Estate diversification: Business diversity vital to combat volatility
Multi-asset estates are partially protected from income volatility due to their estate diversification, according to Carter Jonas. Having a diverse range of business interests was key for farms and estates to hedge against the volatility in the agricultural sector, with a strong property market providing a boost to those with residential lets.
Rising land and property values are currently the key drivers of growth, according to Carter Jonas’ 2022 Model Estate report, which tracks the performance of assets. The notional model, a 3,168 acre mixed estate, had strong growth in 2021, showed overall growth of 5.7 per cent to a total valuation of £46.88 million in December 31.
Arable estate diversification
Arable land increased in value by just over 5 per cent, with grassland growing at 6.85 per cent. But the value of let property and the manor houses grew by 15.8 per cent and 12.8 per cent respectively.
Income from let commercial property remained flat, but continued to be an important part of an estate diversification and make-up. Carter Jonas head of rural Tim Jones said: “A surge in the value of the residential market had a significant impact on the estate’s value, both in terms of the let property and the manor house.
“Let and in-hand farming operations also contributed to a much greater extent than in the previous year,” he said. “Our research demonstrates how diversity among assets helps to spread risk and allows different classes to contribute, rather than relying on one particular investment.”
Last year, for the first time, researchers assessed which of the estate’s assets could be ascribed a natural capital value and the potential opportunities this could create to earn a new income stream from carbon trading and biodiversity net gain.
The easing of the pandemic restrictions from the start of the year stimulated activity in various markets, leading to a substantial uplift in the residential components of the estate diversification. Valuer Christopher Rhodes said: “Economic turbulence returned at the close of the year with the rise of the Omicron variant, allied to soaring inflation.
“Although growth was positive overall, weaknesses in the economy, notably supply chain issues and the resultant decrease in net trade has negatively impacted some elements of the estate,” he said.
He added incoming policy changes constrained growth in the latter months of the year.
Looking ahead, Mr Rhodes said flexible working, coupled with the want and need for more space, would continue to drive the residential market. The model estate’s manor house value increase echoed the growth of the prime country house market which has outperformed other rural assets in recent years.
The values of the estate’s quarry, telecoms mast, commercial shoot, solar farm and fishing rights have all remained stable.
“Multi-asset estates are partially protected from income volatility due to their diversity,” added Mr Jones. “While there remains uncertainty in the wider economy, many rural estates will continue to provide opportunities for capital growth through development and asset release opportunities.
“This includes the release of farms and residential properties from multigenerational occupation arrangements or restructuring holdings which may release valuable farmstead sites or strategic land for development.”
Mr Jones said added their work demonstrated farming continued to have good and bad years with many challenges ahead. He highlighted the phasing out of support payments, inflation in input costs and a new environmental policy being bedded in.
“We continue to advise landowners to develop a range of income streams, making their assets work harder and helping to improve the overall profitability and sustainability of their businesses,” he said.
“Spreading risk by making the most of the opportunities available remains the wisest course of action.”