A likely increase in farmland becoming available to rent will create a two tier market with premiums paid for the better equipped holdings, a land agent told a conference yesterday.

The agricultural rental market continues to be characterised by high demand and restricted supply against a backdrop of strengthening commodity prices delegates heard at Strutt & Parker’s Land & Property Briefing at the East of England Showground.

Jeremy Dawson, partner in the land management department of Strutt & Parker’s Stamford office, said both Farm Business Tenancies (FBTs) and Agricultural Holdings Act (AHAs) rents had risen significantly in recent years and were likely, despite a slowdown in the pace of growth after last year’s disastrous harvest, to continue to rise.

Mr Dawson said: “There has been a staggering growth in FBT rents with an average of about £210 per acre for arable land, representing an increase of about 122% since 2005 or a growth of 17% year on year. When you track this against wheat price, there is a clear correlation in this part of the world.”

2013 FBTs were likely to track the price of wheat, he said. “I think we are going to continue to see some modest rental growth. However, I think undoubtedly last year’s poor harvest and this year’s very poor crop establishment is going to temper tender rents so, certainly in the short term, we may see a reduction on the headline grabbing figures.”

Mr Dawson said AHA rents had seen year on year rental growth of about 10% on average. “I think they have some way to go. However, with the ever widening gap between FBT and AHA rents it would not surprise me if we don’t see one or two rental arbitrations come forward to test the water and try and close this ever-widening gap.”

He added: “While farm profitability has undoubtedly had its part to play in the very high FBT tender rents we have seen these last few years, scarcity has played a significant role in fuelling rental growth. As the number of AHAs begin to fall in, we are likely to see the amount of land coming to the market steadily increase over the next 10 to 15 years. As supply increases, we are likely to see a bit of a two tier market emerging for larger holdings with premiums being paid for the better equipped ones.”

On a separate topic, Mr Dawson set out some of the provisions contained within the emerging Growth and Infrastructure Bill.

He added that the changes to permitted development rights and the scope for change of use from offices to residential was positive for landowners of rural estates. “These proposals are really good news, particularly for those sitting on empty rural offices.

“The other aspect to these changes, which is also welcome news, is the granting of permitted development rights to change the use of underused or redundant agricultural buildings to help boost rural communities and create jobs.”

Mr Dawson said funding opportunities offered by the Green Deal and the Energy Company Obligation as well as the potential for renewable energy projects offered tremendous scope for today’s landowner.

“There really are some fantastic opportunities for landowners to invest in their existing assets and secure new income streams,” he said. “I don’t think I can remember a time when rural estates have had so many opportunities to strengthen their balance sheets and invest in the future.”