Forest market report

    Commercial forestry has enjoyed a bumper year, with average sale prices jumping by 49% in the year to 30 September 2012, to £6,920/ha.

    According to the Forest Market Report produced by Savills and UPM Tilhill, strong demand has combined with the high quality and maturity of woodland on the market, with buyers increasingly interested in larger blocks of land. Agreed sales have consistently exceeded asking prices by an average of 32%.

    “As we predicted last year, UK timber prices are not being supported by the exchange rate to the same extent they were in 2011,” says Savills’ Jonathan Henson. “However, true to form, the sector has not been susceptible to short-term fluctuations. In fact, global economic woes have only served to highlight woodland as a sound medium- to long-term investment and it has continued to out-perform most alternatives.”

    The IPD UK Forestry Index showed a return of 34.8% for the year to December 2011, with the Forestry Commission revealing that coniferous standing timber prices increased by over 26% in the five years to September 2012.

    “Demand for timber has increased substantially in recent years, alongside the variety of products produced from forests,” says George McRobbie, managing director at UPM Tilhill. “The result is that investors not only appreciate the traditional timber production aspects of forests but also their wider credentials as a source of sustainable bio-energy, a green asset and a place to sequester carbon.”

    While the long-term outlook for commercial woodlands looks promising, there is speculation in the shorter term that capital values may be peaking, and an increase in the number of woodlands on the market in 2013 is likely.

    “There are modest signs of life within the development sector and as economies start to recover and construction activity increases, demand for timber, both as fuel and a material, can only grow,” says Mr Henson. “We anticipate that while the economy will remain lethargic throughout 2013, the interest in forestry will endure. Prices will remain steady as long as there is not a significant increase in supply.”

    The significant tax advantages derived from timber, including Inheritance Tax and Capital Gains Tax savings, are among the sector’s many strengths, he adds. “The future role that biomass is forecast to fulfil in helping to meet energy requirements also continues to increase investor confidence.”

     
     

    Key contacts

    Jonathan Henson

    Jonathan Henson

    Director
    Estate Management

    Savills Perth

    +44 (0) 1738 477 511

    +44 (0) 1738 477 511