Commercial forestry has been the top performing asset in the UK in the past 15 years, with the best woodlands generating returns of more than 10% a year.
Despite the impressive performance and prognosis for UK woodland, very few investors are active in the market. Instead it is dominated by a handful of long-established woodland investment companies, and an even smaller handful of private investors, many of whom are foreign.
The reason for this is not clear. It seems to be due largely to nervousness about an asset class of which few people have experience, but with professional help every step of the way any investor who is willing to take a long-term view can become a woodland owner.
Here are five of the best reasons to consider buying woodland:
The supply of timber cannot keep up with global demand
A strong past performance can signify a peaking investment opportunity and an impending fall, but the immediate and long-term prospects for UK timber owners are good.
Timber is currently the fourth biggest UK import we bring in more than 80% of our timber requirement but a weaker pound has pushed up import costs and demand for home-grown material has increased, fuelling an immediate rise in timber prices.
On top of this, there is growing demand for wood as bio-fuel and as a sustainable construction material.
In the longer term, global demand for timber is expected to increase by a third by 2050, but in the same period the availability of UK timber, whether publicly or privately owned, is expected to fall owing to a lack of planting from 1990 onwards. Further price rises seem inevitable, which is good news for investors wishing to buy standing trees, or plant new ones.
Woodland Carbon Code
The Woodland Carbon Code (WCC) provides a means of adding value to planted land. The WCC is an initiative run through the Forestry Commission that quantifies and validates the amount of carbon captured by new woodland planting. This process enables the subsequent trading of the carbon asset for offset of carbon emissions by industry. The Code can therefore be attractive to any woodland investor who can benefit from the additional income from trading woodland carbon units, but may also specifically appeal to an investor who has business interests elsewhere that require an element of carbon offset.
Planting land is relatively cheap to buy
Arable land is the most expensive in the rural environment, with prices up to 35,000 per hectare for the best land, though more commonly around 17,000 per hectare. Increased demand for timber has driven a rise in forestry land values from just over 2,000 per stocked hectare in 2006, to an average value of more than 8,600 per stocked hectare in 2017. Planting land is currently worth less than 5,000 per hectare despite a rapid rise in value in recent years.
With sheep farming facing increasingly tight margins and timber offering a better long-term prospect, large tracts of the Scottish hills are being converted to forestry.
Scotland is the most wooded country in the UK although only 17% of its total land area is growing trees. Worldwide more than a quarter of land is forest, and in the rest of Europe more than a third of all land is covered in trees, so it is no surprise that the Scottish Government has stated its vision to increase the planted area in Scotland to 21% by 2032. With payment rates of 3,840 per hectare for diverse conifers, 5,520 per hectare for commercial broadleaves, and 3,200 per hectare for native broadleaves, plus enhanced rates in target areas, growing trees can offer better prospects than sheep farming.
After two years of ownership, commercial forests are entitled to 100 per cent Business Property Relief from Inheritance Tax, and no Income or Capital Gains Tax is payable on the sale of timber.
You can literally watch your asset grow
For some people, owning an asset they can experience, touch, see and smell is not something they would ever have contemplated; for a select few it is a must.
Most people who invest in woodland have some experience of asset ownership already, usually in the form of other property, but for those that are used to seeing their asset values reported on paper, investing in something that makes that paper can seem challenging. With the help of a professional firm like Galbraith, it is possible to venture into this new asset class. Our comprehensive coverage of the industry gives us the ability to guide a newcomer through the unfamiliar territory of woodland ownership.
Galbraith has been buying, selling and valuing woodland and planting land for more than 100 years. Recent transactions include:
- Sale of 230 hectares of planting land in the Scottish Borders for 4,500 per hectare
- Private sale of a 200-hectare woodland on the East Coast
- Private purchase of a 150-hectare woodland in the Highlands
- Purchase of a 430-hectare Perthshire estate for planting
- Sale of 80 hectares of woodland in Aberdeenshire
- Sale of a portfolio of woodland on behalf of the Forestry Commission, bringing the total sold on their behalf since 2010 to 5,500 hectares
- Numerous Woodland Carbon Code applications