Forestry market maintains strength on slower growth

The forestry investment market reached a new high in 2022, but the rate of increase in average values has slowed from the very high levels of 2019-2021, according to Savills’ Spotlight on the UK forestry market report.

This shows that during the 2022 forest year (September 2021 to October 2022) the average value increased by 7.5% to just over £11,331 per net productive acre, compared to a rise of more than 50% in the 2021 forest year. 

See also: Farmland values continue to rise in early 2023

The total value of UK investment-grade forestry sold was a record £295m, with 52% of the value accounted for by seven large sales.  

James Adamson, head of Savills forestry investment, said: “There was initially some pessimism over how the market would perform in 2022, facing a worsening economic situation and the prospects of an increasing cost of capital through interest rate hikes. 

“However, there was strength in the upper end of the investment market (blocks of more than 370 acres) where strong prices continued, albeit perhaps tempered slightly by the wider circumstances.”

Three key factors will drive the future performance of UK forestry and woodlands: carbon, biodiversity and timber markets, says the firm, although subject to the influence of unforeseen political and economic events.

As the demand for more sustainable construction materials grows, the performance of the investment grade forestry sector will continue to be heavily influenced by the timber market.

Smaller and broad-leaf woodlands demand and values may be more strongly driven by carbon and biodiversity potential.

The need to prove additionality means that commercial carbon and commercial forestry schemes are increasingly incompatible, as deriving carbon income from financially viable timber production makes additionality hard to justify, says the report.

Additionality is the concept whereby to qualify as a genuine carbon offset, the reductions achieved by a project need to be “additional” to what would have happened if the project had not been carried out.

However, in the creation of smaller amenity woodlands, there is potential for timber, carbon and biodiversity income to be combined, alongside creation and maintenance grants, which provides a good cashflow over the lifetime of a woodland, provided that certain criteria are met, says the report.

Smaller woodland parcels

Demand for areas of woodland smaller than 25 acres remains strong, but saw some pressure in the second half of last year, says Savills in the report.

Since 2018 the average asking price for these has risen by more than 50%, but the desire to purchase woodland for lifestyle objectives relies on available wealth and therefore is heavily influenced by the current cost-of-living rises, says the firm.

During 2022, the highest proportion of properties advertised in the amenity market were smaller than six acres, with an average price of just under £17,000/acre.