Forestry investors are continuing their search for low-value, unproductive farmland following another strong year for the sector in 2017.
Savills’ latest UK Forestry Spotlight report shows forest owners have seen average annual returns of 8% over the decade since the financial crash.
And its appeal is showing no sign of waning, mainly because it is perceived to be a straightforward, long-term and low-risk asset.
See also: The land market in your area: Scotland
Favourable tax treatment used to be a significant driver too, but an increasing demand for wood – led by the construction and renewable energy sectors – has left foresters scrambling for land to secure long-term supply.
Unproductive and marginal farmland is one option. But in England and Wales particularly, buyers are hitting barriers.
High average land values are a big hurdle to overcome, as are environmental constraints placed on designated land that would otherwise suit tree planting.
James Adamson, Savills’ head of forestry investment, says: “In Scotland there is a strong demand for land for planting trees and we’re getting close to hitting our national annual tree planting target of 24,700 acres.
“In England we have had the best year for tree planting for a while but the real issue in England and Wales is the land value gap.”
He says the average value of low-quality grazing land in England suitable for planting is about £5,000/acre.
“I have just completed a deal in Scotland for 1,000 acres at £600/acre to plant trees on. The land successfully planted with trees in Scotland last year was all under £2,000/acre,” he says.
“Even with the best political will in the world, unless one of these barriers is removed from the market, it’s going to be difficult to plant trees and meet targets in England and Wales.”
Creating demand for marginal land
Mike Tustin, partner at John Clegg & Co, says landowners who are considering selling poor farmland could seek permission to plant trees to entice forestry buyers.
He says there are very few farms available with planting permission secured.
“It’s a struggle to find land for forestry investors because £3,000 to £4000/acre is a lot of money to pay when you can’t be certain you’re going to be able to plant trees on the land,” he says.
“However, if the same land has permission already granted, you are removing all that risk and you would be exposing the sale to an overheated market where millions of pounds are waiting to be invested.”
Mr Tustin says unproductive or wet grassland farms of more than 100 acres are typically well-suited to tree planting.
Houses and buildings attached to the sale are not usually a problem for forestry buyers, who will dispose of them separately.
A straightforward application to plant trees can cost as little as £2,000 and be completed in a matter of months.
However, a more complicated process can see costs spiral to more than £20,000 and if an environmental impact assessment is required the process can take years, Mr Tustin says.
Woodland Creation Planning Grants are available from the Forestry Commission to cover the costs of successful applications, capped at £30,000.