Forestry market outlook

"I have been an enthusiast for forestry as an investment class for over 25 years. The satisfaction of watching the trees’ physical growth on annual inspections each autumn beats any other asset class in my book – so long as one can take the long view. No employment issues, limited government interference, well understood regulation and the undiminished balance of demand versus supply of fibre. And yet the UK still imports 82% of its timber requirements. West and north Britain in particular are well suited to growing many varieties of tree, whether as a commercial crop, for carbon sequestration, sporting purposes, landscape enhancement and biomass. Or simply for pure pleasure, planting on land anywhere with the right species. My conscience is clear as to the environmental benefits of tree planting and woodland maintenance. I recommend any family or institution that takes an inter-generational view on their assets to consider forestry in the mix – for capital growth, longer term income and the fun of its management. Knight Frank is enthusiastically taking up the challenge for clients.”

Can I really make money from woodland and what are the biggest opportunities I should be looking at?

Andrew Bronwin: There is no doubt in my mind that most woodlands can make money. The focus should be on commercial species, particularly conifers, taking advantage of improved genetics, thinning at the right times in the rotation and felling when the crop has reached maturity. Too many crops are left well beyond maturity when quality and growth rates are declining. Marketing and timing are key.  Timber  is  like all commodities with prices  fluctuating  subject to exchange rates, domestic and global demand and specific events such as tree diseases. If you have enough woodland it is advisable to regularly feed the market with timber to even out the peaks and troughs.

Spotting a peak is usually more luck than judgement. It is essential to ensure that the product breakout is maximised. If the crop is suitable, cut for specific niche markets that will pay more and ensure the contractors extract all saleable volume. Woods often play host to other activities such as shooting and recreation and there should be a good working relationship with the other woodland users so that the owner has income from a range of sources. We are looking at the potential to make money from the natural capital element of woodlands through the sale of ecosystem services. There is growing interest in this market and while it is still in the development stage it is one to watch.

Can you explain a bit more about how I can claim carbon credits for any trees I plant?

Andrew Bronwin: There is scope to sell sequestered carbon from newly planted woodland. There must be additionality, so it is not possible to include existing woodland and the carbon can only be sold for the life of the crop. The available carbon for sale will depend on species, soils and rotation length. Schemes must be registered with the Woodland Carbon Code, validated at the time of registration and verified at year five to ensure the crop is established. The process is quite complex and owners should use an approved and experienced company.

Carbon can be sold at any point from the time of validation. For the first five years there is only notional carbon known as ‘pending issuing units’, although there is still a value for this product, with verified carbon credits available for sale from the fifth year.

There is increasing demand for carbon credits and, although prices have been low for many years, there are forecasts that values may increase fivefold over the next ten years. Not all the credits have to be sold at the same time so, subject to the size of the planting, it is possible to sell in tranches.

I believe owners should be looking to combine good quality timber production with carbon sales to derive an additional income stream from their new woods.

Is woodland becoming more popular as an investable asset class and what is the best way for our clients to invest?

Ran Morgan: Relative to our European neighbours the UK has a modest level of tree cover – 14% versus 38% – and the value of forestry traded each year is worth around only £150 million. It is, therefore, a small investment arena, but one that is set to grow as investors become increasingly aware of its qualities.

However, there are currently still relatively few players. Unless you are a landowner of scale who can plant your own woodland, it is a relatively difficult asset class to find at the moment.

Understandably, demand is strong. The majority of UK forestry is traded in Scotland, northern England and Wales. Forests can be bought and enjoyed privately or clients may wish to opt for a lesser investment and spread their risk by buying into a forest-based fund. If you are considering a purchase always take advice. There are a great many factors that affect value and each opportunity should be measured against your investment ambitions.