This week Tilhill and John Clegg released the 18th forest market report.
In the year to 30 September 2015 over £150 million of forests were sold in the UK, an 80% increase on 2014. This represented 98 properties with a total area of over 18,000 hectares.
The year was heavily influenced by UPM selling 16 properties acquired by the Church of England Commissioners for £150 million.
However, the supply was absorbed and overall prices per hectare increased by 22% to £8,145.
The reasons for the continued strong growth in the UK Forest market can be attributed to a number of factors:
Since 1992, timber prices have increased by approximately 20% (but are broadly flat over 30 years). However, plantation or land prices have increased four – fold over the same period. This high level of growth cannot continue particularly as the economy improves and asset allocation changes.
However, we would suggest the expectation of modest inflation in the future combined with the natural growth in trees, that 5-6% per annum can be expected in a “normal” year.
This is of course, free of income tax capital gains and Inheritance Tax and therefore still a strong post-tax return compared to other asset classes.
On the information contained in this report, we expect the IPD UK Forestry Index for 2015 (released Q2 2016) to be as strong as last year but cooling in 2016.
For an experienced investor seeking a balanced portfolio with strong elements of asset security- forestry should remain an integral investment.