New factors driving underlying value of commercial forestry

by | Dec 7, 2021 | Featured Slider, Latest, News

The forestry market has seen a record-breaking year, with average values more than double what they were three years ago and the total value of the forestry investment market reaching a new high, according to the latest UK Forest Market Report.

The annual report, produced by Tilhill and John Clegg & Co, is now in its 23rd year and is regarded as the most comprehensive publicly available record of forestry transactions in the UK. This year it highlights that the sector is attracting unprecedented levels of interest from commercial forestry buyers and financial institutions. Some are experienced forestry investors, but others are new market entrants with multiple objectives – part financial and part related to Environmental, Social and Governance (ESG) considerations or natural capital outcomes.

The report shows that in 2021 a total of £200.40m of forestry properties were traded, making it another record year for the sector. This year it includes a new section on the market for planting land, which shows an additional £53m worth of land suitable for afforestation transacted, plus £26m worth of natural capital land.

Key findings:

  • 21% increase in forestry values from just under £16,000 per stocked hectare in 2020 to £19,300 per stocked hectare in 2021. However, the spread in prices paid is wide, with significant geographic and quality variations.
  • The total value of the forestry market was £200.40m in 2021 (just over the £200.18m in 2020), with 70 planting land deals also struck worth £53m. 
  • 10,400ha (gross) of forestry traded in 2021 (67 forests), compared with 12,500ha in 2020.
  • Decrease in average size of a property sold from 206ha in 2020 to 155ha this year.
  • Scotland provided largest share of commercial forest market at 76% by value.

Peter Chappell, head of forestry Investment, Tilhillsaid: “The positive long-term outlook for timber values has buoyed confidence in how commercial forests can perform as an investment and the wider benefits of trees and woodland to society and the environment are being increasingly recognised. The growth in the value of an average stocked hectare has continued unabated, rising 21% this year. This means over the past three years, values have risen from £9,300 in 2018 to £19,300 in 2021.

“The report also highlights how the trend of younger forests achieving the highest unit values has continued into 2021. This shows investor confidence in timber values, and the fact that younger, second-rotation forests tend to be characterised by high yielding, improved varieties of Sitka spruce, with proven timber extraction and a developed infrastructure. There is also some evidence that larger forests over 100ha are now attracting the highest per hectare values as an increasingly competitive market develops for high value deals.”

Edward Daniels, head of forestry at John Clegg & Co, said: “2020 was an extraordinary 12 months in the forestry sector, but 2021 has more than matched it. Timber prices have remained high, plantation values are breaking new records and large institutional investors such as pension funds and other new entrants are allocating more capital to sustainable investments than ever before.

“Forests are seen as critical to growing the UK’s low carbon economy, which is why, alongside ESG and natural capital factors, companies and funds are so keen to invest. While there are those who would argue that rising values are a result of short-term supply and demand dynamics, it is our belief that the underlying worth of commercial forests is increasing because of the positive long-term outlook for timber prices, carbon income and other ecosystem services payments. The signs are extremely positive for the woodland and forestry sector with further growth in forestry values a real possibility.” 

Planting land 

It is the first year that the report examines the dynamics of the market for planting land, although interpreting trends is not without its challenges. While we can track land which we think, on the whole, is suitable for afforestation, we do not always know if woodland creation will be the final land use. However, it is estimated that the total area of planting land purchased has risen from 4,460ha in 2020 to 6,480ha in 2021. We tracked 70 planting land deals across Scotland, England and Wales in 2021, compared with 33 in 2020. The average price per gross hectare was £8,500, up from £6,200/ha in 2020. This equates to a figure of £11,000 per plantable hectare in 2021.

Mixed woodlands 

The UK Forest Market Report also tracks transactions for mixed woodland sales over 10 hectares in size. Broadleaved woodlands can vary greatly in value with location, look and feel being significant factors, making it a far more subjective market than commercial forestry. Values have continued to rise in 2021, with demand outstripping supply in what is a small, but strong, market. England dominates the mixed woodland market accounting for £7m of the 2021 UK sale total of £10.7m. The average price in England in 2021 was £6,170 per acre, up from £5,330 in 2020. However, average values do mask a huge variation in values – the range in prices being paid in England during 2021 was £2,000 to £11,400 per acre. Mixed woodlands of less than 10 hectares are not covered by the report so the figures are not overly skewed by the sale of very small blocks of woodland, which in the right locations command a significant price premium.

Nature-based solutions, carbon and the long-term outlook for timber 

This year’s report also includes an article exploring the factors influencing prices for woodland carbon, now and into the future. The report carries a guest contribution from Stuart Dobrijevic, asset manager for Abrdn, who writes about how the business is committing capital to ‘nature-based solutions’ which will help to tackle climate change. An Abrdn-managed fund has already bought an area of about 1,400 hectares in the Cairngorms National Park where large-scale native woodland creation and peatland restoration will take place. Meanwhile, Dan Ridley Ellis, Head of the Centre for Wood Science and Technology at Edinburgh Napier University, considers what the outlook is for the forests that are being planted now, suggesting how the possible uses of forests and forestry products may change in the decades ahead. The UK Forest Market Report has been produced since 1988 and the data series now covers 23 years, incorporating 1,909 transactions which total some £1.6bn and 299,000 stocked hectares (ha). Read full details in The UK Forest Market Report 2021