It is now becoming clear how the market for UK forest property is taking shape this year. Although a good number of plantations have been advertised for sale, supply is down on 2016 and at the end of June this year supply of investment forests (excluding mixed use or amenity woodland) was back by about 40 per cent.
The drop was less pronounced in cumulative asking price, which showed a 20 per cent correction; this highlights the regional differences between forest values – it is actually very difficult comparing like-for-like in forestry as each property has unique characteristics affecting value.
Of course, forestry - like any property asset class - has different grades or qualities that influence marketing and price. To be classed as ‘prime’ investment assets, forests should typically have scale (perhaps over 500 acres), be growing a good proportion of the higher yielding conifer species such as spruces, have (or at least have the ability to develop) good access, and be well located for a range of competing timber markets. Matching all these criteria tends to be limited to the southern half of Scotland and in a few isolated parts of northern England and central Wales. But there are plenty of poorer-quality assets in these areas too, and indeed other more remote parts where an ‘investment microclimate’ occurs producing the odd hidden gem.
The investment market has a number of very active buyers in the prime sector, but our research shows activity drops off quickly with some secondary or unexceptional forest property having longer marketing times or put under offer without going to a closing date. Large spruce-dominated forests in prime areas sell quickly and normally attract competing buyers, but, like any form of in-demand commercial property, yields are low in competitive bidding situations (sub three per cent) and buyers will have to expect lower returns for the best assets. There is now some sentiment that capital values, which have seen sustained annualised growth of around seven per cent for the past 20 years, are nearing their zenith, but that ignores the effect timber prices have on forestry valuation; if timber prices continue to rise – which they are forecast to – they can continue to drag forest values up further.