Rural Estates: 100 Years of Evolution

Traditional rural estates have evolved to include new income streams, driven by societal shifts and legislative changes. These changes have ensured their continued appeal to investors and high-net-worth buyers by offering partial protection from commodity price volatility, whilst often affording exceptional family homes and other amenity interests.

It's important to note that these changes have not occurred uniformly across all mixed rural estates. The impacts have varied depending on factors such as location, size, and the estate's asset mix.

Carter Jonas origins in Oxford date back to 1924 when the Firm merged with Castle, Field & Castle. During the war years, the Firm managed many estates whose employees were serving in the armed forces.

What is the Model Estate?

Our Model Estate publication, produced annually since 2010, is used to track the changing nature of a rural estate and its diverse range of income streams. It is a hypothetical agricultural estate, similar in structure to many under the management of Carter Jonas. It is over 3,000 acres and located within the geographical triangle bounded by the M4, M40 and M5 motorways. In 2024, it includes a combination of let and in-hand farms, a commercial and residential portfolio, a telecoms mast, fishing rights, a syndicate shoot, renewable energy, and a quarry.

We have used historical sale documents, including some significant landed estate disposals by auction, to understand how a typical rural estate is likely to have been structured and the value of its components. We have produced a notional 1924 version of our Model Estate accordingly.

Key:
FBT Farm Business Tenancy; AHA Agricultural Holdings Act 1986 tenancy;
Ag Protected Rent (Agricultural) Act 1976 tenancy; AST Assured Shorthold Tenancy;
Rent Act Rent Act 1977 tenancy; L&T Landlord and Tenant Act 1954 tenancy

During the interwar years, many landed estates were lost or broken up due to factors including a lack of labour, the burden of increased death duties, a decline in agricultural prices and the impact of the Great Depression of the 1930s. These factors made it difficult to maintain large estates, and many estates sold off land to raise capital in this period. For comparative purposes, we have kept the total size of our estate consistent for both periods.

Total Estate value

Our notional Model Estate was valued at £51.54m in 2024 (based on valuations undertaken on 31 December 2023). We have valued the estate at £68,000 in 1924.

This growth represents an impressive average annual increase of 6.9% over the 100-year period and far outpaces inflation, which has averaged a 4.0% annual growth rate (on the CPI measure, as estimated by the Bank of England). If the estate’s capital growth had risen at the same rate as inflation, it would instead be valued today at only £3.4m.

Figure 1 shows the proportion of the total value by asset.

Source: Carter Jonas

Agricultural land

The rise in agricultural land values has significantly driven capital growth. Our research found that land values averaged £24/acre in 1924. At Q3 2024, we reported land values of £9,000/acre for average pasture and £10,750/acre for average arable land in the South East, where our Model Estate is located (national averages are slightly lower, see our latest Farmland Market Update here). This reflects average annualised increases of 6.1% and 6.3%, respectively. Again, this outpaces inflation. If land values had tracked inflation, they would instead be around £1,200/acre.

In 1924, 90% of the estate’s value was derived from agricultural land, with 75% of that being farms let to multiple tenants (see figure 1). The proportion in 2024 is still significant, with land accounting for 72% of the total value, but only 32% of that is from let farms. This shift mirrors national trends, with The Central Association for Agricultural Valuers (CAAV) reporting that around 90% of agricultural land was tenanted in Great Britain before World War I but stood at 32.2% in 2023 (Defra; data for England for land let for over one year). Various reasons are cited, including the rise in large-scale farming and subsequent consolidation of smaller tenanted farms, an aging population (tenant farmers reaching retirement age without suitable successors), and the more recent withdrawal of support payments.

Diversification

Estate owners have always diversified their holdings in some way. A century ago, they may have had woodland for timber production, mineral extraction and a farm shop, for instance. However, rural estates now typically operate on a more complex and diverse model. An increasing percentage of their value is derived from non-agricultural assets, with estates seeking new income streams to reduce their dependence on agriculture. Notably, our 2024 estate's let residential and commercial assets contribute a significant 14.6% to its overall value (see figure 1), compared to just 2% from let cottages in 1924.

The Model Estate began mineral extraction in 2020 in response to market demand for primary aggregates, largely fuelled by construction and reflecting typical estate activity. Since then, the quarry has increased in size from 25 to 65 acres and increased in value by 34.3% (10.3% annualised). It now accounts for 11.5% of the estate’s value.

Driven by concerns over energy security and a growing emphasis on sustainability, the renewables market has also become a compelling avenue for diversification. In 2016, our Model Estate allocated 25 acres (previously part of a let farm) for the development of a solar farm. To complement this, the estate removed a further 5 acres from the in-hand portfolio in 2023 for a Battery Energy Storage System (BESS). While renewable energy only accounts for 1.8% of the total valuation, is has increased in value by 92.6% since 2016 (or 9.8% annualised).

Workforce

Structural changes have resulted in a decline in labour requirements on farms. Since the 1920s, the agricultural workforce has experienced an almost constant decline, a trend that was briefly halted during the Second World War when the Women’s Land Army and prisoners of war supplemented the labour force (Defra). Between 1923 and 2023, the agricultural workforce decreased by 87.3% (an annualised rate of decline of 2.0%), dropping from approximately 892,000 to 113,705 (Defra; excluding farmers, partners, directors, and spouses).

Following World War II, the UK's economy shifted towards urban centres, drawing workers from rural areas to cities in search of better employment opportunities. Simultaneously, the introduction and widespread use of machinery such as tractors, combines, and other agricultural equipment has increased efficiency, reducing the need for manual labour.

This has affected the utilisation of cottages on estates, which were typically used to house workers either through their employment or as part of a farm tenancy. While it is still common for employees to live on estates, the decreasing workforce and farm tenancies have led to many empty cottages.

Now, many of these properties are used as holiday cottages, rented out privately, or repurposed for alternative uses, such as offices.

At Q3 2024, 74.2% of residential units in estates under our management are let. The remaining units are either in-hand and occupied by employees or purposely vacant (such as for refurbishment). Some estates, notably dioceses that traditionally house clergy, have a greater proportion of in-hand properties than others, and some are almost wholly let.

Thoughts for the future

Structural changes are underway, and recent trends are likely to accelerate in coming years. Environmental factors, particularly climate change and more frequent extreme weather events, will impact agricultural practices and continue to place demands on land management. Legislative changes and societal pressures are driving structural changes on estates, including an increase in land placed in environmental schemes (such as public Environmental Land Management schemes and the private biodiversity net gain market).

The announcement of changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) from Inheritance Tax at the Autumn Budget 2024 could present a significant financial challenge for agricultural businesses who plan to pass their farms to the next generation. Although the full effects of the changes are yet to be understood, it is likely that land and property will have to be sold (in part or full) or debt taken on to pay the new inheritance tax charges. Similar to the interwar period, we may see estates getting smaller.

Further financial and practical challenges arise from forthcoming stricter minimum energy ratings. Estates are beginning to assess what actions are necessary to meet new requirements, as it is likely that buildings may need to be upgraded. Imposed by the Minimum Energy Efficiency Standards (MEES), the minimum rating was raised to an EPC ‘E’ in 2018 for let commercial properties and 2020 for let residential properties. Further tightening is expected in coming years which may lead to older assets becoming non-compliant.

Encouragingly, the increased use of agriculture technology (agtech) is likely to enhance efficiency and sustainable farming practices. Data on investment in UK-based agtech companies shows that funding surged from 2021 to 2023. While investment has fallen back in 2024 (possibly due to global economic and political uncertainty), capital deployed in recent years could indicate new wave of technological change.

Source: Crunchbase

Investment over 2021, 2022, and 2023 exceeded £500.5m, 281.1% greater than the previous three years, when investment totalled £131.4m. Top recipients include vertical farming companies, robotics developers, companies creating disease prevention solutions and numerous AI-driven enterprises.

The next century will see estates evolve with new technology and, while food production will remain crucial, it may take new forms, emphasising sustainability and resilience.

Rural estates are also poised to benefit from the growing opportunities in renewable energy. With the new government’s policy shifts favouring onshore wind and solar projects, and the 2050 net-zero obligations approaching, we can expect an increase in installations of renewable assets. As reflected in our 2024 Model Estate, BESS present a strong potential growth area, offering a reliable solution to manage the intermittent nature of renewable energy sources. Embracing these technologies can not only contribute to sustainability goals but also provide economic benefits to estate owners and rural communities.

The trend towards greater diversification will continue, driven by the growing need for renewable energy and nature-based solutions (including biodiversity net gain requirements), as well as strong demand for rural locations for living, working and leisure. The latter may mean adapting the use of traditional structures. As they have in the past century, estates that respond to evolving demands and challenges are likely to experience long-term appreciation in value.

Summary

• The value of rural estates, illustrated by our Model Estate, has outpaced inflation over the last 100 years. Against inflation’s average annual growth rate of 4.0%, the Model Estate has experienced an impressive annual increase of 6.9% over 100 years.
• The significant rise in agricultural land values has greatly influenced the capital growth of estates. Pasture and arable land in the South East has seen annualised increases of 6.1% and 6.3%, respectively.
• Traditional rural estates have increasingly diversified to include non-agricultural assets, which are accounting for an increasing share of valuations.
• Structural changes have resulted in a decline in labour requirements on farms (- 87.3% over the past century), leading to empty cottages that are now used as holiday lets, rented out privately, or repurposed for commercial uses.
• Changes to taxation in the Autumn Budget 2024 could impact succession, although the full implications of these changes are unclear.
• Looking forward, long-term capital growth could continue if estates follow historical patterns of adapting and evolving.