Woodland values rise in line with timber demand

Strong capital appreciation and a buoyant outlook for the long-term timber market continue to drive demand for woodland.

Commercial spruce plantation values have typically risen 30% over the past two years and amenity woodland price rises are not far behind, according to chartered surveyor John Clegg & Co.

“People are viewing commercial forestry, typically large plantations of spruce in Scotland and the north of England, in a similar way to agricultural land. Long-term capital appreciation is the key driver, with forestry outstripping most other investment classes,” said John Clegg from the company’s Buckinghamshire office.

“Investors are also looking at medium- to long-term global commodity prices, which are forecast to rise sharply as the recession ends and global population continues to rise.”

Forestry management was more straightforward than agriculture, adding to its attraction, he said. “It also costs less to invest per acre and ticks the same taxation boxes as farmland, provided it can be shown to be commercially managed.”

Commercial spruce plantation values averaged £6,000/ha, allowing for open ground and other species, said Edinburgh-based colleague Patrick Porteous. Pure lowland stands near to harvest could fetch £15,000/ha, he added.

“For the past five years we have seen phenomenal growth in capital values, around 14% a year, mainly due to the value of timber, which has risen substantially since the early 2000s,” he said.

“We have seen a shift in global timber trends with China absorbing a lot of output from Russia, Eastern Europe and Scandinavia. Although the UK still imports 65-70% of its timber requirements, rising transport costs and demand from new housing, plus a relatively stable exchange rate, should mean good returns for home-grown spruce.”

A looming shortage of domestic supply was fuelling optimism, said Mr Porteous. “We have not seen nearly enough planting since 1988 – as the average rotation is 35 years, UK timber supply is going to tail off.”

He believed that created a real opportunity for growers in accessible areas in southern Scotland on marginal land. “A lot of this area is ideal spruce country and growers stand to get very good returns. These plantations also provide good livestock shelter and have been shown to provide an extra month of grass growth.”

More remote areas could also cash in. Loch Duagrich Hill, 430ha of highly attractive hill ground on the Isle of Skye, provided a good opportunity for an investor prepared to offer more than £485,000, he said.

It had significant Forestry Commission grant income, allowing the new owner to plant and create mixed woodland with hill grazings, stalking and loch fishing.

Amenity woodland values generally range from £8,500-20,000/ha, with smaller parcels near population centres and/or with sporting rights at the upper end, added Mr Clegg.

“Like farmland, many people like the idea of owning woodland, and smaller blocks of mixed or broadleaved woodland offers lifestyle and amenity benefits,” he said.

The 7.44ha Callins Wood, near Minehead, Somerset, at the more commercial end of the scale, was heavily stocked with valuable mature conifers and ready to yield immediate thinning income, he said. It is priced at £100,000 or £13,440/ha.

Ash dieback remained the one big unknown in this sector. While prices for woods containing a small percentage of the species were unlikely to be affected, the picture was less certain where ash was more prevalent. “It will depend how much disease is found this autumn – we may see quite an increase in reports as people have become more aware of symptoms. The age of trees is also important – older trees will take several years to be affected and you can still use the timber,” said Mr Clegg.

Outlook for timber

    The latest Timber Bulletin from forestry consultant and management company UPM Tilhill highlights the improving market, underlined by a 4% rise in UK processors’ market share to just under 45% of volume.

    Investment in forestry continues to provide outstanding returns compared to practically any other investment, said timber operations manager Peter Whitfield. In 2012 the return on investment was 18.3%, according to the IPD Annual Forestry Index, and the annualised return over the past 10 years was 16.3%.

    The latest National Forest Inventory Report had taken a more rigorous look at the private forest sector and estimated that overall softwood availability would average 16m cu m a year for 25 years. That, said Mr Whitfield, was an encouraging forecast. “There is no evidence of a shortage, although supply and demand is closely balanced.”

    Although clearance of commercial woodland, for example for heathland restoration and wind farms, was a concern, there was good evidence the level of timber market activity should continue as it has for the past few years. This will be driven by favourable exchange rates, continued investment and growth of domestic processors, available timber and the demand for biomass, said Mr Whitfield.

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