Prices for farmland have increased by 16% over the past 12 months, as the farming sector had a very good year and demand for land outstripped supply says a new report from Knight Frank.

‘Values rose sharply earlier last year because there was not enough farmland available to satisfy the eager pool of buyers, which included investors and UK and foreign buyers. That imbalance, however, has now shifted with the number of active purchasers significantly reduced,’ said Andrew Shirley head of rural property research at Knight Frank.

Values have now started to come down, falling prey to the worsening economic climate which has affected all the other property sectors. There was a 5% decline in the last quarter of 2008, which is also partly attributed to falls in the number of Irish and Scandinavian investors despite the favourable exchange rate.

Lifestyle buyers have also been hit hard by the credit crunch and even buyers with money to spend are standing on the sidelines waiting to see whether the market will drop further. Mr Shirley says Knight Frank are predicting a further average fall of about 6% with prices levelling off before the end of the year.

‘The farmland market should definitely prove more resilient than residential or commercial property,’ Mr Shirley continued. ‘Despite an increase in volumes last year, the availability of land remains historically low and there is little evidence to suggest a flood of forced sales that could pull prices down dramatically.’

‘There are still significant tax benefits to owning farmland and dwindling returns from cash deposits and a volatile stock market could encourage investors and deal hunters, who were keen not to buy at the peak, back into the market.’