Residential and commercial property incomes strengthen

This growth, according to the recently published 12th edition of the Savills Estate Benchmarking Survey is weaker than in recent years but exceeded the modest 2% forecast.

Ian Bailey, head of Savills rural research, comments:

"Through our analysis of the performance of individual estates, it is clear that during today's global economic uncertainty it is more important than ever for estates to hold a diverse range of property assets.

"Likewise, identifying core target markets and optimising income generating opportunities has a significant bearing on an estate's gross income.

"In the South West income from the leisure sector was double that for the average of 'all estates' in the survey and in the South East income generated from residential and commercial property dominated."

Agricultural income

Across 'all estates' the income derived from agricultural sources increased by 2%, which led to a 33.5% contribution to gross income. Rental income for Agricultural Holdings Act and Farm Business Tenancies increased, this is likely to continue.

Mike Pennington, Director of Savills rural, comments:

"Agricultural Holdings Act rent reviews, particularly in traditional livestock areas are seeing significant increases with there being a growing acceptance that farmhouses and cottage are a 'material consideration' in the review process."

Residential income

In the 2011 survey year this increased by 5.9% representing 38% of gross income. The average annual Assured Shorthold Tenancy increased by 5% to £8,300 per dwelling.

Unsurprisingly, average rental levels were highest in the South East at over £10,700 per dwelling.

An increasing demand for good quality, well located rental stock may present some estates with good opportunities for income generation including refurbishing more properties to a higher standard to maximise market rents and where possible converting redundant barns to residential.

Other income

The commercial sector contributed 16% of gross income with office space performing most strongly.

Location remains the key to rental values with the highest rents of £13 per square foot achieved in the South East compared with the 'all estate' average of £10 per square foot.

The average rental income from telecom masts is now £1400 per mast less than the £7,300 during the peak of 2009.

Investment performance

Despite the recovery of commercial property, equities and gilts the performance of rural estates remains competitive against alternative investment assets when annualised over three, five and ten year periods.

The average total return from all let property across the survey sample was 9.3% (net income 1.3% and capital growth 8%).

Increases in the costs of building materials and insurance premiums contributed to a 9.5% increase in total expenditure for 'all estates'. Average property repairs represented half of the total expenditure equivalent to 23% of gross income.

Outlook

We expect over the next two years average gross incomes to increase each year although possibly below the rate of inflation.

Our forecasts anticipate modest average rental income growth across all sectors along with a continuing shift, where possible, towards market rents in both the agricultural and residential sectors.

In the future the opportunity for rural businesses to generate energy and income from renewable energy sources is significant, although only 13% of estates which contributed to the survey confirmed the completion of an energy audit.