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Richard Till
Associate Director, Perth Office
2007 has been an exceptional year for forestry
sales and is showing no sign of slowing down.
In June the IPD UK Forestry Index (Investment
Property Databank) for 2006 was published.
Confirmation of rising values came as no
surprise as we had experienced the trend at
first hand buying and selling property for our
clients, however, the extent of this trend took
most by surprise. Forestry investments had
out-performed Equities, Guilt’s and Commercial
Property with an average return of 20.6%, the
strongest performance since the index began in
1992.
South Scotland with the benefit of location,
climate, infrastructure and local markets
remained the top performing region but even some
of the historically less favoured areas such as
the far north of Scotland showed similar
revivals in fortune. Woodland owners who had the
faith to invest in the late 1990’s and early
2000’s, whilst timber prices were falling and
forestry as an investment was frowned upon, have
been richly rewarded for their confidence in the
industry. This upturn, and subsequent increase
in publicity, is contributing to a significant
over supply of buyers fiercely competitive to
purchase in a |
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very small market. For example, during 2006 the
total area of UK woodland sold was only 14,700
hectares (36,000 acres) with a value of under
£35 million. If recent sales are indicative then
this trend is still accelerating as a sought
after, competitively priced property, which has
recently achieved more than double the asking
price. If ever there was a good time to consider
selling then it must be now.
What is driving this enthusiasm? The simple
answer is there is no simple answer. Timber
prices have certainly shown a very welcome
recent uplift, but from a very low base and
there are signs that they may now have plateaued.
Agricultural land prices are also rising, again
primarily fuelled by a lack of supply, whilst
investment money has been flooding in
particularly from Ireland and Europe. Woodland
investment tax incentives have become more
attractive and widely publicised particularly
against a trend of increasing tax take.
Nevertheless, possibly the most significant
factor is a return in confidence driven by a
desire for a “green” investment and concerns
over climate change. The rapidly developing
markets for renewable energy utilising woodland
residues to generate electricity, or to produce
wood fuel pellets and chips is certainly
under-pinning significant new investment into
the timber processing industries.
Maybe it is just the scarcity value? New
woodland establishment has declined
significantly over the past 20 years to around
10,000 hectares per annum in 2006. The current
delays and uncertainties over the, yet to be
announced, grant incentives will do little to
reverse this trend. In conclusion, we can
possibly expect buying opportunities to remain
competitive for many years to come. |
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