New research by Savills and Scottish Woodlands ‘Spotlight on the UK Forestry Market 2016’ reveals the cumulative value of the UK forestry market has increased by more than 200% in the last five years and the sector accounted for £137m worth of investment last year.
According to the research, forestry remains a strong performer amongst all land-based investments, with more than £130 million being traded last year and a rise in the average value per hectare.
Following a stable market over the previous four years, the overall area of forestry transactions grew by about 30% to nearly 21,000 hectares in 2015, compared with just over 16,000 hectares in 2014. However, this sharp rise was largely due to a few significant off-market portfolio sales, including 16 properties sold by UPM to the Church Commissioners for around £50 million.
The average value per productive hectare rose by 13.5% during the 2015 forest year to £8,615 per hectare. There was a general upward trend in average plantation values but, as with the farmland market, factors such as location, quality, access, timber species and plantation age have determined price paid.
The highest values continue to be achieved within the South Scotland region which, along with the Borders, is focused on timber production. This is followed by England and Wales, where a scarcity of transactions and competition for property has strengthened prices.
Jamie Adamson of Scottish Woodlands said: “In 2015 we saw some polarisation in the market, with forest properties that did not tick all of the boxes, in terms of normal investment criteria, sticking on the market unless competitively priced.
“Forest values are increasingly influenced by the productive capacity of the asset. Well managed commercial spruce forests, that are high yield class with good access to timber markets, will remain in strong demand. Younger forests, or land for new planting, may also tempt those who anticipate a seismic shift in timber prices in the long term, say 20 to 30 years.
“Forestry is a long-term game and investors should be looking towards a minimum 10-year investment horizon. Looking ahead, strong growth in the demand for wood fibre (biomass), an upturn in demand for wood use in construction, and an increasing world population providing ready markets for excess capacity, will all contribute towards wood being a sought-after commodity.”
Timber Prices
There was a slight annual increase (1.2%) in the Forestry Commission’s Timber Price Indices for Coniferous Standing Sales in the year to September 2015 but this represents a loss in momentum, after almost twelve months of continuous upwards price movement.
While the timber sector benefitted from the upturn in house building last year, the strengthening of the Pound against the Euro and Swedish Krona enabled imports of sawn timber to undercut domestic producers. This resulted in a reduction in demand for home-grown timber (prices for domestic carcassing fell by over 10%). The currency markets also impacted UK competitiveness for timber product exports, including paper.
There are [Winter 2015] fresh indicators of a weakening in Sterling around discussion on a the EU Referendum and there are also signs that some of the most important EU industrial economies are recovering which should strengthen the Euro in the medium term. In addition, there is healthy demand for wood products, which is likely to further strengthen the sector.
Andy Greathead of Savills said “Forestry has long shown resilience in times of uncertainty. Although UK timber markets will fluctuate, the prospect of a longer term upward trend in timber pricing structures remains real, and we are confident in the future of forestry as an asset.
“Forestry investment offers multiple benefits and is particularly well suited to forming part of a balanced asset portfolio, underpinned by its long-term nature and link to a valuable commodity.”
Click here to access Savills Spotlight on the UK Forestry Market 2016.
