Demand for agricultural land in Australia to rise, with the buyer pool widening

Demand for agricultural land in Australia is set to strengthen further as the buyer pool widens in line with the variety of growing and innovative uses for rural properties, including for the new asset class of natural capital, according to Knight Frank.

Knight Frank’s recently-released The Rural Report 23/24 found with government policy increasingly being driven by an environmental agenda anchored to ambitious targets to decarbonise the food chain, boost biodiversity and cut pollution, there has been the creation of markets for natural capital and nature-based solutions in the guise of carbon credits, biodiversity net gain and nutrient neutrality.

It found these markets could deliver valuable new income streams for rural properties and are already helping to boost the value of farmland in the United Kingdom.

In Australia this trend is yet to fully mature, but it is expected that environmental opportunities associated with rural properties will create greater demand for agricultural properties in the future, with a current groundswell of interest in natural capital markets.

Knight Frank Senior Director, Head of Regional Capital & Agribusiness Andrew Blake said the demand for high-value agricultural assets remained steady in Australia, while supply was limited with properties tightly held.

“We are seeing a widening of the buyer pool, however, with buyers looking to purchase rural properties for a variety of reasons, including environmental,” he said.

“There is growing interest in carbon-related income for agricultural investments as sustainable practices gain prominence, from existing landowners looking for more secure income from their properties to corporate institutions moving to offset their emissions and enhance their environmental credentials.

“Farmers around Australia had been exploring and adopting new ways of farming to address various challenges and capitalise on emerging opportunities with a new way of farming being adopted.

“Overall, the agricultural sector is continually evolving, driven by innovation, market demands, environmental considerations, and the need to feed a growing global population sustainably.

“Farmers are at the forefront of this change, seeking new ways of farming that balance productivity, profitability, and environmental stewardship.”

Mr Blake said he had been working with many farmers in Australia looking to sell or lease their properties, but with the proviso that they would still be involved in the future innovative uses of the land.

“Finding buyers and tenants that align with owners’ aspirations for the future of their estate is key,” he said.

“Owners will ask me to find someone to buy or lease their land, but they still want to be part of the land if the new owner creates a world-class campus for rural innovation, to allow large-scale research and development in regenerative practices and technologies.

“This is what the farm of the future will look like – it’s part living laboratory, part project incubator, while still having the traditional agricultural use, as well as some agritourism facilities.

‘The use of blockchain technology is also becoming more common.”

Knight Frank Head of Agribusiness Valuations and Advisory Jason Oster said farmland values had been rising strongly in Australia in line with strong demand, with some examples of land prices doubling over 12 months.

The latest figures release by *1Rural Bank Farmland Values Index indicate there has been an average growth of 20% across all Australian agribusiness sectors in 2022. This is on top of 20% growth in 2021.

But he said it was difficult to determine the exact premium being paid for the environmental opportunities associated with some properties as yet given the relatively immaturity of this market.

“Rising interest rates and falling commodity prices may curb growth this year, but the agribusiness market is unlikely to weaken,” he said.

“With a lack of supply in the market, now is a good time for owners to sell to capitalise on the competitive demand and growing values.”