farm yields fall as rents lag value growth

“However, recent lease negotiations we’ve seen have struggled to achieve rates above $100 an acre.”

Rabobank said in 2020 that rents were generally calculated at between 4% and 6% of the property’s value per hectare, and rental terms ranged from three to five years.

A yield below 4% would now yield a lower return than an investment in 10- or 15-year Australian government bonds, where yields topped 4% last month due to rising interest rates.

Stronger competition

Rabobank’s 2020 report also found that nationwide, more than a quarter (28%) of farmers were already renting some of their farmland. Additionally, fund managers such as Stafford Capital buy and lease farms.

Strong competition from cashed-in farmers looking to expand and record interest rates have driven up farmland values ​​- the median price of a hectare of farmland rose 20% last year, the report says Australian Farmland Values ​​from the Rural Bank.

However, on the rental side, rising input costs — particularly fertilizer, diesel and chemicals — have squeezed crop profit margins and capped rents, Garnsey said.

Even if commodity prices were also high, tenants had to consider the risk of costs returning to more traditional levels, as well as the possibility that the current run of above-average seasons might come to an end upon entry. in three to five years. leases, he said.

Tom Russo, head of real estate at Elders, said prevailing yields vary widely depending on the scale and quality of the asset in question.

“Quality assets in high-value segments such as permanent tree crop horticulture continue to generate returns in the 5-8% range,” Russo said.

“That said, higher risk and more marginal pastoral operations have experienced a contraction of 2.25-3% from current market values.”