A mixed picture in the Scottish Land Market
Today we have published the third installment of the Rural Land Market Insights Report series with the Scottish Land Commission (SLC). This year's report draws on in-depth interviews with 17 land agents from a range of sectors (agriculture, forestry and estates) operating across Scotland.
Land agents are integral to the process of transacting land in Scotland. They act on behalf of their clients (buyers and/or sellers) in the purchase and lease of land. Often, land agents will specialise in a particular land use sector (agriculture, forestry and estates) and can provide advice and land management services, helping landowners navigate economic pressures, regulatory changes, and market trends, providing expert advice on land use and land management. For instance, in the case of forestry they might help clients through Forestry Grant Scheme approval processes. Their embeddedness in the Scottish land market, their extensive knowledge and experience make them valuable sources of insight into current, emerging and future trends.
These discussions with land agents highlighted a year of challenges and growing caution in the Scottish land market.
The land market slowed down over 2023, for almost all parts of the market. High interest rates and government policies were major reasons for the slowdown. For the first time since 2021, land values (especially estates and marginal hill land) dropped, whilst high quality arable land and mixed farming units remained strong.
The market was described as "sluggish", with demand falling, sales taking longer to complete and buyers more cautious. It took longer to get approvals for things like forestry planting and building, impacting the natural capital and forestry sectors which often involve big, institutional investors.
This is the third year of the Rural Land Market Insights series, and we can see some patterns. The 2022 report (covering the 2021 land market, found here) showed a strong interest in natural capital driving land prices up. The 2023 report (covering the 2022 market, found here) saw caution entering the market. This year's report confirms this trend.
Land ownership is becoming more concentrated, with large businesses buying more land. Farmland is either being consolidated or sold to a few forestry companies or natural capital investors. Meanwhile, communities and new farmers are finding it harder to access land (and are barely mentioned in this year's report).
Looking ahead, several factors could shape the land market, the new agricultural subsidy scheme, the introduction of biodiversity credits, the rollover relief situation, increased interest from the renewable energy sector, and lower demand from the housing development sector.
Below we set out general market and sector trends identified from our discussions with land agents about how the land market performed for the calendar year of 2023. Here's what we learned.
Overall impressions of the market
In 2023, the Scottish land market slowed down, described as "sluggish" with deals taking longer to complete. High interest rates make it harder to borrow money, and the cost-of-living crisis made it less profitable to run land-based businesses. Because of this, land agents reported some institutional investors looking at alternative investment options including government bonds and gold instead of land.
New government rules about land management and short-term rentals also made things uncertain. Even with these challenges, land prices stayed the same of went up a bit, except for hill land, which dropped in price.
Supply and demand dynamics
In 2023, there weren't many pieces of land for sale, and land agents reported demand being slightly weaker. This made the market cautious. Uncertainty about agricultural subsidies and the carbon market affected both supply and demand. There still some off-market deals (where land is sold privately), but fewer than before. Agents reported fewer off-market deals in the estates sector. However, prime arable land (high quality farmland) saw more off-market activity, often between neighbours. Some agents are offering land to a small group of buyers and accepting blind bids, which is neither fully off-market or open-market.
Farmland market
The farmland market had mixed performance. Some areas grew whilst others struggled. Some farmers wanted to expand their land to be more efficient, driven by two good years of profits. Rollover funds, especially from those who sold land for forestry or natural capital in 2020-21, helped drive the market. These funds need to be reinvested by the end of 2024 and will likely continue to have an influence on the market.
Limited support and steady demand kept land prices high, especially for the best arable land. Mixed farming units were reported to be popular because they offer a good mix of food production and nature restoration.
Focusing on seller motivations, land agents reported people selling farmland for a variety of reasons including retirement, inheritance and debt reduction. These motivations are consistent with findings from previous reports in the series. A new dynamic identified in this year's report is an emerging trend where some farmers are "parcelling" their land, selling off smaller plots of their land, to ease financial pressures.
Forestry sector
The forestry market slowed down significantly in 2023. Fewer plots were sold, and land agents reported two large plots remaining unsold due to bad timing. Rising costs, unclear regulations, and lower timber prices made things tough for the forestry sector. Confidence dropped because of unclear policies and long approval processes.
An emerging trend was identified within the forestry sector where people buy land, get planting permissions, and then sell the land at a higher price. This was compared to the housing development market and suggests a new business model emerging as a result of the issues around getting planting permissions.
Two main buyer groups were identified: commercial forestry and natural capital investors. Commercial investors focused on long-term timber prices and the need for domestic timber. Natural capital investors wanted land for planting native trees and restoring peatlands.
Land for natural capital schemes
Buying land for natural capital purposes slowed down a lot. Most carbon scheme applications came from existing landowners and farmers. Companies preferred partnering with landowners over buying land themselves. Alternative models like leasing land or funding projects for future credits became more popular.
This is in stark contrast to earlier reports in the series, where high demand for land was driven by natural capital interest, and where landownership was the dominant model. This suggests a maturing of natural capital markets and will be an interesting trend to continue monitoring, given the degree of influence this investor group has over the land market.
The expected introduction of biodiversity credits raised questions about how they would work with carbon credits (could one piece of land claim both carbon and biodiversity credits for a restoration project or would each credit need to demonstrate "additionality") and their impact on the land market.
Estates Market
Different types of buyers were interested in estates. "Traditional" buyers (usually "self-made" individuals) were interested in estates for personal use, economic and social development. Institutional investors, often motivated by natural capital, often outbid traditional buyers and preferred estates with fewer enterprises and residential properties attached.
Other buyers: renewables developers and house builders
Renewable energy developers, especially those focused on wind farms, showed a bit more activity than previously. However, land agents noted that these projects may be affected by the introduction of biodiversity credits in future years.
House builders slowed down their purchases due to economic factors and regulatory changes.
Understanding activity and trends in the Scottish land market is crucial to maintain an accurate picture of landownership, buyer and seller motivations. Combining the results of this report with previous work helps to form a long-term narrative of rural land market activity in Scotland, which is useful to identify emerging trends and inform policy decisions, particularly around the land reform agenda.
For more information you can read the full report here.
Report authors: Ian Merrell (SRUC), Hanna Wheatley (SLC), Lorna Pate (SRUC), James Glendinning (SRUC), Bryony Nelson (SRUC) and James MacKessack-Leitch (SLC)
With thanks to participants and Agencies who voluntarily provided their time and expertise to the report.