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Strong timber prices mean UK forestry values likely to rise

A report by Savills and Scottish Woodlands suggests forestry is performing well, with transaction values rising and timber prices providing a boost this year.

High timber prices in 2014 mean a likely rise in forestry value, according to a new report by Savills and Scottish Woodlands, an UK independent forest management company.

The average value per productive (stocked) hectare is around £7,600 per hectare. Total transaction value has increased by 50 percent over the past five years from £43.3 million to almost £65 million, reaching a peak of £73 million in 2012.

Timber prices, a key driver, have generally increased over the past 10 years following significant  falls in 1985-2014. They recorded a 28.2 percent nominal increase in 2014, following two years when timber prices fell slightly after a period of strong growth in 2010 and 2011.

This is good news for forestry: “Forest value growth lags slightly behind timber prices and we would expect average values to increase in 2015, following strong timber prices during 2014.”

James Adamson, the investment and business development manager of Scottish Woodlands, told Agri Investor: “The total market size for commercial timber investment in 2014 was around 35,000 acres total, and one recent timberland acquisition in the US will be 160 percent bigger than our total market, so in a global context the market is small.” Adamson was referring to the recent acquisition of Murray Pacific’s 54,000 acres by Sierra Pacific Industries.

“In the scale of the forestry we have, annual cash return or ‘running income yield’ is very hard to achieve, because most investments are on individual property basis,” Adamson said. If you are growing trees for 40 years, you might have income for five of those years, and in other years you will have no income.”

An investor with a well-diversified and reasonably-sized portfolio, he added: “can get returns of 6 or 8 or 10 percent… But if you are an individual investor owning small properties here and there, there is no cash return, and the only return is in the appreciation in capital value over time.  Of course, that suits many investors, making the sector attractive to those seeking to diversify their financial interests.”