Scottish commercial forestry is more sought-after than ever in 2021.
Goldcrest Land & Forestry Group has recently launched a block of forestry in the Scottish Borders for offers over £14million. The interest it is generating highlights the strength in the market.
The factors driving the market, tax incentives, carbon sequestration, increasing biodiversity, flood amelioration and environmental responsibility. The most important is timber production. In the UK we import more than 75% of our timber, making us the second biggest importer by volume after China.
Fundamentally, we need more wood, a worldwide shortage of which is underpinning timber prices. Global demand has increased in line with world population, as fossil fuels and building materials such as concrete and steel have fallen out of fashion. Since November, prices have escalated from a steady £70/T for standing crop to well over £100/T – and as much as £135/T in one recent case in Southern Scotland.
The Scottish Government supports the forestry industry and it has helped deliver large numbers of planting schemes in the past three years. Despite challenges posed by Covid-19, ministers have approved applications for more than 13,000 hectares for this financial year.
Since 2005 the market has appreciated 12-15% year on year. It remains buoyant despite considerable yield compression in the last four or five years, reflecting trends across all investment asset classes.
Last year, the total value of the UK forestry market amounted to £200.18m, up from £126.5m in 2019, a 58% increase. Scotland had a 69% share of the market. It was the highest annual value of forestry traded on record. 2020 also saw the average cost double from £1.56m to £3.28m.
Forestry values vary hugely, from £500/hectare for bare land on forestry fringes unlikely to generate much of an income to £50,000/hectare for a heavy crop of mature conifer ready for harvest on well-located land benefitting from excellent infrastructure and proximity to timber processors.
In this last category, carbon storage is an increasingly valuable source of income for forestry owners. It is likely to grow considerably in the years to come. More and more buyers, particularly corporations addressing their ESG (environment, social and governance) responsibilities. Driven by Carbon Credits, which only applies when there is a change of use from bare land to woodland.
We have seen large increases in planting land values for commercial conifer ground over the last 3-4 years. Plantable marginal farmland is commanding significant premiums from forestry investors. In the last six months, demand has soared for land suitable for native broadleaved woodlands.
The forestry market is dominated by private purchasers, institutional investors and businesses and corporations. The forestry blocks currently on our books are attracting significant interest. Recent sales have featured large numbers of competitive offers at closing dates. Off-market deals are less common and the prices achieved are often lower than those in open market campaigns. We believe this is owing to the absence of competition.
At the turn of the century when timber prices were £12-14/T, forestry was undervalued and the market was virtually non-existent. While some may consider the sector to be somewhat frothy, the fundamental drivers still apply and demand far outstrips supply. We are confident the market will continue to strengthen.