Following a dramatic increase in the value of land in Scotland in recent years due to demand from commercial forestry and natural capital investors, new research has now recorded a slowdown in parts of the market.
Despite this, land is still increasing at pace. Hill land suitable for tree planting reached the highest price in 2021 with £5,500 per acre paid – 467 per cent greater in real terms than in 2017.
The value of Scottish estates also rose substantially, with an average sale price of £8.8 million in 2021 compared to a ten-year average of £4.7 million.
A new report by researchers at Scotland’s Rural College (SRUC) has found the factors driving these increases have now slowed, leading to an overall decline from the peak values seen in 2021.
Only arable land has demonstrated consistent growth, with the value of good arable land growing by 5.4 per cent between 2006 and 2022, compared to average arable land which grew by 3.2 per cent.
While modest in comparison with the rise in marginal land prices, it outstrips the Scottish property market which saw the average Edinburgh house price grow at 1 per cent and the average Highland house price grow at 0.5 per cent per year in real terms.
The researchers investigated changes in Scottish land values between 2019-2022 and the trends in investment that have been driving these changes.
The dramatic increase in marginal land prices has been attributed to heightened demand from natural capital investors, particularly in afforestation and peatland carbon credits, with upland estates increasingly marketed and sold as natural capital investment opportunities.
However, while there was an increase in applications to the Woodland Carbon Code in 2021 and 2022, this was followed by a slowdown in 2023. This could be attributed to changes in the eligibility criteria as well as to various uncertainties – such as the war in Ukraine, rising commodity prices, rising interest rates, inflation and the cost-of-living crisis – which have contributed to a greater sense of market uncertainty.
The consistent growth in commercial forestry values over the last two decades was interrupted in 2023, with declines in prices noted. However, marginal land considered as ‘plantable’ ground is still outperforming marginal land not suitable for planting.
A decline in timber prices is a key contributing factor with the average value per stocked hectare falling by 20 per cent in 2023 compared to the previous year and commercial planting land prices falling by 22 per cent.
In a separate report, the researchers also looked at whether the means by which land values are determined have changed due to this changing landscape.
While land agents feel the general approach to valuing land for agriculture and forestry has remained consistent, the increase in demand for land for tree planting, means that ‘plantability’ has become a highly significant factor in determining land values, particularly for hill land.
Land values have also been influenced by various external market factors, including interest rates, inflation, timber prices and carbon credits, which have impacted investment demand and therefore the value of sales in the market.
In addition, the potential to monetise land through carbon credits is particularly relevant to the valuation of hill land and Scottish Estates, with agents reporting that plantability and the extent of degraded peat replacing sporting metrics when assessing the value of upland estates.
Ian Merrell, Research Fellow at SRUC, said, “The land market in Scotland has been under-researched, despite the importance placed on land to achieve net zero targets, increased food production and diversifying landownership through the land reform agenda.
“We have found that the initial rush into Scottish land by natural capital investors and companies has started to slow down, but land is still increasing at a pace that excludes smaller players from the land market.”