Forestry has proven a growing asset
In general, forestry investment property has been the top performing asset type in the UK over the last 15 years, generating returns in excess of 10 per cent a year over this period.
The performance has been almost exclusively due to the increase in capital values. According to John Clegg’s “Forest Market Report – 2016”, woodlands ranging from 25 wooded acres to 85 acres with an average size of around 45 wooded acres, prices varied from £1,200 per acre up to nearly £8,000 per acre. On average, they are realising between £2,800 per acre and £4,000 per acre.
As always with land-based investments, environmental benefits, timber values and constraints all need to be factored in when estimating market value for forest land. In addition, a value can be derived by comparing the sale of similar, recently sold properties within the local area and taking into account current market values for woodland properties of similar sizes and types throughout the UK.
Benefits influencing a property’s value need to include existing landscape features such as watercourses or views, recreational opportunities as well as whether the woodland offers a commercial element (for example, timber), which at a minimum should ensure that the woods ‘pay for themselves’ and meet the criteria for owners to obtain the tax benefits available such as business property relief.
Consideration must also be given to woodland infrastructure (for example, tracks, timber extraction racks, timber stacking areas), timber volumes and qualities, ease of felling, as well as proximity to wood processing markets. Other potential “natural capital” benefits, but more difficult to quantify, include privacy, wildlife habitat, carbon sequestration and biodiversity as well as the potential for improvement of the woodland.
In recent years, responsible owners have increased the overall capital value of their woodlands by making substantial improvements to them, sometimes aided by woodland grants. Some owners have planted higher value commercial timber species suitable for the site during restructuring or maximised the mean annual increment of the trees and timber quality by timely thinning the right ones.
It is also possible to improve the amenity element, for example by improving access, developing habitats for wildlife, or by providing ‘glamping’ opportunities to ensure time spent in the woods is more comfortable and enjoyable.
Equally important is the level and type of constraints imposed by any legal designations on the property. These could include Tree Preservation Orders, Sites of Special Scientific Interest and whether the woodland is listed on the Ancient Woodland Inventory, all of which can restrict the terms of use and determine the type of on-oing management regime, thereby influencing the property’s valuation.
Martin B. Jones is a Chartered Forester and Managing Director of the Woodland Stewardship Company, a UK-wide forest management consultancy based in Shrewsbury
