Strong demand for forestry land in the UK
Strong demand has resulted in an increase in price for forestry land in the UK, with the market delivering excellent returns, according to a new report from Savills and UPM Tilhill, the UK’s largest timber harvesting and forest management company.
Over the past 12 months a combination of strong demand, and the high quality and maturity of woodland on the market, resulted in an increase in the average sale price of 49% per stocked hectare.
Not only did the size of the market increase sharply last year, but it remained highly competitive. Sale prices consistently exceeded asking prices by an average of 32%.
An analysis of forestry sales reveals a growing appetite for larger blocks of land, and in this regard the market is now mirroring farmland.
The IPD UK Forestry Index shows a return of 34.8% for the year to December 2011 and the Forestry Commission indices show the coniferous standing timber sales price up by over 26% in the five years to September 2012.
‘As we predicted last year, UK timber prices are not being supported by the exchange rate to the same extent they were in 2011. 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,’ said Jonathan Henson of Savills.
George McRobbie, Managing Director for UPM Tilhill said that demand for timber has increased substantially in recent years alongside the variety of products produced from forests. ‘The result is that investors not only appreciate the traditional timber production aspects of forests but also their wider credentials. For example, forests can be a source of sustainable bio energy, a green asset and a place to sequester carbon,’ he explained.
‘It is also very pleasing and excellent news for investors that the market has remained strong and that the value of woodland has increased so dramatically. An increase of nearly 50% up to £6,920 per hectare is staggering,’ he added.
The firm believes that the increase in values is being driven by strong investor confidence in the future prospects of timber as a commodity and as a safe, asset backed, investment. This is supported by the jump in value of the large properties.
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. However this will be dictated by exchange rates, timber prices, the speed of our recovery from a period of recession, and the impact that this has on the construction sector, the report suggests.
The significant tax advantages derived from timber, including the potential to benefit from significant IHT savings and Capital Gains Tax exemption, are among the sector’s strengths. The future role that biomass is forecast to fulfil in helping to meet energy requirements also continues to increase investor confidence in forestry.
In addition, alternative income generating activities such as leisure opportunities and renewable energy, in the form of hydro and wind, are being considered by investors.
‘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,’ said 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. Against such a backdrop it will be essential for investors to obtain first class market knowledge if they are to move quickly when the right opportunity presents itself, and profit from trading in this dynamic sector,’ he concluded.
