Returns from forests outstripped all other sectors of the property market in 2010 for the fifth consecutive year in a row, according to new IPD data.
The IPD UK Forestry Index found that increasing timber prices drove forestry returns in 2010 to 20% – their highest level since 2007.
As a strategic limited resource and with strong demand from all sectors, underlying investor sentiment has remained strong. As a result, forestry was one of the few property assets classes to avoid negative returns in the downturn.
Over a three-year period, forestry outperformed other asset classes by a substantial margin, delivering returns of 12.6%.
Gilts delivered 7.7%, equities 1.4%, and commercial property -2.5%. Over a five-year period, the outperformance is even more pronounced, with forestry returning 17.7%. Over an 18-year period, forestry has returned 6.3%.
Timber prices rebounded by up to 38.5% over the year to March 2011. Forestry returns are closely linked to these, though timber prices are the more volatile asset, whereas the forestry returns remained relatively stable, and are considered to have a low correlation with other asset classes.
The double-digit annual return is an increase of almost nine percentage points on the 11.1% total return seen in 2009. Returns are on a par with those seen in 2006, but are not quite as high as the 31.6% seen before the downturn in 2007.
The IPD UK Forestry Index is calculated from a sample of private sector coniferous plantations of predominantly Sitka spruce across 144 forests worth £148.1m. It is derived from a series of annual valuations and cash flows.
Over a three-year period, plantations in South Scotland continued to outperform the other areas in the UK, with returns of 17.9%. Commercial forestry in Wales was the worst performing region, delivering returns of 5.3%.
bridget.o’connell@estatesgazette.com
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