SCOTLAND'S land market is showing signs of a slowdown after a substantial value increase in recent years due to demand from commercial forestry and natural capital investors, according to a new report.

The new report by researchers at Scotland’s Rural College (SRUC) has found factors driving value increases are now slowing, leading to an overall decline from the peak values seen in 2021.

The research, undertaken between 2019 and 2022, also found that the pace of land prices increasing means that it is still dominated by larger investors.

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Ian Merrell, research fellow at SRUC, said: “The land market in Scotland has been under-researched, despite the importance placed on land to achieve net zero targets, increased food production and diversifying landownership through the land reform agenda.

“We have found that the initial rush into Scottish land by natural capital investors and companies has started to slow down, but land is still increasing at a pace that excludes smaller players from the land market.”

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Hill land suitable for tree planting reached the highest price in 2021 with £5500 per acre paid – 467% greater in real terms than in 2017. The value of Scottish estates also rose substantially, with an average sale price of £8.8 million in 2021 compared to a 10-year average of £4.7m.

Only arable land has demonstrated consistent growth, with the value of good arable land growing by 5.4% between 2006 and 2022, compared to average arable land which grew by 3.2%.

The dramatic increase in marginal land prices - land which is of little agricultural value - has been attributed to heightened demand from natural capital investors, particularly in afforestation and peatland carbon credits. 

Upland estates have increasingly been marketed and sold as natural capital investment opportunities.

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In a separate report, researchers also looked at whether the means by which land values are determined have changed due to this changing landscape. 

While land agents feel the general approach to valuing land for agriculture and forestry has remained consistent, the increase in demand for land for tree planting means that "plantability" has become a highly significant factor in determining land values - particularly for hill land.

Land values have also been influenced by various external market factors, including interest rates, inflation, timber prices and carbon credits, which have impacted investment demand and therefore the value of sales in the market.