In the U.K., a strong outlook restricts commercial forestry

According to Farmers Weekly, with the weakened pound making imports more expensive and domestic homebuilding initiatives continuing to support the value of timber, investors are choosing to retain their investments rather than sell them.

Over the past twenty years, in the United Kingdom (U.K.), owners have witnessed strong returns, and in spite of various warnings that the top of the market is likely close, not many are liquidating their holdings.

An estimated 57,000 acres changed hands in 2015, and in 2016, 44,500 acres were sold – both above the six-year average of 43,000 acres.

In contrast, from the beginning of the year to June 2017, less than 15,000 acres were on the market.

However, James Adamson, head of forestry investment in Savills, U.K., thinks that the recent downturn can be traced to the market’s strong future prospects.

“There’s such a good case to have a forest that if you have one you are less likely to sell it,” he said, adding that while there were a few long-term investors who decided to cash in on their capital appreciation and move on to other areas, most of holding on to what they have on hand, or even expanding, with rising demand resulting in high prices being offered – and taken – on offerings with high quality.

In the first half of 2017, cumulative asking prices for forests on the market amounted to £35,058,000 (US$47,098,144), an amount only 22 per cent less than the figures seen in 2016 – and with 41 per cent less area available for purchase.

“U.K. timber has done well with the weak sterling leading to more demand for domestic product. At the same time, homebuilding is picking up, with 200,000 new homes being built every year, increasingly with timber-framed techniques. It’s demand that’s locked in by government initiatives,” Adamson added to Farmers Weekly, noting that the seven per cent annualised growth of forestry’s capital value would likely slow but would not come “crashing down,” as popularly thought. “Timber prices are the biggest single influence on the market value of forestry and there are a lot of people thinking that in the next twenty to thirty years, there is a lot of scope for growth in timber prices.”

 

Source: Farmers Weekly