scottish-estates-market-review spring2016...

Strutt & Parker | struttandparker.com Scottish Estates Market Review | Spring 2016

Introduction

Welcome to our annual review of the market for Scottish estates.

The purpose of this review is to reflect on market activity in this sector during the calendar year of 2015, and to use the evidence of this to predict how the market may perform in 2016.

Before analysing the detail of the estate sales that took place in 2015, it is worth briefly re-capping on what was reported in this review 12 months ago.

Following the end of 2014, we reported that 7 estates had sold during the year in Scotland at an average sale price of £4.8m with a cumulative figure of less than £34m spent on the purchase of estates – the lowest total in many years. We cited the Scottish independence referendum – which took place in late September 2014 – as the main reason for the reduction in estate sales but also raised other reasons for the subdued activity including Land Reform, CAP Reform and uncertainty surrounding powers devolved to the Scottish government.

In predicting market performance in 2015, we stated that: ‘We expect to see normality return to this sector with a volume of between 10 and 20 estate sales expected during the year. Key factors such as UK, European and world economic performance and the result of the General Election will dictate whether the actual volume of transactions is at the upper or lower end of this scale.’

Whilst market forecasts are always attended by the risk of ‘egg on face’, the table below demonstrates that there was at least some prescience in our prediction of 12 months ago with 19 estates sold or under offer at the end of the year.

2011 2012 2013 2014 2015 5-yr Average

Number of estates sold (including under offer)

21 23 16 7 19 17

Average size of estate 5,918 acres 2,947 acres 4,353 acres 6,305 acres 5,848 acres 5,074 acres

Average sale price £3.9m £3.4m £4.5m £4.8m £3.4m £4.0m

Average premium above asking price

+16% +4% -1% +16% +14% +10%

% sold versus those available for sale

58% 64% 67% 33% 61% 56%

% sold privately with no advertising

18% 58% 13% 43% 10% 28%

Total spent £58.2m £81.5m £77.2m £33.7m £65.5m £63.2m


The next table lists the 19 estates that were sold during 2015 or under offer, subject to contract, at the year end. This includes those marketed by all firms of agents:

Kilchoan Estate, Argyll Sold by Strutt & Parker in 2015

Balavil Estate, Inverness-shire Sold by Strutt & Parker in 2015

Estate Name Acreage Asking Price Open Market/Private Sale

Aird Bheag Estate, Isle of Lewis 2,754 Offers over £375,000 Open Market

Balavil Estate, Kingussie, Inverness-shire 6,846 Offers over £5,250,000 Open Market

Braemore Estate, Ullapool, Wester Ross 10,775 Offers over £3,250,000 Private

Cluanie Estate, Invermorton, Inverness-shire 10,000 Offers over £2,950,000 Open Market

Dalmunzie Estate, Perthshire 6,500 Offers over £4,000,000 Open Market

Dungarthill Estate, Dunkeld, Perthshire 927 Offers over £5,000,000 Open Market

East Glenquoich Estate, Invergarry, Inverness-shire 9,800 Offers over £1,000,000 Open Market

Eilean Aigas Estate, Beauly, Inverness-shire 547 Offers over £3,000,000 Open Market

Kinnaird Estate, Dunkeld, Perthshire 6,236 Offers over £9,600,000 Open Market

Glenbeich Estate, Lochearnhead, Perthshire 3,800 Offers over £3,350,000 Open Market

Kilchoan Estate, Kilmelford, Argyll 748 Offers over £2,250,000 Open Market

Killean Estate, Tayinloan, Argyll 613 Offers over £2,750,000 Open Market

Kinpurnie Castle Estate, Meigle, Angus 742 Offers over £2,000,000 Open Market

Loch Choire Estate, Sutherland 31,970 Offers over £4,250,000 Open Market

Monachyle Beag Estate, Balquhidder, Perthshire 1,054 Offers over £950,000 Open Market

Morsgail Estate, Isle of Lewis 14,000 N/A Private

North Slipperfield Estate, West Linton, Peeblesshire

2,858 Offers over £2,400,000 Open Market

Overlaggan Estate, Parton, Kirkcudbrightshire 675 Offers over £1,150,000 Open Market

Teviotbank & Knowetownhead Estate, Roxburghshire

266 Offers over £2,120,000 Open Market


Whilst these statistics show an encouraging uplift in activity, a proportion of available estates failed to find buyers during the course of the year as the next table below demonstrates:

NB – Estates A & B were marketed on a private and confidential basis.

Trends and observations

Arising from these statistics, the following observations are worth considering:

The number of estate transactions in Scotland has increased by 171% from 7 sales in 2014 to 19 in 2015. Over the same period, the total sum of money spent by purchasers in buying estates has increased by 94% from £33.7m in 2014 to £65.5m in 2015.

In 2014, 7 estates were sold out of 21 that were offered for sale during the year representing a conversion rate of just 33%. In 2015, 19 estates were sold out of 31 offered for sale – an improved conversion rate of 61%.

Of the 19 estates sold, 2 (10%) were transacted privately with the majority offered for sale on the open market.

The average sale price of a Scottish Estate in 2015 was £3.4m. This is the same figure as in 2012 but below the average sale prices in 2014 (£4.8m) and 2013 (£4.5m).

Whilst not explicit from the statistics shown above, in 2015, 9 out of 19 purchasers were from overseas, representing 47% of purchasers. In 2014, 3 out of 7 purchasers were from overseas, representing 43%.

In summary, with a substantial improvement in both the number of transactions taking place and the total sum of money spent, it is clear that the Scottish estate market has improved over the course of 2015. Notwithstanding the improvement, there remain several significant factors which buyers are taking into account before deciding whether or not to invest.

Estate Name Acreage Asking Price Sale Status (as at 31/12/15)

Achnacroish Estate, Isle of Mull, Argyll 7,035 Offers over £1.95m Withdrawn

Estate A, Ross-shire 1,432 Offers over £10m Available for Sale

Bengairn Estate, Kirkcudbrightshire 759 Offers over £1.25m Available for Sale

Bragleenbeg Estate, Argyll 1,179 Offers over £1.15m Available for Sale

Cassillis Estate, Ayrshire 309 Guide price £5m Available for Sale

Craigallian Estate, Glasgow 340 Offers over £2.95m Available for Sale

Elibank Estate, Peeblesshire 214 Offers over £2.25m Available for Sale

Gledfield Estate, Sutherland 6,980 Guide price £8m Withdrawn

Hatton Castle Estate, Aberdeenshire 850 Guide price £5m Available for Sale

Estate B, Dumfriesshire 1,140 Guide price £2.5m Withdrawn

Netherdale Estate, Aberdeenshire 749 Offers over £3m Available for Sale

Isle of Tanera Mor, Wester Ross 800 Offers over £1.95m Available for Sale

Trumland Estate, Orkney 1,746 Offers over £950,000 Withdrawn


Key considerations for estate purchasers

The Scottish National Party (SNP)

With an SNP government at Holyrood controlling administrative matters devolved to Scotland, and 56 out 59 SNP Members of Parliament representing Scottish constituencies at Westminster, Scotland is presently dominated by Nationalist politicians and their agenda for the future of Scotland.

In our experience, the majority of UK-based Scottish estate purchasers are in favour of Scotland remaining within the United Kingdom in future and therefore they have some concerns over the impact that the legislation adopted by the Scottish government will have on their ability/freedom to own, manage and enjoy their Scottish estates in future.

The Land Reform (Scotland) Bill 2015

Published in June last year, the 118-page Bill sets out the framework under which the Scottish Government will pursue its agenda to address its core objectives of:

Enabling more people in rural and urban Scotland to have a stake in the ownership, governance, management and use of land, which it is intended will lead to a greater diversity of land ownership, and ownership types, in Scotland.

Assisting with the acquisition and management of land (and also land assets) by communities, to make stronger, more resilient and independent communities which have a greater stake in their development.

Generating, supporting, promoting and delivering new relationships between the land, people, economy and environment in Scotland.

Amongst the measures introduced by the Bill are the following:

A ‘Land Rights and Responsibilities Statement’ setting out the Scottish Government’s objectives for Land Reform with a new Scottish Land Commission appointed to take the process forward.

The appointment of a Tenant Farming Commissioner to prepare and promote codes of practice about all matters relating to farm leases.

The introduction of regulations designed to ensure greater transparency in future about owners/controllers of land in Scotland.

The reintroduction of rates levied against sporting rights. The introduction of a community right to buy land for ‘sustainable development’. A number of changes to agricultural holdings legislation.

The market impact of the Bill is similar to the impact created by the Nationalist administration insomuch as some buyers are choosing to stay out of the market until further detail emerges regarding the implementation of Land Reform legislation. Others, however, are prepared to take the risk that the Bill – when enacted – is not going to fundamentally alter the ability of individuals (from anywhere in the world) to buy and sell estates in Scotland or manage and enjoy them along broadly similar lines as at present.

These people see the current climate of uncertainty as an opportunity to purchase a Scottish estate at a sensible price and are prepared to take the risk that the soon to be adopted Land Reform legislation will not negatively impact the market attraction (and therefore capital value) of Scottish Estates.

In terms of timing, the Land Reform Bill is at stage 2 of parliamentary examination and is likely to be enacted prior to the Scottish government elections on Thursday 5 May 2016.

Agricultural Holdings Legislation

The aforementioned Land Reform (Scotland) Bill adopts, in part, the recommendations of the Agricultural Holdings Legislation Review Group which published its final report in January 2015 and thereby serves to update some of the legislation included in the Agricultural Holdings (Scotland) Act 2003.


In terms of the Scottish estate market, the feature of agricultural holdings legislation that has the most significant impact is the right of secure Agricultural Tenants to purchase their farm in the event that the estate owner chooses to offer it for sale – either as a single holding or as part of a larger estate/portfolio sale.

Since 2003, this right has applied to tenants who have formally registered their interest in buying the farm they rent. Amongst the changes included in the Land Reform (Scotland) Bill 2015 is the introduction of an automatic right for secure Agricultural Tenants to purchase their holdings in the event of the estate owner taking steps to offer them for sale.

The consequence of this feature of agricultural legislation, which has been in place since 2003 is that the market for estates featuring tenanted farms has been very restricted, with no transactions of estates featuring securely tenanted farms having taken place in recent years.

The Private Housing (Tenancies) (Scotland) Bill 2015

The Private Housing (Tenancies) (Scotland) Bill 2015 introduces a new form of private tenancy for residential properties in Scotland as a replacement for the existing Short Assured Tenancy. With the Bill expected to be enacted during the course of this year, the aim of the legislation is to deliver improved security of tenure for residential tenants and to streamline the procedures for starting and ending a tenancy.

Whilst it remains to be seen how this legislation will bed down, the proposed strengthening of residential tenants’ positions is raising concern amongst existing/prospective estate owners about their ability to recover vacant possession of let properties in future.

Whilst it is too early to say that this proposed legislation has impacted the estate market, it is possible that estates featuring an extensive portfolio of cottages will prove less attractive to buyers than in previous years.

The Global Economy

Purchasers of estates in Scotland are typically a combination of UK-based and international individuals who are aged between 45 and 65 and have either generated substantial wealth themselves or have inherited it. Their motivation for purchasing Scottish estates is the opportunity to own relatively large acreages of private and beautiful landscape providing rich cultural heritage, first class accommodation, varied and exciting sport, high quality arable and livestock farming, forestry and renewable energy opportunities within easy travelling distance of London and other major European centres of commerce.

Most buyers understand that Scottish sporting estates can often only be properly run at a deficit and therefore require an injection of income each year from an external source. Most buyers also recognise that, whilst an annual return or yield from their estate may not be achievable, capital growth during the period of their ownership can normally be expected – particularly following appropriate investment in improving the component parts.

The purchase of an estate in Scotland is a discretionary decision made by people who have a range of options for the investment of a given sum of money. When the economic performance of their core business begins to falter, or the performance of their investment portfolio weakens, the ambition to buy an estate is amongst the first items to be removed from a prospective buyer’s wish list of investments.

Given the global nature of the marketplace and the need for often substantial annual injections of outside revenue, the Scottish estate market is the preserve of the significantly wealthy. It stands to reason that during periods of global prosperity (e.g. 2002 to 2007) competition amongst buyers for Scottish estates is at its strongest, and during periods of economic contraction the Scottish estate market suffers.

Current concerns over the cooling of the Chinese economy – the world’s second largest – are rippling through world financial markets. Whilst it is too early to say that this has impacted on the Scottish estate market, there is a possibility that it may do.


Forecast for 2016

It is clear from what we have reported that 2015 was a year of steady improvement in market conditions and buyer sentiment following a year of uncertainty and few transactions in 2014.

This strengthening of the market does not mean that ‘the coast is clear’ in terms of the removal of influencing factors which have hitherto caused concern but it does demonstrate that buyers – from both home and abroad – are prepared to invest in Scottish estates that are offered for sale in spite of these challenges.

At this relatively early point in the year, we are encouraged by the number of active buyers we are in touch with who have confirmed that they are keen and actively looking to buy a Scottish estate in 2016. In almost all cases, these people have sought independent professional and legal views on the potential impacts on Scottish estates of the factors we have highlighted, and are prepared to accept the risks they present to their prospective investment.

A Kincardineshire Estate Coming to the market in 2016

An Aberdeenshire Estate Coming to the market in 2016

As the year unfolds, the provisions of the Land Reform Act will come in to force, the fiscal framework between Scotland and the UK will be clarified, a referendum on the UK’s continued membership of the EU will be held and, if opinion polls and political commentators are to be believed, the SNP will receive a large majority of the public vote in the Scottish parliamentary elections in May.

There will therefore continue to be factors which must be acknowledged and understood by prospective buyers before committing to an offer to buy an estate but it has ever been thus and none of them should be viewed as reasons not to do so.

We already have instructions to prepare the sale of a sporting estate in the Borders, two significant estates in north east Scotland and, with further sale instructions pending, we anticipate a range of estates being offered for sale during 2016 and, as with last year, expect buyers to be found for the majority. As in any set of market conditions, the difference between an estate being sold or unsold will be a function of pricing and promotion and not because of external factors crippling confidence.

Your Scottish Estate Sales team

Andrew Rettie FRICS Partner +44 131 718 4590 +44 7702 317275 [email protected]

Robert McCulloch MRICS Partner +44 131 718 4593 +44 7734 545972 [email protected]

Strutt & Parker, 28 Melville Street, Edinburgh EH3 7HA | 0131 226 2500 | [email protected]

scottish-estates-market-review spring2016...

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