Forestry assets returned 34.8% in 2011, up from 20% in the previous year and the highest return of any index measured by IPD.
Rising timber prices and improved efficiency in processing facilities in the UK contributed to last year’s performance of commercial forests, according to the latest IPD UK Forestry Index.
Forestry assets outperformed commercial property, which only managed a 7.8% return last year, and rural land, which returned 15.9%.
IPD said that further increases in the value of underlying forest land also drove returns, with upland estates seen as occupying some of the country’s prime locations for wind farms. Land used for commercial forestry activity is classed as brownfield, meaning investors can apply for a change of use.
However, the market remains difficult to enter, with most investors treating forests as a long-hold investment. Last year, 26,000 acres across 66 forests were traded – three-quarters of which were in Scotland – although this only accounted for 0.6% of the UK’s coniferous forests.
Chris Inglis of forestry members’ organisation Confor, said:”The majority of disposals have been from the Forestry Commission, which is redirecting its energies towards providing forest for public environmental benefits. This has allowed a number of new investors and institutions to enter what would otherwise be quite a closed market – and competition for the limited supply between purchasers has been extraordinary.”
IPD’s Mark Weedon added: “Like a lot of other alternative asset investment classes, the forestry sector has benefitted from a considerable shift by investors away from more traditional investments.
“Forestry assets, certainly not a conventional part of a portfolio, can be used either as a long-term capital hold, by buying a young forest, or as a shorter-term cash realisation – by buying an older forest, a few years away from harvesting.”
Daniel.cunningham@estatesgazette.com
