Commercial forestry values could see some upward pressure in 2024, with levels of activity starting to pick up and some encouraging market signals.
This is according to the latest analysis from woodland specialists John Clegg & Co, which says the outlook for forestry looks broadly positive this year.
There is forecast to be strong demand for good quality commercial forests from a wide range of investors, the firm's report says.
“The story of commercial forestry in 2023 does take some unpicking,” says Simon Hart, head of forestry in Scotland at John Clegg & Co.
“At first glance the market looks to have cooled significantly as only 2,200 stocked hectares – with a combined price of £45.5m – were sold during the year.
"This compares with 10,500 stocked hectares, with a combined value of £219m, in 2022.
“However, two large woods, with a total area of 7,600 hectares and a combined asking price of £159m were launched during 2023 and both are now understood to be under offer.
"If these deals had concluded during the year this would have pushed both the total area and level of investment back to similar levels to last year.”
Higher interest rates might have led to the expectation of a decline in commercial forestry plantation values.
However, the analysis shows that commercial forests sold for an average of £21,000/stocked ha, which is 1% higher than during 2022 and 45% higher than in 2020.
Mr Hart says: "It backs up the prediction we made in last year’s Review that many see forestry as a useful hedge against inflation and therefore it remains an attractive asset.”
Alex Brearley, head of forestry at John Clegg & Co, acknowledges that higher interest rates and flat timber prices made buyers more cautious than they were two years ago.
However, over the past few months, there has been some upward movement in timber prices domestically, interest rates have stopped going up and inflation is also on a downward trajectory.
Globally, demand for timber is also forecast to increase substantially as timber usage expands in response to efforts to decarbonise the built environment.
Mr Brearley says: “The UK governments all have expansionist forestry policies, and we see no reason for the anticipated general election to have much of an impact on the sector as support for tree planting and woodland management is pretty consistent across all parties.
"Although the Scottish government’s recent decision to cut the planting budget available for 2025/24 is clearly a blow and means failure to meet its own planting targets is now effectively baked into the Scottish system.
“But in summary, we see slightly more upward pressure on prices as we enter 2024, although while interest rates remain relatively high, an element of caution among investors will naturally persist.”
Last year was also characterised by constrained supply, the report says, but new opportunities are emerging for both private and institutional investors.
