Timber market hits record values
The past 12 months has been the most active year yet for the forestry market, according the Forest Market Report.
The report, launched on Monday (18 November) by Savills and timber harvesting company UPM Tilhill, claims 50% more coniferous forest was traded in 2013 compared with 2012.
Trade between October 2012 and September 2013 totalled £97.3m and eight and a half times the value traded in 2000, making it a record year in terms of both the value of the market and its unit price.
The majority of this year’s sales came from Scotland – about 69% by value – but there was also a significant increase in Wales, where 16% of sales took place compared with just 4% in 2012, said the report.
Also at record levels is the average value per stocked hectare which is now at £7,057. This has given an annualised average growth since 2002 of 15.4%. The average value of a property is up 29% on 2012 values to £1.23m.
“While values of properties larger than 50ha have dropped in England, prices in Wales are now outperforming English prices for the first time,” said Jonathan Henson of Savills.
“As the year progressed, an improvement in the economy led to early signs of growth in the sector. This was strongly supported by a number of forestry investment funds and high net worth individuals who have been active at the top end. Both sectors of the market have been aggressively bidding for good-quality spruce forests that offer reasonable scale and access to timber markets.”
At the start of the global financial crisis back in 2007, few would have been bold enough to predict the extraordinary performance of the UK forestry sector which, according to the IPD UK Forestry Index, showed an annualised total return of 17.7% over the past five years and 16.3% over the past decade, Mr Henson added.
Outlook for prices
Timber prices are likely to stay high, despite a recent dip, the Savills/UPM Tilhill Forest Market Report said.
The resilience of the timber industry through the recent turbulent economic environment had been a great achievement and, despite the recorded dip in market prices this year, this would continue to be the case, it said.
Prices on Tuesday 19 November were at £367.
The weakness in sterling against the euro was likely to continue for the foreseeable future, meaning imported sawn timber remained relatively expensive, said the report.
The report praises initiatives like Grown in Britain which have been positive for the forestry industry in promoting the array of quality products generated from productive woodlands.
Grown in Britain has already secured long-term commitments from more than 30 UK companies with a total buying power in excess of £50bn per annum.
“In that light there is every chance that domestic processors will hang on to their increased share of the processing sector even if the euro weakens because they offer a quality product with excellent service and lead times,” said the report.
The top prices were paid by processors seeking material both for processing and fuel for their energy needs, it added.
“Overall we continue to be optimistic about timber prices.
“The significant tax advantages derived from commercial forestry, including the potential to benefit from significant inheritance tax savings and capital gains tax exemption, continues to point to a bright long term future for forestry,” Jonathan Henson of Savills said.
The rapid rise in the capital values of woodlands was initially driven by investors seeking a secure asset in which to shelter cash, he said.
The potential tax reliefs, coupled with a surge in interest in renewable energy opportunities and long-term optimism in timber prices, had fuelled interest in the sector. Existing investors looking to increase their woodland holdings, new investors entering the market for the first time, and large forestry investment funds acting for pools of investors, all led to a surge in demand, Mr Henson added.
“As the wider economy continues to recover, alternative asset classes – such as equities, residential and commercial property – may become relatively attractive, and the number of private investors entering the market may peak in the short term,” he said.