The forestry market has had an “astonishing year” with competitive bidding seeing average values rise significantly and the total value of the forestry investment market reaching record levels – these are the findings of the latest edition of the UK Forest Market Report.

The 22nd edition of the annual report, produced by Tilhill and John Clegg & Co and launched at an online event on November 25, highlights that the forestry and woodland sector has a very positive outlook. It is an investment which over many successive years has steadily outperformed many other asset classes and one which has a key role to play as we move to a low carbon economy.

The report shows that in 2020 a total of £200.18m of forestry properties traded, the highest value traded on record, with the average cost of a forest property more than doubling from £1.56m in 2019 to £3.28m in 2020.

Scotland provided the largest share of the commercial forestry market at 69% by value, England saw a quiet market in 2020 with only 5% of the total market, while Wales produced a much larger share of the market at 26%, due to the sale of one very large property.

“We have seen a truly astonishing year for forestry values,” said Bruce Richardson, head of investment and property at Tilhill, which is a wholly owned subsidiary of the BSW Timber Group.

“Despite the problems with the Covid-19 related restrictions, the UK forestry market has performed robustly through 2020, producing record results in scale and unit prices rising by 39% over the past year. The market in 2020 has been very competitive.

This year most properties were sold above guide price.

“The most striking story this year has been the level of interest shown in younger restock sites as opposed to the more mature forests,” continued Mr Richardson, “The younger forests are attracting higher unit prices per hectare, partly because the 2020 market included some very high-quality younger forestry in prime locations. We believe these prices show investor confidence in the future of the timber market, based on evidence that the improved varieties of spruce, a result of many years of genetic research, planted in recent years are performing as forecast with improved yield and form.

“We have seen a well-balanced set of investor objectives attracted by long-term returns, a renewed interest from investors who are attracted by the contra-cyclical nature of forestry investment; and also new investors coming at forestry with carbon and wider environmental, social and governance objectives.”

Fenning Welstead, director at John Clegg & Co, which is the forestry division of Strutt & Parker, part of BNP Paribas Real Estate, agreed that the improved stock was having a beneficial impact, leading to a quicker and greater return on investment.

In some circumstances, he said, “thinning at 15-17 years-old is quite possible and harvesting can be done before 30 years.

This has a strong influence on the value of the crop”.

He added that the factors influencing the strong upward movement in forestry and land prices this year include the low base rates (forecast to be in place for some time) and uncertain prospects for other types of investments, which make forestry look a very compelling investment.

“Other significant drivers for people owning forestry include moves to decarbonise the economy, which are backed by government policy, the emphasis on renewable and sustainable raw materials and the desire for positive environmental PR,” said Mr Welstead. “Statutory requirements for environmental, social and governance (ESG) corporate reporting are also a factor.

“Demand for timber as a raw material is also increasing, as is a desire to strengthen biodiversity and natural capital. We see a very positive future for forestry and woodlands.”

There has also been an increase in interest for mixed woodlands, according to the report.

This is a smaller segment of the market – dominated by southern England – and woodland management tends to have a wide range of objectives, such as amenity value.

As such, prices aren’t as strongly related to timber prices as they are in large-scale commercial forestry.

The number of mixed woodland properties which came to the market in 2020 was down on the previous year from 44 in 2019 to 30 in 2020, but although the market was quiet during the first lockdown, it has now rebounded very strongly, with demand outstripping supply between June and September, said Mr Richardson.

There is an enormous variation in values of smaller woodlands, even within a region, with the differential between the lowest and highest value properties, per acre (mixed woodland is measured in acres, not hectares), being more than tenfold.

The market for these types of woodland is strongly influenced by local factors such as ease of access, species composition, biodiversity quality and that elusive characteristic ‘attractiveness’.

In terms of new planting, the figures were good in 2019 at about 13,270ha in the whole of the UK but “slightly disappointing” this year with the figure about the same. Scotland led the charge with 11,000ha, which is 82% of the total newly planted area. Conifers made up 67% of the mix there.

Mr Richardson added that planting was up in England by 2,330ha, but that 90% of that was mixed woodland and that there was “a worrying lack of interest in commercial forestry in England”. He said that the figures for Wales – only 80ha were planted in 2019/20, the lowest annual figure in 50 years – were also concerning but that he expected to see improvement there, particularly with the opening up of a new grant window.

Confor’s chief executive, Stuart Goodall also spoke at the launch, reiterating the view that while Scotland planting levels were good, England and Wales lagged far behind. However, he said, the political will to plant more trees was there and that he had had very positive meetings with Zac Goldsmith, minister of state for Pacific and the environment.

Mr Goodall said that the government’s target of reaching 30,000ha per year of planting by 2025 was being aided by the England Tree Strategy and the £650m Nature for Climate Fund, which would see an increase in English-grown timber in construction, to be delivered through the new Environmental Land Management (ELM) scheme.

“England could come to the fore through ELMs,” said Mr Goodall. “It won’t happen for a few years but at least we’re seeing positivity.”

Meanwhile, in Wales, a target of 4,000ha of new planting per year would be supported by £10m funding and the Home Grown Homes initiative would lead to increased demand for Welsh-grown timber.

Scotland, he added, has funded commitment of 18,000ha a year by 2025 and an expectation that timber in construction will increase from 2.2 million m3 in 2018 to 2.6 million m3 in 2022.

Summing up the market, Mr Goodall said that the UK forest products sector had witnessed strong demand and, therefore, prices for conifer sawlog since July.

“The fencing market has eased after an exceptional autumn but the construction market is still strong,” he said. “Demand for smaller log sizes has been weak and there has been partial displacement by strong co-product supply from mills. I expect the energy market to kick in and increase demand.

“Hardwood sawlog demand is moderate and, thankfully, export markets for ash, beech and poplar sawlogs have held up well.”

As for Brexit, Mr Goodall said that “whatever the outcome, the trees will keep growing” and added that leaving the EU and the Common Agricultural Policy (CAP) would have “a fundamental effect and take away the legal requirement for the government to pay farmers subsidies”.

“This opens the way for farmers to look at planting trees instead,” said Mr Goodall. “Commercial forestry can deliver a higher return than CAP – especially to marginal sheep farming – so I’m expecting to see more interest in tree planting.”