Spotlight: UK Forestry Market

UK Forestry Market
 
International Forestry

02 April 2015, by Savills Rural Research | @SavillsRuralUK

The GB forest area is tiny when compared with other global locations.

 

On a global scale the GB forest area is tiny compared with many other global locations. For investors looking for scale some of these may present additional opportunities (see Graph 7).

click on image below to enlarge

GRAPH 7

Proportion of world's commercial forests

 
Graph 7

Source: The World Bank (2012 data)

This is supported by the increasing accessibility of global markets, the ability to relocate management and technical skills, as well as capital to underdeveloped areas.

In GB, the size of forests generally limit the potential for large scale operations. The mature markets, for example the US and Canada, enable scale with a political and economic stability similar to GB.

Whereas, the emerging markets, such as central Europe and the Baltic States, may potentially offer higher returns but the risks are greater due to, amongst other factors, the difficulty in obtaining ownership security.

Good understanding

As with any investment a good understanding of the market is needed to ensure that the risks are quantified and mitigated as far as possible. In addition to the factors mentioned above, other considerations include currency, infrastructure and climate (wild fires and storms are not unknown).

As with farmland there are various investment strategies and options available. These include a direct investment or through a managed fund. In addition, the investment can be ‘hands on’ being directly involved in the operations or ‘at arms length’ by leasing forests to third parties.

Footnote: Forest area in Graph 7 is land under natural or planted stands of trees of at least 5 metres in situ, whether productive or not, and excludes tree stands in agricultural production systems (for example, in fruit plantations and agroforestry systems) and trees in urban parks and gardens.

Active market for small woodlands

This research has focused on investment forestry, but there is an active market for small woodlands where the drivers are more diverse and include leisure, amenity, conservation, sport, or simply domestic firewood production.

These purchases are normally sentimentally driven and the price payable is more likely to be determined by the desire to secure the property as opposed to any measurable value per hectare or forecast return. This market is more mature in England and Wales due to a correlation with high centres of population.

In Scotland there are wider ranging permitted access rights that allow the public to enjoy many of the benefits and amenity that woodlands provide without having to be involved in ownership.

While often only small these woodlands can be up to 20-30 hectares in size, but as size increases any small woodland premium reduces.

There are, therefore, always transactions where it is unclear whether they are small commercial properties or large lifestyle purchases. With increasing pressure on rural space and more leisure time and disposable income, small woodlands will attract interest and we anticipate further growth in this sector over the coming years.

 

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Jonathan Henson

Jonathan Henson

Director
Estate Management

Savills Perth

+44 (0) 1738 477 511

 

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

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