Natural capital-driven land sales subside as uncertainty rises

While Scotland’s rural land market remains demand-driven, both supply and demand noticeably decreased through 2023, with a marked decline in overall land values affecting estates and marginal hill land.

The exception to this trend is prime arable land, where values have remained steady.

That's according to the latest Rural Land Market Insights Report from the Scottish Land Commission and Scotland's Rural College (SRUC), which analyses interview responses from land agents throughout the country, revealing a trend of subdued activity in the market compared to previous years.

The agents attributed this slowdown to multiple macro-economic factors, including rising and persistently high UK interest rates, alongside elevated input costs - particularly energy - and lower commodity prices, which have affected timber and agricultural produce.

They also shared that some of the decline in values was due to policy uncertainty, stemming from a range of government ambitions and developing public policy - including the land reform agenda, a new agricultural subsidy regime, environmental targets and natural capital market regulation.

In 2023, off-market sales of estates decreased compared to previous years, while off-market sales of farmland saw a slight increase, continuing the pattern observed in 2022.

The latest report uncovered a new trend of semi-off-market sales, where agents privately advertise land to a select group of buyers and invite blind bids. This type of sale was particularly prevalent in sales of estates.

James MacKessack-Leitch, policy and practice lead at the Scottish Land Commission, said, “Reviewing the past three years of reports, it is evident that the first report - focusing on the 2021 market - captured a period of intense competition driven by natural capital interests and commercial forestry.

“The second report highlighted a more slowly rising market, but this most recent report shows a clear decline in natural capital buyers and commercial foresters due to increasing uncertainties on the demand side.

“What this report does is highlight how exposed Scotland’s rural land market is to fluctuations in the economy both nationally and globally, as well as how responsive it can be to fiscal and public policy.

“This underlines the need for ongoing reform, including the measures proposed in the Land Reform Bill, but there is a need for more joined up policy that regulates and intervenes to shape the land market in a way that protects public interest.”

Described as 'sluggish', the market has seen increased caution among buyers who are now placing greater emphasis on due diligence as well as experiencing delays in the approvals process. Land agents reported that obtaining planting permissions for forestry, buildings and infrastructure is taking longer. This has led forestry buyers to prefer established woodland over bare land and has reduced interest from natural capital investors.

Simultaneously, the report noted that some companies who are looking to generate carbon credits to use against their own carbon balance sheet were increasingly looking to form partnerships with landowners, rather than purchasing the land themselves.

MacKessack-Leitch commented: “While we have seen a decline in demand for land from natural capital investors over the past year, we know from our wider work in this area that many investors are now looking to partner with existing landowners and communities to deliver projects.

“This shift in focus from land acquisition to local collaboration is welcome and shows how the just transition can align with similarly ambitious commitments to land reform, community empowerment and rural repopulation, as well as reduce uncertainty for investors.“

Commenting on the report, Scottish Land & Estates' director of policy Stephen Young disputed claims that the slowdown demonstrates a need for new legislative measures, such as those contained within the draft Land Reform Bill.

“In reality, many current land reform recommendations are based on assumptions from single year reports in the past which give an unrealistic impression of the long-term drivers and trends in the land market, use and ownership.

“The need for further legislation is not a view that is shared by rural and landowning businesses, including many land agents who are members of Scottish Land & Estates, and caution is required on this justification for land reform based on anecdotal interviews rather than empirical evidence.

“Indeed, it is poorly devised interventions by government that often creates uncertainty in the market - and it is not a reason for yet more laws.

“The report shows that off-market sales of land are only a feature of certain transactions and it is bizarre that the Scottish Government wants to heighten the ambiguity of rural land sales by introducing an approval and lotting process for holdings over 1,000ha when it is simply not necessary.

“Far from the characterisation of financial institutions and investors buying up huge tracts of land, these farming businesses are expanding and in doing so, creating jobs, supporting communities and enhancing nature which should be welcomed by us all.”

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