Farmland real estate is one of the nation’s largest commercial real estate sectors and its low risk and volatility profile makes it a “great hedge” within a balanced portfolio, says Pierre Rigaud, vice president, advisory and consulting, at Green Street.
Speaking on the REIT Report, Rigaud noted that the farmland real estate sector is valued at $2-3 trillion. Institutional ownership in the sector is only about 1%, compared with 5-15% in most other real estate sectors. The two key crops in the sector are row crops and permanent crops, with row crops having a lower risk profile than permanent crops.
Rigaud said farmland real estate and how it compares to other asset classes is not well understood by investors at this time. Some of the key attributes of farmland real estate include its lower obsolescence risk, lower fungibility risk, and lower capex burden.
Population growth has outpaced the supply of arable land, Rigaud noted, resulting in land appreciation. As a result, “U.S. farmland has had a very strong track record of delivering relatively attractive returns over long holding periods.”
While farmland real estate offers lower yields than other types of real estate, at the same time the risk is drastically lower, Rigaud said. “It’s been proven to be quite stable over time and much less volatile than other types of investments, which can be a great hedge in a balanced portfolio.”
A Green Street primer on the farmland real estate sector can be found here.