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Growing biomass market sees increased interest in forestry investment, report shows

Although values have declined slightly this sector has not been hit hard and there is increased demand from investors, according to the latest Forest Market Report from UPM Tilhill and Savills.

It shows there has been a shift in emphasis on mixed plantations targeting both traditional and newly developing timber and biofuel markets and in 2009 the market has doubled in size in the UK to £48.2 million.

Overall average plantation prices have increased 82% in the last five years with 126% growth since 2002. Sales in England doubled to 37% of the annual market and Forestry.

Commission sales accounted for 37% of the annual value traded.

‘Demand for timber has increased substantially in recent years.

Investors not only appreciate the timber aspects of forests but also the wider credentials of forestry, for example as a source of sustainable bio energy, a green asset and a place to sequester carbon,’ explained Crispin Golding, Woodland Investment Adviser, UPM Tilhill.

The report reveals that there has been strong interest from industrial investors wanting biomass rather than timber within Forestry Commission sales in Scotland.

‘This interest reflects the strong and growing biomass market where projected demand far outweighs potential domestic supplies.

This year an additional 750,000 tonnes of biomass energy capacity, equivalent to almost 9% of the annual UK softwood harvest, is expected to come on stream in Scotland alone,’ added Golding.

The 2009 figures also show a rise in sales in terms of transactions, area and value, though they are not yet back to the level of previous record years.

The number of forest transactions increased significantly in 2009 with 88 forests bought compared with 50 in 2008.

The area sold recovered to 14,600 hectares, more than double the area in 2008 and the average property sizes have also increased to 166 hectares, up 20% on last year.

Values per hectare in 2009 have broadly followed the trends set in 2008 with the 25 to 50 hectare category maintaining its exceptional value at almost £6,000 per hectare, 6% up on 2008 and 40% up on 2007.

The general economic slowdown has depressed timber prices and squeezed all sectors of the market, especially construction timber for new-build housing where demand has dramatically decreased due to the recession. However, favourable exchange rates have helped keep domestic timber supplies competitive, the report also points out.
‘We have seen forest values remain insulated from the general recession indicating a capacity to hold value on the strength of confidence in the increasing demand for timber.

After a slow market in 2008 we have seen a more buoyant market in 2009 with potential for improvement in 2010 and beyond,’ said Ewan Berkeley of Savills.