Rural land market report shines light on forestry sector

A groundbreaking report reveals changes to Scotland’s rural land market and values, amid strong timber prices and rising demand in non-farming leisure estates. The report published by the Scottish Land Commission shows the Scottish rural land market is characterised by exceptionally high demand but continued low supply, resulting in rising values.

The Rural Land Market Insights Report established that non-farming investors are playing an increasing role throughout the land market and there is heightened demand for smaller farms as lifestyle holdings and from corporate entities and investors interested in plantable land and forestry holdings.

The research also suggests that timber markets, and the investment potential of timber as a sustainable low carbon building material, appear to outweigh the importance of carbon as a market driver in land acquisition for forestry and plantable land.

The report was compiled by Scotland’s Rural College (SRUC) in partnership with land agents Savills and Strutt & Parker, with support from the Royal Institution of Chartered Surveyors (RICS). It draws on published market information and interviews with sector experts, to provide a current picture of buyer and seller motivations, to better understand the land market and what is driving it.

Hamish Trench, Chief Executive of the Scottish Land Commission, said: “This report shows what is happening in the rural land market and helps us understand why. Emerging carbon and natural capital value is an increasing influence, but other drivers, particularly high timber prices and forestry values remain extremely significant.”

The report found the growing role of non-farming investors has resulted in land values being increasingly influenced by long-term investment potential and corporate environmental, social and governance (ESG) considerations. With farmland values rising by 31.2% in Scotland in 2021 against 6.2% across UK.

There has also been a marked shift in buyer types, with nearly half of all estates purchased in Scotland in 2021 sold to corporate bodies, investment funds or charitable trusts – motivated by the potential for carbon offsetting and developing large-scale environmental improvement.

The report recognises that there is an element of speculation in the land market as investors look for a safe haven in a turbulent global economy and gamble on future carbon values rising. Strong growth in land values is expected to continue due to continued low supply and high demand, high levels of private wealth and corporate interests seeking land, long-term policy on climate change, and increasing pressure on global timber markets and food supply chains.

In the Scottish estates market there was an estimated 87% increase on prices paid in 2020, and last year two estates sold for more than £20 million, while five sold for between £10-£20 million. Echoing the national trend, 64% of successful estates sales were off-market, up from 33% in 2020, and around one-third of buyers were from overseas.

Hamish Trench added: “The way the land market functions is important to Scotland’s ambitions such as net zero, nature restoration, repopulation, and community empowerment.  Being able to participate in the market shapes not just who owns Scotland’s land, but who is able to make decisions and who benefits from land and its economic, social and environmental value.

“The report highlights a complex set of influences at work in the land market with implications for the diversity and accountability of land ownership, community participation in the market, land use decision making and market transparency. There is no simple answer, shaping the market in the public interest will require a careful and joined up approach in policy as well as responsible practice on the ground.”

The increased demand (and increase in values) for plantable land in particular, represents a major shift in the land market, driven in particular by the rise of institutional investors and net zero commitments. Resulting in poor livestock land values increasing by 17.5% in 2020 and a further 60% last year.

Euan Ryan, Public Affairs Lead for Scotland at RICS said: “This research marks an important first step in building a greater understanding of the land market in Scotland. It is particularly helpful in illuminating the multiple factors currently driving demand.”

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