The search for value in the forestry market Denis Torley reviews investment opportunities in the buoyant forestry sector.
the 2018 uK Forest market Report (tilhill) highlighted the continuing strength of forestry as an investment. It noted that the forestry market remains buoyant, with unit prices for larger properties continuing to rise slightly and a continuing solid trade in medium-sized properties. The trend of increasing interest in mixed woodland, with both commercial and amenity value, also continues apace. While more traditional institutional investors remain active in the market, and remain focused on maturing spruce-dominated forests in the south and south-west, where bidding remains very strong, the report also notes new investors coming into the market, perhaps attracted by the widely reported increase in timber prices. The Forestry Commission reported a rise in standing timber prices of more than 30% in 2018, partly driven by the weak pound but also by demand for raw material and signiﬁcant investment by UK processors. The increase in demand from UK processors as well as the newer biomass industry shows little sign of abating in the short term. With new buyers seeking to enter the market and an increasing demand for product, the availability of forest properties coming to market may remain constrained, especially if existing owners take a longer view based on the last 10 years’ performance (15.7% total return, MSCI IPD, 2018) and the apparent recalculation of timber values to more realistic levels given the worldwide demand for timber and the UK’s reliance on imports. In such a market it may seem diﬃcult to ﬁnd where the value lies. For the institutional investor and those driven solely by returns, the value remains in spruce-dominated forests to the south and south-west where competition between bidders grows ever more ﬁerce. Individuals with wider objectives can still ﬁnd value further north where competition, while strong, has traditionally been less frenetic. Forests established in the late 1980s in the north and west of Scotland are now entering the harvesting of this ﬁrst rotation, with owners now
beneﬁting from much improved timber prices. With the tightening market for purely commercial forest properties and with mid-range properties still coming to the market, there may be value in focusing on those woodlands which provide both investment opportunities and a wider range of objectives and amenity. With careful attention to detail, opportunities for crop improvement and enhancing amenity in the next rotation can provide both ongoing interest for new owners and future value. Forest creation is also increasingly an option for new entrants. Given the strength of the forestry market and the Scottish Government’s renewed support for the industry, there has been an increase in the development and creation of new forests, with national targets for tree planting being met for the ﬁrst time since their introduction in 2011. Finding suitable sites and gaining the necessary approval can be a time-consuming process and it is not helped by continuing uncertainty over the prospects for grant funding to aid planting. But the next few years could see opportunities in this sector for those with the patience to create their own woodland. In the current climate, those wishing to dispose of forests are strongly advised to test the market through marketing their property widely. Potential purchasers should be ready to act quickly, and it is important that there is a clear understanding of the make-up of individual properties compared to those recently sold when considering value. Those seeking to purchase would also do well to take advice in gaining a detailed assessment of potential income and expenditure over the lifetime of the investment. For both new investors and owners looking to sell an appraisal of the forest with some detailed scenario planning of the felling and restocking options is a vital tool in planning how best to proceed.
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Page 8 | Forestry matters | Summer 2019 | galbraithgroup.com
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the role of forestry contractors is central to delivering high quality forestry management. Without them, management plans and grant applications would sit uselessly on the shelf gathering dust – we need contractors to help us turn our plans into reality. Andrew Whitaker of Strathearn Horse Logging describes the service he oﬀers and the relevance of this most traditional
News and Insight from the Forestry Industry