Prime investment forests focus on Sitka Spruce-dominated plantations mainly in upland areas. The rotation length is long, typically 35-55 years, therefore most investors only capture part of a growing cycle as opposed to the full process from planting to harvest. Continued capital appreciation coupled with annual biological growth of timber on a site has led to good investor returns over recent years.

Still considered by many to be a niche asset class, forestry investment offers multiple benefits and is particularly well suited to forming part of a balanced asset portfolio; it offers good long-term capital attributes, preservation through a benign tax regime and annual growth which, due to the method of valuation, treats the growing crop as part of the asset value.

The transactional market has not been even, with prime spruce dominated assets significantly outperforming more mixed conifer plantations, or indeed spruce forests in more marginal growing locations. The market performance of these more mixed assets was increasingly influenced by a slower timber trade, especially in the second half of 2015, when a strong Sterling/Euro exchange rate created better conditions for imported timber, impacting on the competitiveness of domestic supplies.

The best timber forests are more resilient to subtle movements in timber price, but where falling timber income is an important factor one of the key benefits of a crop that grows over an extended rotation comes into play, which is that there is no definitive harvest date. This means investors are able to alter harvesting plans (within reason) to smooth the impact of pricing changes, essentially banking value ‘on the stump’.

As discussed last year, whatever the short-term fluctuations in price the link to timber is a key medium to long-term value driver as most commentators now agree that we will see structural shortages in global supply within a few decades. Control of a significant reserve of timber has therefore again been a key investment driver, and scale of investment does show positive benefits in this regard, with large funds and timber processors all keen to increase their strategic reserves.

New planting continues to hold significant opportunity and indeed as part of the possible response to widespread flooding is gaining increasing media coverage. It will be interesting to see how changing Government policy priorities may kickstart what was until the mid-1990s the primary entry into forest investment.