Rural Estate
The price of arable land rose well above £10,000 per hectare in many areas during 2007/08.
The rural estate comprises 119,000 hectares (294,000 acres) of agricultural land and forests as well as residential and commercial property. During 2007/08 the estate grew significantly in value and the long-term prospects are very positive.
For the year under review, the rural estate gross revenue surplus was £16.7 million, up 1.2% on the previous year. The property value of the rural estate was £903 million, an increase of 26.5% over 2006/07.
The fundamentals behind the rural sector remain strong. At a global level, production has not met levels of consumption for the last three years and stocks are falling, while climate change and water scarcity are impacting on supply. At the same time, although demand is growing from an increasing world population and increasing affluence, more land is being used for the production of energy crops; this all points towards rising food prices and therefore rents, particularly from the arable sector which forms a large part of the rural estate.
The past year has seen marked increases in commodity prices, with global cereal prices responding to low stocks and poor weather conditions in key areas at a time of growing demand for food and energy. While commodity prices are now off their peak and speculators take profits, they have encouraged farmers to expand production and to enter the market as purchasers. Consequently, demand for land currently far outstrips supply and 2007/08 saw the price of arable land rise well above £10,000 per hectare in many areas. Although these higher values clearly constrain farm expansion, they enhance the net worth and security of owner occupiers.
For our arable and dairy tenants, improved market conditions during the year restored profitability after a period of poor returns, enabling them to invest in refurbishment and purchases of new facilities and equipment. Livestock enterprise also experienced better margins, although the intensive livestock sector – pigs and poultry – came under considerable pressure due to high feed and energy costs.
In the residential sector, we have seen valuations plateau and rents rise marginally, in a general easing-back that reflects the macro picture in the UK. Values in the commercial property sector, where we have limited exposure, have fallen in line with those in more urban areas.
Continuing to invest
Where some organisations seek immediate profits, we take a longer term view. Our objective is sustainable growth and returns over a number of years, as demonstrated by our acquisitions of the Ashby St Ledgers estate near Daventry in 2005, and of the Tabley estate near Knutsford, Cheshire, during the past year. The former has demanded an innovative approach as we purchased a trading business, together with crops and livestock, and are now evolving it into a successful new business model.
“Looking to the future, we expect relatively strong rental growth and opportunities to release capital through asset management initiatives, including selective land sales with the benefit of vacant possession.”
The purchase of Tabley from the University of Manchester, which was concluded in July 2007, has brought a further 1,460 hectares (3,608 acres) into the rural estate. At £35 million, this was our largest rural estate acquisition for many years. Tabley is an extensive agricultural, residential and sporting estate comprising 18 equipped farms, a further 18 lettings of farmland, three land parcels let as grazing, 52 residential properties, 13 commercial leases, the Cheshire Showground and a number of sporting agreements providing rights for shooting, fishing and boating. The acquisition underlines The Crown Estate’s commitment to remain a major rural land owner. We are committed to working closely with existing tenants and the local community to secure a strong and vibrant future for the estate.
Working together with customers
We continue to develop and implement new and more effective ways in which our expertise and experience can be aligned more closely with those of our customers, to mutual benefit. The Crown Estate has an extremely diverse portfolio – from international fashion retailers to local food producers – and we are keen to work alongside individual businesses to help them take advantage of market opportunities in new and innovative ways. This integrated approach is delivering benefits for us and for our tenants.
For example, towards the end of our financial year we confirmed an agreement to work with our tenants and premium retailer, Waitrose, to pilot the development of a new red meat supply chain. If this project is successful for all parties, we anticipate expansion to other product areas, offering new opportunities to many of our tenants across the rural estate.
Under the umbrella of our ongoing customer focus programme, we launched a pilot study in the south west of England. During a series of workshops, involving our own team, managing agents and tenants, we have taken a detailed look at the landlord/tenant relationship and how improvements can be made to maximise business opportunities. Each party outlined their own needs and these have now been formalised in the style of a business/customer contract entitled ‘The Business Deal’. Although not legally binding, it does provide a framework to enhance the way tenants and the rural estate can work together. The pilot will continue through 2008 and tenants will be kept up to date with progress through our ‘Rural Bulletin’ publication, which has continued to improve communication between The Crown Estate and our tenants.
Playing our part
The rural estate has an important part to play, not only in the businesses of our tenants, but also in the lives of communities and the general public throughout the UK.
Our involvement and sponsorship of the CALM Project (Carbon Accounting for Land Managers) was advanced through evaluation of the ‘CALM calculator’ which assesses the carbon footprint of an estate. The Ashby St Ledgers estate near Daventry was used in the pilot and our intention is to use this tool to assess activities on other rural estates. We have also worked with the Edinburgh Centre for Carbon Management to understand more thoroughly how our forestry assets can contribute to climate change mitigation.
Several high profile community events were held during the year, raising awareness of our activities at local level and reinforcing our commitment to our core values. These events have included the opening of new themed ‘Smugglers’ walking trails’ at Glenlivet; the planting of a new native woodland to commemorate the centenary of the Scout movement on the Derwent estate; school events during National Tree Week and barn owl conservation projects on several estates throughout the country.
Our activities and efforts have been recognised in many ways, including two honours for the Glenlivet estate, which won a European Award of Excellence from the European Landowners’ Organisation and was also a finalist in the Scottish Thistle Awards under the sustainable tourism category.
The estate visit programme continued to provide board members with the opportunity to take a strategic view of individual rural estates, while preserving direct contact with tenants. Follow-up visits by members of the senior management team ensure further direct liaison with our customers.
Looking to the future, we expect limited opportunities to make significant purchases. We do however expect relatively strong rental growth and opportunities to release capital through asset management initiatives, including selective land sales with the benefit of vacant possession.
For our tenants, prospects for the current crop year have improved due to higher plantings and more positive weather reports. The effects of low carry-over stocks, variable weather conditions and energy crop substitution, however, will ensure continuing volatility.