1.2 Previous Rural Land Markets Insights Report findings
Now in its fifth year, this series of reports has built a qualitative understanding of the Scottish land market for the calendar years of 2020 2025. Over this time, some trends have emerged and each year of the report found interesting dynamics within the different sectors of the land market. This section provides a brief overview of these.
During 2020 and 2021 (as covered by McMorran et al, 2022), the land market was characterised by a lack of supply and significant demand. A ‘perfect storm’ of demand was created and values across sectors rose, although most dramatically in marginal or hill farmland and the rural property market.
The Covid-19 outbreak caused out-migration from urban to rural areas, forcing the supply of rural houses, smallholdings and crofts to fall and prices to rise. Global supply chains were disturbed (reducing supplies of commodities) and demand for timber increased. Coupled with favourable grants available for tree planting, the commercial forestry sector became a key driver in the market. Backed by institutional investment, they were able to outcompete the farming sector for marginal land suitable for planting and drove prices to historic highs.
Additionally, the natural capital market began to emerge, driven by the anticipation of generating carbon credits. Scotland has significant amounts of degraded peatland and land suitable for establishing new woodland. Due to Scotland’s somewhat unique landownership pattern of landscape-scale Highland estates, there were opportunities in the market for natural capital investors to acquire landholdings large enough to generate economies of scale in sequestering carbon and generating credits. The Woodland Carbon Code and the Peatland Carbon Code were the first government approved standards which provided legitimacy for this new form of investment into land. Levels of off-market activity in the estate sector reached record highs and values also followed.
This was a particularly dynamic period in the land market, with prices rising across all sectors. To some extent, the effects of this period are still being felt in the present.
Following the initial report, Merrell et al (2023) carried forward the analysis into the 2022 market. During this time, caution had begun to enter the market; land values had begun to stagnate, times taken to close sales had increased, off-market activity had begun to slow down, and supply was starting to steadily increase. There were multiple external macro-economic factors that contributed to this pattern, including the economic after effects on the Covid-19 pandemic (higher inflation and higher interest on borrowing), the invasion of Ukraine and the cost-of-living crisis. In times of high inflation land is seen as a ‘safe haven’ asset, and some larger corporate and institutional buyers acquired large Scottish estates in 2022 as a means of hedging against inflation. However, for most sectors in the market these factors caused more hesitancy.
Changes to the Woodland Carbon Code’s additionality rules meant that commercially grown timber was not able to be counted towards carbon schemes, and rising inflation began to make the Forestry Grant Scheme (FGS) to become less economically attractive (rising costs in fencing and labour were not seen to be matched by the level of grant funding). A backlog for processing planting permissions was emerging which further slowed demand.
The farmland sector was perceived as continuing ‘business-as-usual’, with the main buyers in the market being other (often neighbouring) farmers, those looking to expand or make use of capital gains tax rollover relief. Arable land was seen as particularly strong, whereas marginal land sales began to slow.
In the third report of the series, covering the calendar year 2023, Merrell et al (2024) reported how the market was beginning to become “sluggish”. Supply remained sparse, but demand continued to increasingly waver, with the exception of prime arable land which continued to trade consistently.
Regarding marginal land suitable for planting and/or natural capital potential, two distinct buyer groups continued to emerge: commercial forestry investors and natural capital investors. Commercial forestry investors focused on long-term timber price outlook and domestic timber scarcity, with long-term predictable cash flows remaining appealing. Natural capital investors were interested in different land, which had the potential for native tree planting and peatland restoration. Despite this, marginal land values dropped (although remained higher than in 2020).
The fourth report in the series, covering the calendar year of 2024 (Merrell et al, 2025), saw trends from the previous year continuing, with the market being described as “steady”, “challenging”, “static” and “subdued”. Demand from the commercial forestry and natural capital sectors continued to slow with previously identified negative factors extending into further cautiousness.
The key external events influencing the land market were the 2024 UK General Election followed by the October 2024 Budget which caused significant hesitancy. Changes to Inheritance Tax (IHT), particularly Agricultural Property Relief and Business Property Relief, were first announced, but the full effects of these changes were not apparent.
Buying motivations within the forestry sector were replaced with a range of disincentives, including changes to Inheritance tax (using forestry as an inter-generational investment), lengthy tree planting approvals, reduced grants and no guarantees around species mix. Similar sentiments were felt in the natural capital market, with the additional concern that the poor economics of such projects were starting to emerge – the price of carbon credits were not rising as projected, and the economies of scale required to make a carbon capture scheme possible were meaning only large parcels of land were being considered. The day-to-day practicalities of owning and managing land were also becoming reality to new and inexperienced landowners.
The farmland market provided a mixed picture, with arable land still showing strong demand and rising values. However, proposed changes to IHT made farmers consider their future plans, with selling motivations being reframed from ‘Death, Debt, Divorce’ to ‘Retirement, Debt, Divorce’. There were early signs of some farmers deciding to sell before IHT changes were implemented, but overall it was still too early to see the full extent of farmer behaviour around these changes.
It is within this context that the analysis for this year’s report, covering the 2025 calendar, begins.
