Farmland vs. Commercial Real Estate – The Steady Rise of Ag Land

08/02/2025

Industry Insights

Farmland has quietly delivered outsized returns with remarkably low volatility, making it an increasingly compelling counterpart to traditional commercial real estate. Over roughly the past two decades, U.S. farmland investments have generated annual total returns on the order of 10–12%, significantly outperforming the ~8% average for core commercial real estate properties and even edging out the S&P 500’s long-run performance. Crucially, farmland achieved those returns with far less volatility – roughly half the standard deviation of equity markets and substantially below that of conventional property sectors (ACPM Observer). The asset’s stability is striking: farmland values have rarely experienced a down year (historically, even the worst 12-month period for the farmland index was still slightly positive), whereas assets like office buildings and REITs have seen double-digit drawdowns during recessions (PGIM Real Estate Report). Key drivers such as inelastic global food demand, finite land supply, technological yield improvements, and effective inflation hedging have fueled farmland’s steady rise. And as new investment vehicles erode traditional liquidity barriers, capital is now flowing into ag land at unprecedented levels.

Setting the Stage – Why Compare Farmland and Commercial Real Estate?

Farmland and commercial real estate (CRE) represent two distinct asset classes that historically occupied separate realms in investors’ portfolios. “Farmland” in investment terms typically refers to agricultural land used for crop production – including row cropland (e.g. corn, soy, wheat) as well as permanent crop orchards (fruit and nut trees, vineyards). In contrast, “commercial real estate” conventionally encompasses the “big four” core property sectors – office buildings, retail centers, industrial/logistics facilities, and multifamily apartment properties. Until recently, institutional investors allocated only token amounts to farmland, viewing it as a niche or alternative asset. However, the landscape is shifting: farmland is now emerging as an institutional-caliber investment, inviting comparison with mainstream CRE.

One reason to compare these asset classes is the evolving capital allocation trends. Large investors who have long focused on urban and industrial properties are beginning to notice farmland’s performance. In fact, institutional farmland ownership has been climbing rapidly – the total U.S. farmland under institutional management doubled between 2020 and 2023 to roughly $16 billion (Reuters). This surge is partly a response to the challenges facing traditional CRE segments. Commercial property cap rates have compressed to historic lows in the past decade, driving up prices and reducing yield. Certain sectors like office are undergoing painful post-COVID repricing due to higher vacancies and remote work, casting uncertainty on future returns. Against this backdrop, farmland’s stable income and growth profile offers a potential refuge.

Investors and advisors are therefore comparing farmland vs. CRE for strategic purposes. High-net-worth families and 1031 exchange buyers, for example, may be seeking alternatives to typical rental properties as they reposition portfolios or defer taxes via like-kind exchanges. A family office that sold an apartment building might consider rolling proceeds into productive farmland as a long-term inflation hedge. Similarly, an institutional fund manager concerned about public market volatility might weigh farmland’s diversification benefits against adding more core real estate. In short, examining these two asset classes side by side helps stakeholders identify new opportunities – whether it’s using farmland as an inflation ballast, land-banking development acreage on a city’s edge, or simply broadening a real estate portfolio’s defensive properties.

Long-Run Performance Scorecard

Total Returns and Volatility

Over multi-decade horizons, farmland has compiled a superior risk-adjusted track record compared to core commercial real estate. The National Council of Real Estate Investment Fiduciaries (NCREIF) Farmland Index shows U.S. agricultural land producing approximately 10–11% annualized total returns over the past 20+ years. By comparison, the NCREIF Property Index (tracking diversified commercial properties) has delivered closer to 7–8% over a similar period, while the S&P 500 has been in the ~9–10% range. It’s not just higher returns – it’s smoother returns. Farmland’s annual return volatility has been on the order of 5–7%, roughly half the volatility of the core CRE index and far below stock market swings (PGIM Real Estate Report). Notably, farmland’s drawdowns have been exceedingly mild. During the worst years for other assets (e.g. global financial crisis), farmland values barely blinked – the farmland index’s worst 12-month return in modern tracking was around +3%, whereas institutional commercial real estate saw annual losses of roughly -17% and equities plunged over -35% at times. In short, farmland has matched or beaten the long-run returns of traditional real estate with a fraction of the volatility, highlighting an attractive stability that is rare in other property investments.

Income vs. Appreciation Profile

A key difference in performance comes from the composition of returns. Farmland’s total return is typically a roughly 50/50 blend of land value appreciation and recurring income (crop lease payments or profit share from farm operations). In many farmland investments, the annual cash yield (rent or crop income) might be on the order of 3–5%, with land values gradually climbing over time to contribute the rest of the return. For example, in the year ending mid-2023, the NCREIF Farmland Index generated about an 8.2% total return, comprised of ~3.7% income yield from farming rents and ~4.5% land appreciation (Money for the Rest of Us). This balanced mix means farmland owners see dependable cash flow and equity growth in roughly equal measure over the long run. By contrast, core commercial real estate often skews more toward income or appreciation depending on the cycle. Traditional CRE properties like offices and apartments have offered higher going-in cash yields (often 4–6%+ annually), but their value appreciation tends to be cyclical – surging in booms and stalling or reversing in downturns. Farmland’s appreciation has been steadier year after year, while its income component, though modest, is extremely reliable (people need to eat every year, after all). The net effect is that farmland’s total returns have been less “boom and bust” than many CRE sectors, instead compounding gradually from both rent and rising land values.

“A Dollar Invested in 2000…” – A Case Study

To illustrate the long-run performance, consider a hypothetical investment made at the turn of the millennium. Imagine an investor bought a fertile Midwestern row-crop farm (for example, an Iowa corn belt parcel) in the year 2000, and another investor bought a Class A office building in Manhattan in 2000. Fast forward to today: The Iowa farmland’s value would have roughly tripled or more, based on both robust land price appreciation and two decades of crop income. Meanwhile, the Manhattan office property’s value might only be up on the order of double (if that), despite prime location – and that office would have experienced wild swings in between, including sharp valuation drops during the 2008 credit crisis and the 2020 pandemic. The farmland, on the other hand, saw relatively linear growth with much smaller interim fluctuations. Its annual rent checks from tenant farmers came in rain or shine, largely undisturbed by recessions. This simple comparison underscores how farmland has quietly outpaced many trophy commercial assets on a total return basis since 2000, with a smoother ride along the way. In real terms, that farmland investment turned out to be a far more effective store of wealth for the long run.

Core Drivers of Farmland Outperformance

Structural Demand for Food (and Fuel): Farmland’s strength stems from an immutable demand underpinning its economics – the world’s need to eat. Global population growth and rising incomes have steadily increased demand for grains, fruits, nuts, and other staples. Even during recessions, people require food, so farmland revenue (from crop sales or rents) is insulated from the economic cycle more than, say, office rents or hotel revenue. In addition, biofuel policies (such as corn-based ethanol mandates) have created extra sources of demand for certain crops. This persistent demand means well-located farmland generally has built-in customers for its output, supporting its income stream in good times and bad. As one analyst put it, farmland “produces food,” which gives it an inherent resilience and diversification benefit when other investments falter (ACPM Observer).
Finite Supply and Shrinking Acreage: Unlike commercial real estate, which can be overbuilt, the supply of quality farmland is inherently limited – and indeed is slowly shrinking. There is a fixed amount of arable land on earth, and only so many acres in prime farming regions. In the U.S., farmland acreage has actually been trending down as urban sprawl, industrial development, and other uses encroach on agricultural areas. Over the last 20 years, more than 11 million acres of American farmland were lost to development or re-purposing. This dynamic of inelastic supply underpins land values. Investors are keenly aware that “they aren’t making any more farmland,” especially in breadbasket regions. In contrast, commercial real estate supply can expand rapidly – developers can always add new office towers or warehouses when capital is abundant, which can lead to oversupply. Farmland’s finite supply and essential use make it less prone to long-term glut, supporting steady appreciation.
Technology-Led Yield Improvements: Agriculture has undergone a tech revolution in the past two decades – precision GPS-guided equipment, satellite imagery, drones, biotech-enhanced seeds, improved irrigation techniques, and data analytics have all boosted farm productivity. Higher crop yields and better farm management directly increase the income generated per acre (and thus the land’s value). For farmland owners, tech adoption by farm operators means higher net operating income on the land without needing more acres. These innovations – from drought-resistant seed varieties to AI-powered crop monitoring – act much like “property upgrades” in commercial real estate, lifting farmland’s revenue potential and market value. The result is a structural tailwind for farmland returns that has no real parallel in the office or retail property world (indeed, many CRE assets face obsolescence risk from tech changes, whereas farmland is benefiting).
Inflation Hedge Characteristics: Farmland has a well-earned reputation as an inflation hedge. Being a real asset tied to physical commodities, it tends to appreciate in value when inflation runs hot. Historically, farmland values have exceeded inflation rates in aggregate – and during certain inflationary spikes, farmland prices have accelerated dramatically. A classic example is the 1970s: farmland values surged as inflation in the broader economy hit double digits, preserving real wealth for landowners even as financial assets struggled. More recently, in 2021–2022 when consumer price inflation spiked above 7%, agricultural land prices jumped as well – U.S. cropland values leapt about 14% in 2022 alone amid the inflation and commodity boom (American Farm Bureau). Farmland revenue often rises with inflation too, since crop prices and land rents adjust upward in inflationary periods. Over the long run, studies show farmland returns have a modest positive correlation with inflation (around 0.1–0.2 in normal times), which spiked to nearly 1.0 during the high-inflation episode of 2020–2022. That means in those inflationary years, farmland values almost matched inflation’s surge one-for-one. This inflation-hedging ability adds to farmland’s appeal, especially compared to many commercial properties whose rents can lag inflation or whose values suffer when interest rates climb.
Low Leverage and Long Lease Terms: Another factor behind farmland’s stability is the typically low debt and slow turnover inherent in farming. Farmland owners (and farm operators) tend to use relatively low leverage – loans on farmland are often conservative, and many farms are passed through generations with little debt. This limits the impact of rising interest rates on forced sales, unlike heavily leveraged CRE owners who may face refinancing stress. Additionally, farmland is often leased to farmers on a multi-year basis (e.g. annual cash rent leases that roll over automatically, or even longer-term crop share agreements). There are no frequent tenant turnovers as you might see with short office leases or month-to-month retail tenants. A corn farmer isn’t moving out every year – they typically farm the same parcel for many years, providing dependable continuity. This long lease/ownership horizon reduces transactional volatility. Compared to an office building that might see 20% of tenants roll over each year (with the accompanying re-leasing risk), a farmland lease is straightforward and stable. All of these factors – low leverage, patient ownership, sticky tenants – contribute to farmland’s lower risk profile relative to most commercial real estate.

Volatility, Correlation and Risk Management

From a portfolio perspective, farmland brings valuable diversification benefits alongside traditional real estate. Its returns have shown very low correlation with other major asset classes. Farmland price movements are driven more by weather patterns and food demand than by the business cycle or Fed policy, so the asset often marches to a different beat than stocks and standard CRE. Empirical studies find that U.S. farmland has essentially zero to mildly positive correlation with equities – on the order of 0.1–0.2 – and only a modest correlation (~0.4 or less) with commercial property benchmarks. In other words, farmland’s ups and downs have little in common with the gyrations of REIT indices or the S&P 500. This low correlation means adding farmland can significantly reduce overall portfolio volatility and drawdowns. In periods when economic-sensitive assets are struggling, farmland often holds steady or even gains value. It’s telling that during the 2008–2009 crisis and again in 2020, farmland prices kept trending upward while office and retail real estate values were falling. That resilience reflects the essential demand and unique risk drivers of ag land.

Speaking of risk drivers, it’s important to recognize that farmland’s risk profile is fundamentally different from that of an office building or shopping center. The major risks in farmland include natural and commodity-related factors: weather extremes (droughts, floods, hurricanes), crop diseases or pest infestations, and swings in commodity prices can all cause year-to-year volatility in farm income. A poor harvest or a steep drop in corn and soybean prices will crimp the cash flow on a farm property, potentially softening land values in the short term. There are also longer-term environmental concerns – climate change is shifting growing seasons and water availability, which could make some regions less productive or necessitate new investments in irrigation. Water rights are a critical factor in value for farmland in arid regions (for example, California’s Central Valley, where groundwater restrictions and drought have put pressure on land use). Additionally, farmland owners face certain policy and regulatory risks: for instance, changes in government farm subsidy programs can affect farm profitability, and there is growing legislative scrutiny on foreign ownership of farmland (several U.S. states recently passed laws limiting or banning foreign entities from buying farmland due to food security and geopolitical concerns) (Reuters).

Compare these to typical commercial real estate risks: a CRE investor worries about tenants defaulting or leaving (occupancy risk), lease rates falling in a recession, new development creating competition, or financing costs rising. Macroeconomic factors like interest rates heavily influence commercial property values – e.g., a spike in interest rates can push up cap rates and push down property prices across the board. There’s also functional obsolescence risk (an older office building can become less desirable if it doesn’t have modern amenities or if work-from-home trends reduce demand). These risks are quite distinct from a farm’s concerns about weather and crops. In practice, farmland’s risk events are often uncorrelated with those hitting CRE. A bad drought might dent Midwest farm yields one year, but it has no relation to whether tech companies are leasing more office space in Silicon Valley, for example.

All investments carry risk, but importantly the downside volatility in farmland has historically been much gentler. As noted, farmland hasn’t experienced the kind of gut-wrenching crashes that periodically hit commercial real estate. Even when farm commodity prices collapsed or interest rates spiked in the past, farmland values generally eased off gradually rather than plummeting. The worst rolling year for the farmland index on record was a mid-single-digit percentage decline, versus much larger drawdowns in CRE indexes during real estate busts (PGIM Real Estate Report). This doesn’t mean farmland is risk-free – far from it. But it suggests that prudent risk management for farmland (e.g. crop insurance, hedging commodity prices, diversifying by region/crop type) can buffer many of the acute risks. Meanwhile, for CRE, risk management might focus on lease structuring, credit vetting tenants, and keeping leverage moderate to withstand market downturns. Savvy investors see that the uncorrelated risk factors of farmland can actually help reduce overall portfolio risk when combined with traditional properties and financial assets.

Liquidity and Access Pathways (2025 Landscape)

One traditional knock on farmland as an investment has been its illiquidity – buying or selling a farm usually takes considerable time and effort, unlike trading stocks or REITs. However, the gap is closing as new ownership structures come online. In today’s market, investors have several avenues to gain exposure to farmland, each with its own liquidity profile, minimum investment, and pros/cons:

Direct Deeded Ownership: Purchasing farmland outright (via deeded title) is the classic route. Deals typically involve large lot sizes and price tags – often ranging from a few hundred thousand dollars for smaller farms up to $5, $10, $20 million or more for extensive acreage or high-value permanent cropland. The benefit is full control: the owner can farm it, lease it, improve it, or even eventually subdivide or develop it (subject to zoning). Direct ownership also qualifies for 1031 like-kind exchanges, making it attractive for those rolling over gains from other real estate sales tax-deferred. On the downside, it’s management-intensive (unless one hires farm managers) and extremely illiquid. Selling a farm can take months or years and often relies on finding the right buyer off-market or via land brokers. Direct ownership is thus best suited for those who want hands-on involvement or long-term land banking. Historically, this was the domain of local farmers, family offices, or institutions – e.g. acquiring an off-market farm through local connections or auction.
Farmland REITs: Real Estate Investment Trusts focused on farmland provide an accessible, liquid way to invest in agricultural land via the stock market. Two prominent U.S.-listed farmland REITs are Gladstone Land (NASDAQ: LAND) and Farmland Partners Inc. (NYSE: FPI), which together own hundreds of farm properties across many states. By buying shares of these REITs, investors can gain exposure to a diversified portfolio of farms and receive regular dividend income from rents. The advantages are low minimum (you can buy a single share, often <$100), easy liquidity (shares can be sold any trading day), and no operational headaches (the REIT’s management handles leasing and farm management). REITs also typically distribute the majority of their income as dividends. However, there are cons: public REIT shares may trade at premiums or discounts to the underlying farm values and can be volatile in the short term, as they’re influenced by stock market sentiment. They also introduce equity market correlation – during broad market selloffs, even farmland REITs can drop in price irrespective of farm fundamentals. Yields on farmland REITs have historically been modest (often in the low single digits) compared to some other REIT sectors, as these companies retain capital for growth. Still, for many investors, REITs are the most straightforward farmland entry point.
Crowdfunded Farmland Platforms: In the past few years, fintech platforms have brought farmland investing to accredited investors at lower entry minimums. Platforms like AcreTrader, FarmTogether, and others curate farmland offerings – typically individual farm properties or multi-farm funds – and sell fractional ownership shares or limited partnership interests through their online portals. Minimum investments often range from around $10,000 to $50,000, much lower than buying a whole farm. The platform handles sourcing the farm, due diligence, property management, and eventual sale, so it’s largely turnkey for investors. The pros include professional management, geographic and crop diversification (you can buy small slices of different farms), and the ability to participate in farmland without specialized knowledge. These arrangements also allow investors to earn passive income (their share of rent or profits) and appreciation when the asset is sold. The cons are liquidity constraints – most crowdfunded farm deals require locking up capital for a multi-year hold (e.g. 5–10 years) with no easy way to exit early. Some platforms offer periodic secondary markets or redemptions, but it’s not guaranteed. Fees can also be significant (management and platform fees that affect net returns). Nonetheless, these platforms have opened farmland investing to a broader pool and are growing in popularity.
Tokenized Farmland (Emerging): An experimental frontier in 2025 is the tokenization of farmland ownership using blockchain technology. A handful of pilot projects and startups are working on issuing digital tokens that represent fractional interests in specific farm properties, which in theory could be traded on a secondary market 24/7, similar to cryptocurrencies. The promise here is ultra-low minimum investments (potentially under $1,000 or even just a few dollars) and continuous liquidity through trading of tokens. A tokenized approach could democratize farmland investment globally and allow investors to rebalance or liquidate positions much more easily than traditional ownership. However, this is still in its infancy. Regulatory uncertainties, platform reliability, and market acceptance are all challenges. As of 2025, tokenized farmland opportunities are limited and largely experimental. Investors should view them cautiously until the space matures. Over time, if successful, this could become another pathway alongside REITs and crowdfunding to access farmland returns with enhanced liquidity.

Tax and Regulatory Considerations

Investing in farmland vs. commercial real estate also brings some different tax implications and regulatory factors to keep in mind. A few key considerations include:

1031 Exchange Flexibility: Farmland is generally eligible for Section 1031 like-kind exchanges just like other real property. This means an investor can exchange a commercial building for farmland (or vice versa) and defer capital gains taxes, provided all IRS rules are followed. This is a powerful tool for brokers and investors, as it allows transitioning from, say, an apartment complex sale into a farmland purchase without immediate tax leakage. Many farmland acquisitions by seasoned land investors occur via 1031 funds. From a strategic standpoint, farmland can serve as an alternative replacement property for those coming out of highly appreciated CRE holdings, especially if the investor’s goal is long-term hold and preservation of capital.
Depreciation and Income Tax Treatment: One big difference between farmland and improved commercial real estate is depreciation. Buildings and improvements on real estate can be depreciated each year for tax purposes, providing a shelter for income. Farmland, being mostly unimproved land, does not generally depreciate (land is not a depreciable asset). That means the income you earn from cash rent on farmland is fully taxable without the offset of depreciation deductions (unless the farm includes structures or you invest in equipment that can be depreciated). By contrast, an investor in an office building can often depreciate the building’s value over 39 years, shielding some of the rental income from taxes. The practical impact: farmland’s annual after-tax income yield may be lower or taxed higher relative to a similarly yielding CRE asset where depreciation is available. However, farmland owners often have lower nominal income yields to begin with and count on appreciation, which is taxed at capital gains rates when realized. Understanding this trade-off is important in portfolio construction and when forecasting net returns.
Estate Planning and Valuation Discounts: For those holding land for the long term, farmland can offer some advantageous estate and gift tax treatments. Under U.S. tax law, actively operated farmland in an estate may qualify for a special use valuation discount – essentially allowing the land to be valued based on its farm use rather than highest market value when calculating estate taxes. This can substantially reduce the taxable value of a farm passed to heirs (with certain limits and requirements that the family continue farming for a period). Many states also have property tax incentives or lower assessed values for agricultural land to encourage farming. Wealthy landowning families often utilize these provisions to ease the tax burden of generational transfers. By contrast, a downtown commercial building is usually valued at full market for estate taxes unless other complex planning is used. Farmland’s status as a working land can thus confer tax benefits for legacy planning that CRE doesn’t inherently have.
Conservation and Carbon Credits: Farmland investors today are also navigating emerging opportunities (and complexities) around conservation easements and environmental credits. Placing a conservation easement on farmland – which legally restricts development to preserve agricultural or ecological use – can provide an income tax deduction and lower the property’s estate tax value, while still allowing farming to continue. Some landowners pursue this route if development pressure is high or for personal conservation goals. Additionally, carbon credit and sustainability programs are on the rise: farmers and landowners can potentially earn revenue by adopting regenerative practices that sequester carbon or by leasing land for renewable energy projects (like solar panels or wind turbines at the edges of farmland). These programs are still evolving, but they could add supplementary income streams to farmland ownership. Commercial real estate has its own tax credit niches (historic rehab credits, opportunity zones, etc.), but farmland’s tie-in with environmental policy is unique. Staying attuned to USDA programs, carbon markets, or easement incentives can unlock extra value or tax savings for farmland that traditional CRE investors might not encounter.

Emerging Risks and Opportunities

Both farmland and commercial real estate face changing currents in the economic and policy environment. Here are a few of the emerging risks and opportunities on the horizon for farmland (often contrasted with issues in traditional CRE):

Water Rights and Climate Volatility: Climate change is a wildcard for agricultural land. Shifting weather patterns and water scarcity are already impacting certain farming regions. For example, prolonged droughts and groundwater depletion in parts of the Southwest and West (like California’s Central Valley or the High Plains reliant on the Ogallala Aquifer) threaten the viability of some farms or require costly adjustments. Farmland investors must now evaluate water rights and climate resilience as part of due diligence – a prime field in Iowa with ample rain looks very different from a California orchard that depends on uncertain irrigation allocations. These climate-related risks are somewhat analogous to how CRE investors worry about sea-level rise for coastal properties or increased storm intensity. But the opportunity side is that farmland in more water-secure regions could become even more valuable as global food production shifts. Land with robust water access (natural rainfall or strong water rights) may command a premium. Additionally, investment in water-saving irrigation tech or drought-resistant crop varieties could mitigate some climate risks and protect land values.
Commodity Price Cycles and Hedging: Farmland returns are linked to the prices of the crops grown on the land. We’ve seen that high commodity prices (corn, soy, wheat, etc.) boost farm incomes and land values, while a collapse in crop prices can squeeze farmers and cool land appreciation. For instance, after a commodity boom in the 2000s, grain prices fell sharply around 2014 and remained soft for years – during that period, Midwest farmland values largely plateaued and even dipped slightly in real terms (Money for the Rest of Us). This cyclical exposure is a risk factor; however, it’s typically a gradual effect rather than an overnight shock. Many farmers employ hedging strategies (using futures and crop insurance) to lock in prices and protect against bad years, which in turn stabilizes land rents. Government support can also buffer downturns (through farm subsidies or price support programs). For investors, understanding the crop mix and commodity exposure of a given farm is key. Some choose to diversify farmland holdings across different crop types or regions to balance these cycles – much as a CRE investor might diversify across property types. Ultimately, while commodity cycles will continue, the long-run trend in demand for food tends to support rising land values over time. Short-term price volatility is a risk to manage, but also an opportunity: astute investors can buy farmland during commodity lulls at more reasonable prices and then benefit when the cycle turns up again.
Policy Shifts and Regulations: Farmland exists at the intersection of public policy in ways that commercial real estate seldom does. Beyond the foreign ownership issue discussed earlier (which has led to new state laws and federal proposals to restrict certain buyers (Reuters)), there are ongoing policy considerations like farm subsidies, trade tariffs, and biofuel mandates that can all influence farm profitability. A significant policy change – say a reduction in federal crop insurance support, or a sudden tariff war that hits agricultural exports – can reverberate into land values. On the flip side, positive policy developments (incentives for biofuels or new trade deals opening export markets) can boost farm income prospects. Farmland investors need to stay aware of the broader agricultural policy environment. This is somewhat analogous to how CRE investors keep an eye on interest rate policy or zoning law changes. Additionally, land use regulations (such as California’s stringent restrictions on groundwater pumping or county-level land conservation rules) directly affect farmland utility and value. Engaging with policymakers or at least monitoring legislative trends is becoming part of savvy farmland investment strategy. While policy risks exist, they also create opportunities – for example, if certain states heavily restrict farmland ownership, it could constrain supply and inadvertently raise values for existing owners, or if new subsidy programs for specialty crops emerge, land suited for those crops might see a value uptick.
Regenerative Agriculture and Carbon Markets: One of the most exciting emerging opportunities in the agricultural sector is the push toward regenerative farming and the potential for monetizing sustainability. Consumers and food companies are increasingly interested in crops grown with lower environmental impact, which means farmers adopting no-till, cover cropping, organic methods, etc., might fetch premium prices or secure lucrative contracts. Farmland that is managed with an eye toward soil health may in time demonstrate better yield resilience and command higher rents. Furthermore, carbon credit markets are now taking shape that could pay landowners for sequestering carbon in soils or planting trees on marginal land. There are pilots where corporations purchase carbon offsets from farmers who reduce tillage or integrate agroforestry. If these markets scale up, farmland could produce a new income stream (selling carbon credits) in addition to crops. This is akin to an office building owner getting paid for improving energy efficiency – except in farmland’s case, it’s potentially getting paid for simply farming in a climate-friendly way. Additionally, opportunities to lease land for renewable energy (solar farms or wind turbines) are growing in some areas, providing diversification of income. All told, farmland sits at the nexus of several sustainability trends that could enhance its value proposition in the years ahead, rewarding forward-thinking investors.

Strategic Takeaways for Different Stakeholders

The comparison of farmland and commercial real estate yields insights that vary by stakeholder. Here are some tailored takeaways for various players in the real estate and investment ecosystem:

Brokers & Developers: For CRE brokers and land developers, farmland can represent an alternative avenue to create deals and serve clients. Brokers should recognize that a portion of 1031 exchange buyers are now seeking farmland acquisitions as replacement properties, especially if they’ve sold highly appreciated urban real estate and want a stable land asset. Being able to source quality farmland (or development-edge agricultural parcels) expands your inventory of offerings. Developers might also view farmland through a “land bank” lens – acquiring tracts at agricultural values and leasing them out for farming while waiting for long-term conversion to development. Farmland at the urban fringe can effectively be treated as covered land play, with the interim farm income offsetting hold costs. In short, deal-makers who traditionally focus on commercial deals may find new business tapping into the growing interest in ag land, either by connecting investors to farmland opportunities or by leveraging farmland’s lower entry cost for future development pipelines.
Institutional & High-Net-Worth Investors: For pension funds, endowments, family offices, and high-net-worth individuals, the strategic case for farmland is as a portfolio stabilizer and inflation hedge. Farmland’s low correlation to stocks and traditional real estate, its steady income, and its tangible intrinsic value (land that produces food) make it a classic “hard asset” diversifier. Institutional investors are increasingly including allocations to farmland within their real assets or alternatives buckets for these reasons. Especially in an environment of economic uncertainty and inflation risk, owning some farmland can provide ballast – its value tends to hold up when financial assets are choppy, and it can thrive during inflationary spurts that might hurt bond portfolios or high-leverage real estate. HNW investors who prize capital preservation and legacy assets also appreciate farmland’s multigenerational track record. The key takeaway is that farmland isn’t just for farmers anymore; it’s entering the mainstream as a prudent allocation for sophisticated investors alongside core real estate, infrastructure, and gold as a real asset.
PropTech and CRE Tech Professionals: The rise of ag land as an investment intersects with technology, presenting opportunities for proptech innovators and data-driven professionals. Much like how data analytics and AI have transformed commercial real estate underwriting and operations, similar trends are coming to farmland. Drones, satellite imagery, and IoT soil sensors generate vast amounts of data on farm conditions – integrating these into valuation models or investment platforms could improve underwriting accuracy for farmland deals. There’s room for tech-enabled marketplaces to connect buyers and sellers of farmland, akin to commercial property listing platforms, but with agricultural-specific data layers (yield history, water resources, soil health metrics). Professionals with CRE tech backgrounds might find new applications in helping modernize how farmland transactions and management are done – for instance, applying blockchain for secure land title transfers or using AI to predict crop yields and land appreciation potential. As farmland investing grows, it will need the same kind of fintech and analytic ecosystem that CRE has developed, making this an exciting cross-disciplinary frontier for tech-minded real estate experts.
Cross-Border Investors: International investors and sovereign entities often look to U.S. real estate as a safe haven – and farmland is increasingly on their radar. Farmland offers exposure to U.S. dollar-denominated land assets with income tied to global food commodity markets. For foreign investors dealing with currency fluctuations or unstable local markets, owning U.S. farmland can be both a currency hedge and a way to tap into the world’s largest agricultural export economy. That said, foreign ownership has become a sensitive political topic (as noted, some states are restricting it), so cross-border investors must navigate regulatory considerations. Strategically, though, investing in farmland abroad (or in the U.S.) allows investors to diversify not just by asset class but by geography and currency. A Middle Eastern family office, for example, might acquire Midwest farmland to balance exposure away from oil and local real estate, effectively converting some wealth into productive land in a stable jurisdiction. These cross-border moves will continue, albeit under scrutiny. The big picture takeaway for international players: U.S. ag land can be a compelling component of a global portfolio, offering relative stability and a direct link to hard assets, but understanding U.S. regulations and local farm management is crucial.

Frequently Asked Questions (FAQs)

Is farmland really less risky than commercial real estate? “Risk” can be defined in different ways, but by many measures farmland has shown lower risk characteristics than most commercial real estate sectors. Farmland’s annual value fluctuations have been much smaller – it doesn’t experience the big booms and busts that office or retail properties can. For example, farmland never saw a 20–30% value crash like offices did in 2008; during its worst period in recent decades, U.S. farmland values dipped only a few percent at most, then resumed climbing (PGIM Real Estate Report). The stability comes from the fact that farmland’s underlying driver (food demand) is steady and the ownership base is often long-term (farmers and families who hold through cycles). By contrast, commercial real estate is tied to business cycles, consumer trends, and credit conditions, so it’s more prone to sharp downturns when recessions hit or financing dries up. That said, “less volatile” doesn’t mean “no risk.” Farmland has its own risks (weather, commodities, etc.), and it is less liquid if you needed to sell quickly. But historically, farmland’s blend of stable income and gentle appreciation has resulted in a smoother ride and shallower drawdowns than most core CRE investments.
How do farmland REIT dividends compare to traditional REITs? Farmland REITs tend to offer relatively modest dividend yields compared to some higher-yielding traditional REIT sectors. Currently, farmland-focused REITs like Gladstone Land and Farmland Partners yield in the low-to-mid single digits (often around 2–5% annually, depending on stock price fluctuations). These yields are somewhat lower than, say, what you might see from REITs in sectors like net-leased retail or telecom towers, which can yield 5–6% or more. The reason is that farmland REITs typically have lower initial cap rates on farmland (farmland rents are low relative to land value) and they retain capital for growth. Farmland’s total return comes partly from appreciation, which isn’t paid out as a dividend until realized. So, a farmland REIT investor might enjoy a 3% cash yield but expect additional NAV growth over time. Traditional commercial REITs, by contrast, often distribute a larger portion of their earnings. Sectors like apartments or offices might yield ~4% on average, while specialty REITs (like timber or infrastructure) vary. It’s worth noting that farmland REIT dividends are paid from rental income that grows slowly but steadily – they won’t spike in growth, but they are very reliable. As farmland REITs mature, their dividends have inched up (for example, Gladstone Land has steadily increased its monthly dividend over the years). In short, farmland REIT dividends are on the lower side of REIT yields, reflecting the stability and growth orientation of the asset, whereas traditional REIT yields run the gamut from low (for high-growth sectors) to high (for sectors facing challenges).
What happens to farmland values when commodity prices crash? Farmland values are influenced by farm profitability, so a major crash in commodity prices (like corn, soybeans, wheat) can put downward pressure on land values – but usually in a gradual way. When crop prices plummet, farm incomes drop and farmers have less money to pay for land or to bid on rentals, which can cool the land market. However, several factors often buffer the impact. In many cases, commodity price downturns are temporary or part of a cycle, and landowners simply hold through the dip rather than sell at low prices. Unlike highly leveraged assets that might face foreclosure, most farmland isn’t forced into sale just because crop prices are bad for a year or two. Additionally, government support programs often kick in (for example, price loss coverage or ad-hoc farm aid) that help farmers stay solvent. Empirically, we saw an example: U.S. cropland values peaked around 2014 when corn and soy prices were high, then basically plateaued for about 5–6 years as commodities went through a bear market. There were minor declines in some regions, but nothing like a real estate crash – more of a soft landing and stagnation until fundamentals improved. Once prices stabilized and started rising again (as they did after 2020), land values resumed their climb. So, in summary, a commodity price crash can freeze farmland value growth and even lead to slight declines in the most affected areas, but it’s uncommon to see fire-sale drops. Long-term investors recognize that commodity cycles turn around, and the intrinsic value of good farmland endures. Prudent farm operators also use hedging tools and insurance to manage through low price periods, which in turn supports land rental payments and values even when the commodity market is unfriendly.
Can I 1031 exchange a rental property into farmland? Yes – farmland is considered “like-kind” real property for purposes of a 1031 exchange, so you can exchange investment real estate (whether it’s an apartment building, rental house, retail center, etc.) into farmland and defer the capital gains tax, as long as you follow the IRS 1031 exchange rules. Many investors have done exactly that. The process is the same: you would sell your relinquished property, have the proceeds held by a qualified intermediary, identify farmland (or multiple farm properties) as your replacement within 45 days, and then close on the farmland purchase within 180 days. By doing so, the gain on the sale of your previous property is deferred into the farmland. This can be a smart move for someone, say, selling a highly appreciated rental property in a city – perhaps because they anticipate softening urban markets or they’re tired of active management – and shifting that equity into a passive farmland investment with a farmer-tenant. It’s important to ensure the farmland is held for investment or business (which it typically is if you’re going to lease it out or operate it; just don’t plan to immediately convert it to personal use). You’ll also want to work with brokers or platforms that have access to farmland deals, because the timing constraints mean you need to find suitable farmland property efficiently. But in principle, there is no barrier to exchanging from traditional CRE into agricultural land. It’s an increasingly popular strategy for those looking to diversify real estate holdings and perhaps seek more stability or inflation protection. As always, consult a tax advisor and experienced 1031 facilitator to execute it properly, but the tax code definitely allows this swap.
How liquid is farmland vs. a REIT or a CRE debt fund? Direct farmland ownership is far less liquid than publicly traded investments like REITs or even many private real estate debt funds. If you own a farm outright and want to sell, it could take months to market the property, find a buyer (who might be a farmer or investor), negotiate, and close. Farmland transactions aren’t as active or standardized as commercial property sales in big cities, and buyer pools can be smaller and regional. In contrast, a publicly traded REIT – whether a farmland REIT or any other – offers daily liquidity; you can sell your shares any time the market is open, at the market price. So REITs are very liquid but come with market volatility. CRE debt funds (private funds that make real estate loans) often have structures that allow periodic liquidity (say quarterly redemption windows) or have a fixed term after which you get your money out. They are less liquid than REITs but generally more liquid than owning a property directly. Some debt funds might lock up investor capital for a few years but provide some exit options or secondary market sales. Farmland syndications or crowdfunding deals usually have no easy liquidity until the asset is sold – you’re essentially locked in for the ride. As mentioned earlier, new models like tokenized farmland might improve liquidity in the future, but for now, assume that if you invest directly in farmland (outside of a traded REIT), you should be prepared to hold for multiple years. You can’t just click “sell” and get your cash in two days as you could with a stock or a bond fund. Thus, anyone allocating to farmland should consider it part of their longer-term, illiquid portfolio segment, balanced against more liquid holdings. The liquidity premium is part of why farmland has yielded strong returns historically – investors were compensated for that illiquidity. But it does mean you need to plan and not depend on converting farmland to cash on short notice.

Executive Summary & Conclusion

The steady rise of agricultural land as an investment asset has clear implications for commercial real estate professionals and investors. At a high level, farmland offers a compelling complementary asset to traditional CRE holdings: it provides steady cash yields, long-term appreciation, and a proven hedge against inflation – all with much lower volatility and different risk drivers than urban property markets. For deal-makers and portfolio strategists, the message is that expanding one’s opportunity set to include farmland can enhance diversification and yield an asymmetric risk/return profile (relatively high returns for lower risk) that is hard to find elsewhere. In an era when core real estate cap rates are low and certain sectors face secular headwinds, farmland’s appeal is that it’s fundamentally underpinned by food – a basic human necessity that doesn’t go out of style. That intrinsic demand, combined with constrained supply and technological advancements in farming, suggests that well-chosen ag land can continue to deliver stable growth and income in the years ahead, functioning as a solid “anchor” asset alongside more cyclical real estate investments.

Brevitas, as a global commercial real estate marketplace and network, is uniquely positioned at the intersection of these trends. Forward-thinking brokers and investors in the Brevitas community are already tracking how land values and cap rates intersect – whether it’s comparing a Midwestern farmland deal against an industrial warehouse cap rate, or seeking opportunities to reposition capital from one asset class to the other. By leveraging the Brevitas Dealmakers Network, participants can gain access to both off-market commercial properties and curated farmland opportunities that fit their criteria. The platform’s tools, including AI-driven search filters and real-time market data dashboards, enable users to monitor macro trends (for instance, commodity price movements versus CRE rental trends) and uncover niche opportunities such as agricultural-industrial hybrid properties or transitional development land currently being farmed. In essence, Brevitas empowers its members to think outside the traditional CRE box and capitalize on the full spectrum of real estate assets – from skyscrapers to soybean fields. In conclusion, the rise of ag land should not be seen as separate from the commercial real estate world, but as a natural extension of it. Those who understand both arenas can unlock value and strategic flexibility, ensuring their portfolios and client offerings are robust in the face of whatever economic climate lies ahead.