Farmland prices have seen an annual fall for the first time in two years, according to a report from the Royal Institution of Chartered Surveyors. The fall of just under 1%, excludes the price of bare land (excluding any buildings), which continued to rise.

Farmland values continued to fall in the third quarter, by 2.3% from Q2, but the rise in prices earlier in the year means farmland values are just 1% below the same period last year.

The weighted average price of farmland fell to £9382 per hectare, down from a revised £9608 in the second quarter.

Bare land prices rose for an 11th consecutive quarter to £8083 per hectare, up from £7777 in Q2. The rise over the past 12 months was 15% compared to 12% in Q2.

Demand for farmland fell for the first time in 9 quarters, although a number of surveyors noted private sales taking place between neighbouring farmers. Overall, demand conditions are still stronger than in 2004. There was a further slight shift in the balance of sales to individual farmers over purchases made by non-farming buyers.

Despite falling back in the latest quarter the agri-business share of sales remains higher than a year ago.

Greater caution in the housing market has affected demand for residential farms and contributed to the softening in overall prices. The recent downturn in agricultural output has also undermined demand for commercial farms. Despite improved clarity of entitlements under the Single Farm Payment, some uncertainty persists in many areas, and consequently led to a reversal in the supply of land on the market in Q3.

Surveyors reported a decline in availability for both commercial and residential farms.

Prices for arable and pasture land in most regions remained up on year-ago levels. The South West, Wales and West Midlands continued to fetch the highest prices for both categories of bare land, with the lowest prices reported in the East Midlands and North East.

The outlook for commercial farm prices is for modest increases over the next year. Residential farms are expected to experience lower prices, the first time that surveyors have held a negative outlook since the survey was introduced.