Strong returns attract forestry investors
Arenaissance in forestry investment in recent years has largely been driven by increased returns that remain very strong, says Warwick Searle, a specialist forestry broker with Colliers International.
Searle says a new wave of investors, predominantly from Europe, North America and Asia has been attracted by favourable government policies, including a push for sustainability that has reinvigorated an interest in the sector.
“Forestry has long been dominated by a core group of long-term wholesale investors, and these players continue to be active. Some 70 per cent of New Zealand’s productive forestry land is owned by less than 30 parties.
“What’s changed is the entrance of a new wave of investors at a similar scale. We’re seeing more big timber funds and private family companies looking at the market.”
Searle says the new players are not only attracted by strong returns, but the relative safety and low management costs the asset class offers.
“Log prices have been undergoing steady growth in the past decade. Export prices have grown from $121 to $165 per cubic metre a decade ago, to $176 to $222 as of March this year.”
He says with the Government supporting investment in the sector, there is reason to remain optimistic about forestry’s fundamentals.
“There has been a period of adjustment while the industry waited for certainty around changes to the Overseas Investment Act. It’s been tough in recent years, but I think government has been proactive in listening to industry, and we now have Overseas Investment Office legislation going through Parliament that will help give overseas investors confidence in the sector.
“Incentives, like the One Billion Trees planting programme can only help bolster the sector. So, I anticipate we will see more greenfield planting to achieve those government targets.”
Searle says a growing awareness of sustainability is also helping bolster the forestry sector. He points to plans, locally and internationally, for “wooden skyscrapers” that are both ecologically and seismically beneficial. Sir Robert Jones is behind one such project for a 12-level woodenframed office tower in Wellington.
“What we are seeing is a push towards environmentally sustainable products being used, and wood is certainly at the forefront of that. Overall, it’s looking very positive for the wood product sector.”
New Zealand exported $5.47 billion of forestry products in the year to June 2017, comprising $2.69b of logs and $2.8b of other products. The sector also generated more than $3.5b of our GDP — two fifths of which came directly from forestry and logging.
New Zealand has 1.7m ha of plantation forest, compared with 10.8m hectares of pasture and arable land.
About 92 per cent of forestry land is privately owned, with the rest owned by registered public companies (4 per cent), local government (2 per cent) and central government and state-owned enterprises (1 per cent respectively).