31 July 2015, Owning a classic car is hot property as their values continue to soar, but owning an estate will produce investors the second best return, according to national property consultancy Carter Jonas, in its Model Estate 2015 report.

Source: Carter Jonas: The Model Estate 2015

Classic cars once again produced the highest one year total return of 31.2%. The sector’s impressive performance is illustrated with the three year annualized return of 25.2% per annum and a five year return of 19.0% per annum.

The Model Estate, which is a notional estate located within the geographical triangle bounded by the M4, M40 and M5 motorways, totals 3,168 acres, has a Grade II listed Manor House, farmhouse, six let farms with 371 acres of grassland; in-hand farms with 71 acres of grassland; three further farmhouses, four cottages, 14 commercial properties, a telecoms mast, syndicate shoot, and fishing rights. Carter Jonas has valued the notional estate for the last five years. Ranked third in 2013, the Model Estate’s performance and increasing land values has seen it be ranked second of the seven asset classes analysed, and seen its total return increase year on year by 13.1% to £37.2 million (31 December 2013: £32.9 million). In 2014, it produced a total return of 13.1%, ranking it second of the seven asset classes analysed. Its performance was improved when the Manor House and commercial sectors were excluded, illustrating the strengthening and stable performance of agricultural land as an asset class.

The UK commercial sector recorded a 12.7% total return, driven from continuing capital value growth in London, and also increasingly from the prime regional office markets. It is these regional hotspots that are forecast to witness continuing rental growth and yield compression during 2015.

The UK residential sector produced a total return of 6.6% that was in part driven by growth of London’s market, and specifically outer prime central London, which comprises such markets as Wandsworth, Fulham and Barnes. Affordability remains a key issue within the capital with increasing volumes of young families now exiting London as values plateau and the realisation of record pricing differentials, boosting outward movers’ power in the regions.

Equities produced a total return of 0.4%, the third lowest of the seven asset classes analysed. The volatility of the asset class is evident when reviewing its longer-term performance: 6.9% per annum for the two years, 7.3% per annum for the three year, and 5.1% per annum for the five year annualized total return.

Fine wine witnessed another year of poor performance, recording -7.7%. With less than 1% of the worldwide wine market being classified as investment grade, the market remains very restricted. The sector is renowned for its volatility although recent years of poor performance have resulted in the two, three and five year annualised figures recording negative figures of -4.3%, -5.9%, and 0.1% per annum respectively.

Gold recorded the lowest total return figure of -10.7% for the second consecutive year of all asset classes recorded, reversing its historic performance of pole position. Its rapid fall from glory is now clearly evident, with the two year total return per annum figure of -16.5%, three year of -10.5% and only the five year annualised total return figure recording a minimal although positive 0.7% per annum.

Tim Jones, partner, head of rural, Carter Jonas said: “Now in our fifth year, our aim with the Model Estate is to put it and agricultural land into a wider context, enabling an assessment of its performance against other asset classes. An increase in its value of 13.0% from its 2013 level was due to an impressive 24.3% total return on the let farms element of the estate, partly due to a conversion of an AHA (Agriculture Holdings Act 1986) tenancy to a FBT (Farm Business Tenancy). The residential element of the Model Estate also performed well producing a return of 19.7%. This was boosted by the conversion of an old commercial building to residential, which was subsequently let. These variances illustrate the impact that the various components have on the estate’s performance. Taking a longer-term view, the diversity of the holding is a useful hedge against risk when compared to a single asset class.

“The 13% rise in capital value across the Model Estate exceeded the average increase of 8.5% recorded through the UK in 2014. The supply of openly marketed land remained restricted, and average land prices reached £10,000 per acre. During 2015, we have seen that values have continued to rise, albeit at a more sustainable pace. We forecast that values of prime land will continue to rise by 5-7% per annum over the next five years, as the appetite for top quality stock remains in high demand. However, despite the continuing increase of average land values, cautionary signals regarding the sustainability of the rate of increase of land values, including the ongoing appetite of investors to continue to chase stock and the future of the Euro, are emerging throughout the sector.”

Catherine Penman, head of research, Carter Jonas said: “When assessing various assets’ performance against each other, it’s fascinating to see that the UK’s Commercial and Residential property are third and fourth respectively. It’s the Model Estate, with its mix of property types, development potential, and indeed mineral resource opportunities, that means that owning an estate will produce better returns, than specifically commercial and or residential property. The classic car market continues to outperform all these asset classes, and one of the best performing asset classes in the last decade, but being Lord or Lady of the Manor is the next best thing for investors.”

You can download the full Model Estate by clicking here.