Funds increasingly driving UK forestry market: Savills

James Adamson, head of forestry investment at London-headquartered real estate services provider Savills, tells Agri Investor of how the UK ‘s timberland industry has matured along with forests planted in the 1970s and 1980s.

Recent years have seen a shift from individuals to professional investors as the dominant buyers within the UK forestry market, according to the author of a recent Savills report.

James Adamson, head of forestry investment at the London-headquartered real estate services provider, told Agri Investor that five years ago, individual buyers represented about half of total sales activity in UK forestry; today that share is about 25 percent.

Speaking soon after the release of a report that detailed strong 2017 performance driven by foreign capital and demand from domestic timber mills, Adamson described how funds – Forest Investment Management and Gresham House Forestry chief among them – are playing an increasingly important role in the market.

In the report, Adamson wrote that 2017 saw a 24 percent annual increase in the total value of UK forestry investment to £112 million ($157.3 million; €127.8 million). That growth, according to the report, was driven largely by an 8 percent contraction in total forest area inside the UK to just over 18,000 hectares. Though the pace of transactions slowed from the £146 million reported in 2015, the value of forestry transacted last year was still 25 percent higher than the medium-term average, according to the report.

“The influence of these private individuals is dropping as the market gets more mature, mainly because a couple funds have come into the market. They have more spending power and are sort of hoovering up more than what would have traditionally been the share that would have gone to the private individuals,” Adamson said.

Because the UK is not endowed with the millions of acres of old growth forests that make the US such an important market for timberland, Adamson explained, forest plantings sponsored by high-net-worth individual investors during the 1970s and 1980s have, until recently, not presented income opportunities likely to attract funds.

“Once they starting becoming incoming-producing and were able to generate cash yields, obviously it became more attractive to have these funds, that’s why they have only come, quite recently, into the market,” Adamson said. “We’re seeing a slight change from a niche investment for a few private investors to bigger purchasers coming to try and get more in one go or in a collection of purchases.”

Another factor driving growth of the UK’s forestry sector, according to Adamson, is a surge of interest from foreign investors. Last year saw more interest in the UK’s forestry sector from Continental European investors than any point in the last 15 years, according to Adamson, who pointed to the drop in the value of the British Pound after the Brexit vote as the main driver.

“Sterling, within the Euro currency zone, was always quite a strong currency. As soon as it devalued, investors sitting with Euros in a lot of Central European countries and Scandinavian countries looking for home could come to the UK where they couldn’t come before,” Adamson said. “We’ve got people looking from France, Germany, Denmark and other places that definitely weren’t in the market three years ago.”