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Why the forestry market remains a good investment

Currently demand is very strong for a range of woodland types

The forestry freehold market is currently very active and average market prices have risen strongly over the last few years.

The IPD Forestry Index (measuring a fixed sample of woodlands) showed a total return (cash flow and capital value) of 10.7% in 2016 and a rolling 10-year annualised return of 17.4%, comfortably beating equities, bonds and commercial property. Currently demand is very strong for a range of woodland types, both commercial and amenity.

The main drivers are:

  • Forestry has become a popular “alternative” asset class following many years of strong performance
  • Low interest rates
  • Positive timber price outlook.

Most of the value of a commercial plantation lies in the timber element. Therefore, with strong timber prices this feeds straight through to current freehold values, particularly for mature woodlands. At the current time, we have clients who have realised £20,000/hectare for standing crops in the commercial heartlands of north England and southern Scotland (timber prices will always vary with location, species, access, ease of working, etc).

These spruce dominated crops are some 40 years old with this end of rotation value logically translating to relatively high values throughout the whole rotation. Many woods being sold on the open market at £10,000 /ha or more evidence this. These high values also translate into positive land values.

In this positive environment for forest economics, owners are advised to focus on quality and ensure that restocking work is done quickly and to a high standard (ground preparation, weevil control, weeding, etc.) to maximise returns.

Will these high plantation values last? There is certainly strong demand and while timber prices remain high the outlook is positive.