Spotlight:

UK Forestry Market

UK Forestry Market
UK Forestry Market

31 March 2016, by Savills Rural Research

UK forestry proved to be a strong performer in 2015 with a buoyant transactional market

Welcome to the second year of our joint research into the UK forestry investment market. Forestry remains a strong performer in land-based investments and early 2015 continued to show a buoyant transactional market for prime quality spruce forests in desirable locations. Over the period the total value traded was significantly more than in previous years at over £130 million worth of freehold sales and, despite this increase, our analysis shows further growth in the average value per hectare.

 

Prime investment forests focus on Sitka Spruce-dominated plantations mainly in upland areas. The rotation length is long, typically 35-55 years, therefore most investors only capture part of a growing cycle as opposed to the full process from planting to harvest. Continued capital appreciation coupled with annual biological growth of timber on a site has led to good investor returns over recent years.

Still considered by many to be a niche asset class, forestry investment offers multiple benefits and is particularly well suited to forming part of a balanced asset portfolio; it offers good long-term capital attributes, preservation through a benign tax regime and annual growth which, due to the method of valuation, treats the growing crop as part of the asset value.

The transactional market has not been even, with prime spruce dominated assets significantly outperforming more mixed conifer plantations, or indeed spruce forests in more marginal growing locations. The market performance of these more mixed assets was increasingly influenced by a slower timber trade, especially in the second half of 2015, when a strong Sterling/Euro exchange rate created better conditions for imported timber, impacting on the competitiveness of domestic supplies.

The best timber forests are more resilient to subtle movements in timber price, but where falling timber income is an important factor one of the key benefits of a crop that grows over an extended rotation comes into play, which is that there is no definitive harvest date. This means investors are able to alter harvesting plans (within reason) to smooth the impact of pricing changes, essentially banking value ‘on the stump’.

As discussed last year, whatever the short-term fluctuations in price the link to timber is a key medium to long-term value driver as most commentators now agree that we will see structural shortages in global supply within a few decades. Control of a significant reserve of timber has therefore again been a key investment driver, and scale of investment does show positive benefits in this regard, with large funds and timber processors all keen to increase their strategic reserves.

New planting continues to hold significant opportunity and indeed as part of the possible response to widespread flooding is gaining increasing media coverage. It will be interesting to see how changing Government policy priorities may kickstart what was until the mid-1990s the primary entry into forest investment.

Articles from Spotlight: UK Forestry Market 2016

Forest Investment Analysis

The overall volume of forestry transactions increased in 2015 to nearly 21,000 hectares

Into The Woods

17 March 2016

Into The Woods

Landowners who have small pockets of woodland they can’t find a use for may find a market in the amenity woodland owner

Outlook

17 March 2016

Outlook

The prospect of a longer term upward trend remains very real

 
 

Key contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

Nicola Buckingham

Nicola Buckingham

Associate
Rural Research

Savills Margaret Street

 

Jonathan Henson

Jonathan Henson

Director
Estate Management

Savills Perth

+44 (0) 1738 477 511

 

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