UK Forestry Market

UK Forestry Market
 
Outlook

31 March 2016, by Savills Rural Research

The prospect of a longer term upward trend remains very real

 

Our Spotlight analysis has shown another year of growth measured both on gross or net property area, at 14% and 13.5% respectively, a trend first identified in the late 1990s. One question often asked is where does the end of this strong bull-run in forest values lie? The answer is of course anybody’s guess, but reasoned analysis of the fundamental drivers of forest investment suggests there is still some way to go.

We are undoubtedly moving into an era where forest values will be increasingly influenced by the productive capacity of the asset, or put simply the value of the stock of available timber on a site adjusted for the time to realisation. High yield class, well managed commercial spruce forests with good access to timber markets will remain in strong demand unless something fundamental changes. Younger forests or land for new planting of commercial conifers will also prove interesting. The primary driver here is the expectation of a seismic shift in timber prices over a longer timeframe, perhaps 20 to 30 years.

There is however some polarisation apparent in the market and as we moved through 2015 any forest property offered for sale that did not tick all of the normal investment criteria showed signs of sticking on the market unless competitively priced.

The effect of this is likely to feed into next year’s market analysis. Value investors may see a softening as an opportunity to step into the market for more mixed conifer assets with a view to longer term improvement in a subsequent timber rotation; others will no doubt wait and see what transpires over the next year or two.

But forestry is not a short-term game and as an asset class we normally recommend a minimum 10-year investment horizon. Looking further forward, strong growth in the demand for wood fibre (biomass), upscaling in the demand for wood for use in construction (both sawmilled and processed timber), regionalisation of global supply-demand flows and the ability for an increasing world population to provide ready markets for excess capacity will all contribute towards wood being a sought-after commodity.

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 remains very real, making us confident in the future of forestry as an asset.

Finally, we are entering a period of intense debate about the EU Referendum and what the outcome may or may not mean for the UK. At this stage the potential implications for timber, forestry and investment in the sector are too unclear to comment on with any authority. What we do know, however, is forestry has in the past shown excellent resilience in times of uncertainty, underpinned by its long-term nature and link to a valuable commodity.

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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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