UK Forestry Market

UK Forestry Market
 
UK forestry outlook

22 March 2017, by Savills Research

Forest values will continue to rise

 

2016 proved to be an average year for the forest investment market when measured against the total volume and value traded, but rather masked by the data was the lack of quality timber forests coming to the market. Values remain regional but on the whole continue to show some appreciation. In England and Wales, higher prices were paid and there is no doubt appetite for considerably more volume to come forward to this market. Whilst we all wish to see more large, spruce dominated plantations come up for sale, even in the absence of this resource, areas of value can be identified.

Firstly, increasing investment in regional wood processing mills (see Demand for timber primed for growth  Figure 7) and localised biomass demand is pulling timber values upwards in what were, until recently, considered lower value areas. This improves cashflows, which feed through to better revenue returns and higher capital values, and widens the geographical scope for investors looking for stocked forests.

Secondly, there is a real buzz around planting new trees providing clear opportunities for investors to create new productive forests, which will undoubtedly benefit from constrained wood supply in years to come. Grants are favourable and the process of delivery is under scrutiny with a genuine appetite from regulators to meet targets that have otherwise been seen as rather arbitrary. With increasing uncertainty in the sheep meat sector due to Brexit, we can perhaps look forward to a period of woodland expansion again should destocking of grassland occur.

The forestry investment market continues to attract new interest from private and institutional sources. Investors remain drawn to the security of forest assets, which provide a great alternative to traditional offerings and help to balance already diverse investment portfolios. It is the long-term nature of forestry that is attracting investors’ attention, with many seeing a strong upside beyond the next 15 to 20 years. Timber price is the core value driver of forests and any gains in price are reflected by both improved capital values and better income returns. This means investors are encouraged by long-term forecasts that show demand for timber is likely to fall out of line with supply as wood becomes a popular construction material and as woodfuel markets continue to increase.

Although UK timber markets will fluctuate from season-to-season and year-to-year, the prospect of a longer term upward trend in timber pricing structures is very real, making us confident in the future of forestry as an asset. High yield class, well managed commercial spruce forests with good access to timber markets will remain in strong demand and offer an excellent long term investment option. Our research suggests plantation values will rise by 32% over the next five years (see Figure 10) with scope for further growth if timber prices rise above expectation.

A post-Brexit world

As the UK negotiates its way to a ‘post- Brexit world’, the UK timber industry will no doubt rise to challenges ahead and more importantly seize opportunities where they arise.

With the UK being the world’s third largest importer of wood, revision of EU timber standards and trade regulations could lead to the breaking down of technical barriers to trade, allowing UK forest products to be used more widely in construction.

Adoption of ‘timber-first’ policy in procurement contracts, with a preference for domestic production would also promote the use of wood in construction, from glulam and cross laminated timber replacing steel beams, to greater use of timber frame in off-site construction.

FIGURE 10

Average forestry capital value forecasts

 
Figure 10

Source: Savills Research

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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

 

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