. They do not include tax or the cost of finance. Figures in brackets assume all electricity produced is used on the estate and would normally cost 10p/kWh to buy in (AD schemes assume a lower buy-in rate of 5p/kWh).
** A 250kw turbine produces an equivalent amount of energy to that consumed by 125 three-bed houses for a year.
Income from FITs on the Knight Frank Renewables Estate
Scheme details
Two 250kw** turbines near farm buildings based on windspeed of 7m/s
900 sq metres (450 panels)on dairy roof
100kw water turbine
A 350-kw system with 200 cowsand 600 acres of maize
Wind
Solar photovoltaic
Hydro
Anaerobic digestion
Total income from FITs
FIT ratep/kWh
18.8
31.4
17.8
11.5
Cost
£1m
£405,000
£800,000
£1.25m
£3.45
Annual* income
£300,000(£400,000)
£26,300(£31,670)
£190,000(£254,000)
£400,000(£460,000)
£916,300(£1.1m)
Lifetime income
£6m(£8m)
£658,000(£792,000)
£3.8m(£5m)
£8m(£9.2m)
£18.5m(£23m)
Payback time(years)
2-4
13-15
3-5
3-4
4-5
Christopher Smith
12 KnightFrank.co.uk/rural 13THE RURAL REPORTTHE RURAL REPORT
WW - No, not always and we probably needto communicate it better. The problem isthat we can’t always crow from the rooftopsabout what we’ve achieved because thatwould not necessarily sit well with thegroups that we’ve successfully influenced.
JDM - Recently you’ve been striking up whatsome might consider unusual andcontroversial partnerships, how has thatworked?
WW - You’re right. Another of our strengthsis our willingness to make alliances withgroups who do not, on the face of it, appearto be our natural bedfellows. For example inrecent months we have worked closely withboth the RSPB and Friends of The Earth, andthe position of rural land managers is muchbetter as a result.
JDM - Your work with the RSPB on the futureof CAP has, however, received a lot ofcriticism, particularly from farming unions.Were you surprised by that and do youregret the relationship?
WW - Yes I was, especially as not everybodyhad read our paper nor come up with theirown constructive ideas for reforming CAP.And no, I certainly don’t regret working withthe RSPB. I think a constructive relationshipwith a lobbying group that has over onemillion members compared with a combinedCLA and NFU membership of about 90,000is extremely powerful.
JDM - Not all of your members are happythough.
WW - That is true, I did possiblymisunderstand the dislike of many of themfor the RSPB. But now I am in a positionwhen I can go to the RSPB and tell it thatand why. I was interviewed recently on Radio4’s Farming Today programme with MarkAvery from the RSPB and he said: “I agree
with William.” That has to be good news.
JDM - What did you make of the result of theGeneral Election?
WW - It is far too early to tell. The previousgovernment got some things right and somethings wrong. I anticipate that the newgovernment will do the same. Having saidthat the members of the new Department forthe Environment and Rural Affairs (DEFRA)team are well known to the CLA and they domake a pretty impressive hard hitting team(see p5).
JDM - Are there any particular areas thatconcern you?
WW - The scale of the budget cuts is clearlygoing to be the main issue for the next fewmonths.
JDM - How do you see that impacting on thecountryside?
WW - When you think of the big things thatDEFRA funds: animal health and welfare,flood and coastal defence, agri-environmentschemes and waste management, it is hardto see the scope for cutting spending on anyof those without severe implications for therural economy. As soon as the positionbecomes clearer we will work flat out tomake sure the government appreciates thefull implications of the options available.
JDM - We have already seen taxes go up.What do you think of the increase in CapitalGains Tax?
WW - It is a profoundly depressing thing tohave come out of the coalition. All theacademic research shows that a CGT rate of18.4% is the optimum in terms of taxrevenue.
JDM - What do you think the government’sfirst priorities for helping rural communitiesand agriculture should be?
WW - There are two things it needs to look atas a matter of urgency. The first is the futureof the Common Agricultural Policy (CAP). Thegovernment needs to realise quite howimportant that is for farming and thecountryside in general. Second, it needs tostart work on a comprehensive review of theplanning system. It is quite simply not fit forpurpose. We need to have a cheap andefficient system that is capable of deliveringall sustainable development in the propersense of the phrase.
JDM - So it’s not just DEFRA you are tryingto influence?
WW - We do a lot of work with thedepartments for Communities and LocalGovernment (DCLG) and Energy and ClimateChange (DECC).
JDM - Is there a lot of joined up thinkinggoing on at Westminster?
WW - DEFRA is, on the whole, pretty good atassessing the potential impact of its policieson rural areas, though it does not always getit right - as the ongoing saga of the RPAshows. But the big problem is that much ofthe work done by DCLG and DECC can haveserious implications for rural businesses.The trouble is they do not always realise it.
JDM - I know many of our clients would liketo be seen as part of the solution, not theproblem, to the issues affecting thecountryside and the UK as whole. Do youthink landowners have a big role to play?
WW - Massive if given the chance. They canreally help with the provision of affordablehousing and the issue of climate change,too. Some of the most important things wedeliver as land managers have non-marketbenefits.
JDM - What do you perceive to be thestumbling block with affordable housing, Iknow you have a scheme on your own estatein Yorkshire?
WW - Government hasn’t really got to gripswith the concept of allowing landowners tocross-subsidise affordable housing withopen-market development. They also needto be aware that people want to retain somecontrol of what is being built on their land.I naturally want to have the final say inanything that is built on my estate.
JDM - Knight Frank believes renewableenergy is a big opportunity for landmanagers, especially since the introductionof feed-in tariffs (see p10). Is enough beingdone to support this in the countryside?
WW - Certainly not: we have a long wish list(including the introduction of the proposedRenewable Heat Incentive and better tariffsfor farm scale biogas) that we are putting tothe new government covering bothrenewables and energy efficiency. Inparticular, we want to see the developmentof a carbon market that can benefit thosemembers who are able to calculate thestorage of carbon in their woods and soils.We are also looking at environmentalmarkets, for instance where estates mightagree payments for managing land totemporarily store flood water before itreaches a town.
JDM - Finally, at the end of your two years atthe helm of the CLA what three things wouldyou like to have achieved?
WW - If a sustainable framework foraffordable rural housing has been put inplace, if there is a foundation for the UKgovernment to strongly defend our CAPbudget and if an acceptable means ofdelivering broadband to the entire countryhas been agreed, I will be very happy.
JDM - Since taking over as CLA president ayear ago you’ve made a real effort to meetas many members as possible. How much ofyour time does the role take up?
WW - It’s usually four days a week,sometimes five. I don’t see much of home asI’m constantly travelling. During my time aspresident I said I would try and personallymeet a third of our 35,000 members andvisit every county in England. In six monthsI’ve already visited every county bar four -when your term is only two years you needto hit the ground running.
JDM - The CLA gives a lot of advice tomembers about reducing their carbonfootprint - yours must be pretty big?
WW - I actually use public transport most ofthe time, so hopefully it’s not that large.
JDM - Seeing your membership is obviouslyimportant, but I imagine the really hardwork must take place behind closed doorsin Westminster?
WW - Absolutely, and not just inWestminster; we also work very hard inBrussels representing our members’interests in the EU.
JDM - In this day and age does a grouprepresenting (frequently wealthy)landowners really have much influencewhere it matters?
WW - First of all our membership is muchbroader than that and, yes, I do believe weare an extremely effective lobbying group.One of the CLA’s great strengths is itsfrequent ability to demonstrate that whatmay be in the interests of its members, isalso in the interests of society as a whole.
JDM - Do you think your members appreciatethat role?
Just WilliamThe president of the Country Land and BusinessAssociation takes a break from his lobbying workand a non-stop tour of Britain to talk to KnightFrank’s head of rural consultancy, James Del Mar
The Big Interview: William Worsley
James Del Mar is head of rural consultancy at Knight Frank. He can be contacted [email protected] or on 01488 688 507
CLA president William Worsley lives at Hovingham Hall in North Yorkshire(www.hovingham.co.uk) where he runs afamily business involving farming, forestry,and residential and commercial property. He is also a non-executive director of theSkipton Building Society and The BrunnerInvestment Trust plc
william worsley:biography
KnightFrank.co.uk/rural
During the 22 years that I have been workingwith rural property I have valued billions ofpounds worth of magnificent estates andagricultural land. There have often been cases,however, when an estate or farm could have beenworth so much more with a little bit of carefulthought
I am not talking short-term measures like a lick ofpaint before a sale, but things that will enhancevalue for years and even generations to come.Estates and farms have often been in theownership of the same family for centuries and asale may never be contemplated. Even so, itmakes sense to ensure your balance sheet is asstrong as possible because, as the recentGeneral Election has shown, nobody can predictwhat is around the corner.
When making changes or improvements toyour property always think long term as smalldecisions can have a significant impact on futurevalues. One case that springs to mind is anavenue of trees lining a drive to a house. It wouldhave been a perfect grand approach if only it hadbeen planted a few metres further from the drive.Instead, first impressions were of driving down arather claustrophobic tunnel. A really strategicthinker would even start to plant a second line oftrees in readiness for the eventual decay of theoriginal avenue.
Try to future-proof any improvements. Tasteschange over generations and while a glass cubemight seem like a cutting-edge extension to ahouse now, it might appear very dated in the not-too-distant future. Properties do evolve andongoing development is part of the history of ahouse, but the key is ensuring development is inkeeping.
This doesn’t mean you should eschew newtechnology. Rural properties can be notoriouslyexpensive to run so anything that reduces energycosts will be appreciated in the future. There arecurrently very generous and long-term incentivesto produce your own renewable electricity (seep10 for more details), which next year could beextended to heat. Consider, however, the impactof any schemes such as wind turbines on theoverall amenity value of the property.
Don’t confuse boosting cash flow withboosting the balance sheet. Convertingredundant farm buildings into offices ordeveloping other diversified enterprises mayswell the income stream and, if appropriatelylocated, the capital value of the estate or farm,but if schemes are too close to the main house orinvolve too much noise or public access you maybe reducing its desirability and ultimate value.
Sometimes it is not always the things you do thatcan add value, but the things that you don’t.
One of the most obvious ways to increase thevalue of an estate is to make it bigger, but heredon’t let the heart rule the head, especially whenyou are trying to piece back together a oncemuch-larger property to its former glory.“Marriage value” can be created by the joiningtogether of separate properties, but the pertinentquestion to ask when considering a purchase iswhether the sum will be greater than the parts?Too often in my experience the answer is no.Extra houses or off-lying blocks of land canappear to make a property seem more disparate.
Sometimes it may make strategic sense to buya block of land that doesn’t at first glance add toa property’s value - either as a barrier todevelopment or to protect a view - but generally ifit doesn’t feel as if it is adding to the harmony or“sense of togetherness” it isn’t adding to thevalue either.
Tenancy rights can also have a fundamentalimpact on capital values so it is worth conductinga thorough audit and considering taking actionwhere appropriate. When it comes to residentialand agricultural tenancy agreements, the moreflexible the better in terms of value, althoughthere are many other factors, including varyingrates of tax relief, to consider. Farmland let undertraditional Agricultural Holdings Act tenanciescould be worth up to 50% less than if owned withvacant possession.
It is also important to ensure long-termtenancy and access rights are not being createdinadvertently. This can happen with cottageslived in by farm or forestry workers and wherethe public has access to land.
I have left the tax bit until last, but it is veryimportant nonetheless. Capital Gains Tax isrising, which could mean a big potential tax billfor many estates in the future. Take expert adviceif you think you could be affected.
Finally, plan for the unexpected. It is never tooearly to start mitigating any inheritance taxliabilities that could really hit the balance sheet.We also never know what mistakes the nextgeneration may make so ensure the value of yourgrandchildren’s inheritance is not at risk from amessy matrimonial or family dispute. After all, itis them, not somebody else, who you want to beenjoying that carefully planned avenue of trees.
14 KnightFrank.co.uk/rural 15THE RURAL REPORTTHE RURAL REPORT
Agricultural ValuationsTom Barrow+44 (0)1179 452 [email protected]
Building ConsultancyAndrew Waller+44 (0)1488 688 [email protected]
Country House ConsultancyAngus Harley+44 (0)1488 688 [email protected]
Equestrian Property SalesRobert Fanshawe+44 (0)20 7861 [email protected]
Estate SalesClive Hopkins+44 (0)20 7861 [email protected]
Farms and Land SalesClaire Glover+44 (0)20 7861 [email protected]
Mapping and GISMichael McCullough+44 (0)1488 688 [email protected]
Marine ConsultancyMichael Bapty+44 (0)1179 452 [email protected]
Renewable EnergyChristopher Smith+44 (0)1179 452 [email protected]
Rural ConsultancyJames Del Mar+44 (0)1488 688 [email protected]
Rural Property ResearchAndrew Shirley+44 (0)20 7861 [email protected]
Strategic Estate PlanningSandy Douglas+44 (0)1488 688 [email protected]
Knight Frank's clients include traditionalestates, institutional landowners, countryhouse owners, farmers, charities, localgovernment, energy and utility companies,rural businesses, private investors andfunds.
READY TO HELPKnight Frank can advise on all aspects of rural property ownership. Its principal service lines and the relevant contacts are listed below.Further details are available on our website at knightfrank.co.uk/rural
Protect your bottom line
Final Word: Protecting the bottom line Knight Frank contacts: The complete rural property service
Tom Barrow can be contacted [email protected] or on 0117 945 2641. To find out more about thevaluation and strategic planning services that weoffer please go to www.knightfrank.co.uk/ruralTom Barrow, head of rural valuations
at Knight Frank
KnightFrank.co.uk/rural
Michael Bapty Tom Barrow James Del Mar Sandy Douglas Robert Fanshawe Claire Glover
Angus Harley Clive Hopkins Michael McCullough Andrew Shirley Christopher Smith Andrew Waller
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Our team of financial consultants are all experts in their field, offering a bespoke advisory service including large mortgages, wealth management and the financing of property portfolios. From rural estates to farms Knight Frank Finance is perfectly positioned to help you achieve your financial objectives.
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