Average GB farmland prices are heading south, albeit relatively slowly, as the uncertainties of Brexit take hold.

Following decades of continual growth in virtually all sectors of the market, figures from the latest RICS/RAU UK Rural Land Market Survey show average prices slipped by 2% on the year for the second half of 2017 to £10,260 per acre. Furthermore, bareland values fell 8% on the year in the same period, with prices for this year also expected to slip.

Notably, these price reductions were on the back of a further fall in the availability of farmland for sale, with respondents returning the most negative reading (in net balance terms) since 2004 in the second half of 2017.

Figures from the last survey also highlighted a stabilisation in new buyer interest, with individual farmers, who accounted for 60% of purchases in the second half of 2017, continuing to drive interest in rural land, while lifestyle buyers made up over a fifth of all transactions.

Looking at the leased market, average arable land rents dipped in the last six months of 2017, but were still up by 4% on an annual basis. Compared to the 2014 peak however, arable rents remain down by more than 10%. Average pasture land rents also slipped, equating to a 1% annual decline.

In Scotland, demand for land also continues to outstrip supply, with respondents expecting prices for non-residential land and plots with a residential element, to be flat in the 12 months ahead.

"Scotland was characterised by low supply in 2017, with just 39,840 acres available on the open market, a decrease of 12% on 2016 levels, said Charlie Dudgeon of Savills, Edinburgh.

"We continue to see a widening divergence between 'the best' and 'the rest' with prime arable land on the east coast making more than £9000 per acre in contrast to £5000 for poorer arable land in other areas.

"In a similar vein, quality pasture in productive dairy areas can achieve more than £5000 where demand is strong," he said adding that the uncertainty surrounding Brexit will continue to restrict the level of land coming to the market, in the next couple of years.

George Hipwell of Davidson and Robertson in Currie also noted two-tier land values: “There is an increasing gap between the best quality arable land and lesser quality land, with regional variations in the market for the same land types.

"Interest in woodland creation and forestry land use continues to grow too, supporting values at the lower end of the market. However, uncertainty about the future of CAP and trade negotiations associated with Brexit is having an effect on the amount of land coming to the market," he said.

Mr Hipwell also pointed out that the majority of purchases are funded by income from outwith farming, such as development or renewable income. The continued tax benefits of purchasing agricultural land to offset any tax liabilities, has also boosted some sales.

Another highlighting the fall in the amount of land available to buy, Tom Stewart-Moore of Knight Frank, Edinburgh, said only 57 farms were launched across Scotland totalling 28,162 acres, last year. This was based on farms with a guide price of £1m plus, which compares to 72 units in 2016 and 75 units in 2015. The average farm size was 494 acres with an average asking price of just over £2m.

"Nearly 40% of the farms marketed have been in South-west Scotland which is fairly typical in an area where the farming units tend to be less viable and farms change hands more regularly," he said.

"Notably both the Central Belt and the Borders have been quiet with a 16% share each. This equated to eight farms in the Borders and eight farms the Central Belt. Compare it to last year when there were 11 farms for sale in the Borders and 18 farms in the central belt, so pretty quiet in comparison. By the year end, 67% of the farms offered, were either under offer or sold."

Interestingly, he said there was a lot of private sale activity in the Scottish Borders last year.

"In summary, we have seen prices at the top end of arable pay up to £11,000 per acre in East Lothian to £5000 per acre, close to the Black Isle. Buyers have predominantly been farmers, but with some investors. We have also seen a return of some English buyers in Scotland compared to recent years when they have been quite scarce.”

In contrast, James Presly, director of Aberdeen and Northern Estates, based in Inverurie, said they had sold more rural properties this year, with 40 properties extending to just under 4000 acres changing hands.

This he said, is due to the fact the property market in the North-east continues to represent good value for money to those outwith the area and south of the Border.

"Whilst there is now a persistent mood of caution in the market, we are still able to hold closing dates for attractive properties where a level of competition has emerged," said Mr Presly.

"Last year, the top premium we saw offered at a closing date was over 50% above the asking price for a large equipped farm property. This type of property, as well as good quality, unequipped arable land, continue to be met with relatively strong demand."

The business also saw a good trade for smaller rural properties develop during 2017, which is a property type that had been met with suppressed demand in recent years.

"We are delighted to have been able to conclude a good number of sales in the past 12 months in this manner, but we cannot escape the fact that we are partly reliant on strong local demand and neighbouring interest in driving premiums. This has the potential for all property types, across the region, to lead to low demand where that local interest does not materialise. This is most pronounced in more remote locations and/or for equipped land of a more marginal nature," he said.

Looking ahead to 2018, the business expects values to remain steady, broadly reflecting the rates achieved last year (see table below). The investment qualities and flexibility of the best arable land in the region may well strengthen this part of the market, leading to a widening gap between the best and most marginal of land types.

Land type Value Range Observed in 2017

Prime arable £5000+ per acre

Arable £3000 to £5000 per acre

Permanent pasture £1500 to £3000 per acre

Rough grazing £500 to £1500 per acre

Hill £200+ per acre