For 23 years, Tilhill and John Clegg & Co’s UK Forest Market Report (FMR) has given a comprehensive picture of the ‘booming’ forestry industry in the UK. 2021 was no different, with records broken across the board. But it wasn’t all plain sailing, as Jack Haugh reports from a recent launch event in London. 

ANOTHER year, another set of broken records. That was the message from some of the industry’s leading figures during a recent launch event for 2021’s UK Forest Market Report (FMR). Timber prices were up, more money than ever before was traded on properties, and price per stocked hectare rose again. All looks well in the forestry world.

If only it were that simple. With warnings of a “sparse period ahead” for tree growth and the knock-on effect it could have on prices, the FMR was delivered with an air of caution to guests gathered in London and later Edinburgh. 

Given the importance of the FMR and the “comprehensive snapshot” of the current picture it provides, it was only right it was launched in a fitting location. BNP Paribas’ UK base – a stone’s throw from Paddington, Regent’s Park, and the Lord’s Cricket Ground – welcomed guests, mainly from the investment community, in late November as the expert panel asked: ‘What Next for Woodland?’

READ MORE: UK Forest Market Report: Forestry market sees record-breaking year

Peter Chappell, head of investment and property at Tilhill, and Edinburgh Napier University’s Dan Ridely–Ellis were among those tasked with providing an answer to 2021’s theme, but it all began with an introduction from Gavin Adkins.

“This continues to be an exciting time for forestry and the sector,” Tilhill’s managing director declared to the room. “The positive, long-term outlook of timber values has brought confidence in how commercial forests can perform as investments, and the wider benefits of trees and woodlands to society and the environment are being increasingly recognised.

“Forests are seen as critical to growing the UK’s low–carbon economy, which is why the sector is attracting unprecedented levels of interest from forestry buyers and financial institutions. Some of these are experienced but others are new entrants into the market.

“This has contributed to the forestry market experiencing another record-breaking year [and] the total value of the forestry market is reaching a new high.”

What exactly were the record-breaking figures? Handing over to Peter, the findings of Tilhill and John Clegg & Co’s report were given in detail. A total of £200.4 million of commercial forestry was sold in the UK, up from £200.2 m the year before. This amounted to 67 properties (up from 61) with 76 per cent of those in Scotland.

“We have seen the market size remain stable, although technically it is a record-breaking year and up slightly on 2020 with just over £200 million in transactions,” Peter said, as he detailed the record figures were in spite of a decrease in the amount of stocked ha sold (down from 12,542 to 10,377) and a further drop in the size of property purchased (down to 155 ha from 206 ha in 2020).

But the unit price generally moves in line with timber prices and 2021 was no different as these rose again. 

Forestry Journal:

“This year, value increase has been substantial. It’s a rise of 12 per cent per stocked hectare. Why? We see three main drivers.

“First of all, simple supply and demand. The supply is the lowest it has been for a long time. Secondly, timber prices have picked up relatively and have firmed considerably higher in recent years.

“This firming of prices is running alongside a wider recognition that the long-term outlook for timber looks extremely positive. We have seen a trend in the drive to create sustainable buildings.

“The final factor is the prevalence of second-rotation forests on the market. In 2020, we reported on a new phenomenon of younger forests garnering the highest value on the market.

“This year second–rotation forests account for around a third of the market. Bigger forests in 2021 have traded at higher values and smaller forests at lower values.

“Why are young forests worth more? There are three factors that we can attribute this to.

“Roads. First-rotation forests which haven’t been harvested often don’t have roads. That’s a simplification, but it can have a huge effect on the valuation of a forest. The construction of roads is significant expenditure. When the roads are in place, the cost of taking that product out of the forest is reduced.

“Trees. Genetically improved spruce can grow much faster and higher quality than their first rotation counterparts. First are akin to wild cattle. Second are growing fast but not in a way that the forest is reduced. That translates to much higher income projections.

“Land. Land is getting better in forests, which sounds a bit strange. If we consider many first-rotation forests, some of them were planted on lands which were unsuitable as forests. They didn’t grow trees very well. We are seeing new forests being created and the land is even better than it was the first time around.

“When we combine all of these factors, the value of a second-rotation forest is stronger than a mature forest. You may hear it said that is down to supply and demand. We’d say it is not. That is a factor but it has to be taken in context.”

For the first time in its 24-year history, the FMR covered two additional sections: mixed woodland, and planting land. For the former, the results were mostly positive, with values rising everywhere – England led the way at £6,168 per acre – except in Wales.

However, it wasn’t all good news. Just 13,000 ha of woodland were planted in the UK last year, way off plans to plant 30,000 ha annually by 2030. It didn’t impress Peter and, he suggested, it wouldn’t have impressed Greta Thunberg during her recent visit to Glasgow for the COP26 summit.

“The amount of forest we have is slightly down on 2020,” he said. “When you look at the numbers and the trajectory, my feeling was if you had Scotland, England, and Wales in the room as pupils coming out of exams, Scotland would be ticked off and told ‘could do better’, and Wales and England would be given ‘exam fail’.

Forestry Journal:

“If they came up with any excuses, it would probably just be ‘blah blah blah’ [a nod to a phrase used by the Swedish activist] as others have said.”

At least, as Peter remarked, there was only one way things could go.

“The positive is that the only way is up and we would hope policy will reflect this in the coming period.

“There is more investment interest in England and Wales. In England this could be attributed to the wood for carbon guarantee scheme, and we have also seen new energy grants. In Wales we have seen wider recognition of the generosity of the Welsh grant planting scheme.”

Edward Daniels, head of forestry at John Clegg & Co, has acquired more than £4 m worth of commercial forestry properties during his time, so was best placed to tell all of the ‘seller’s perspective’.

“Commercial forestry is becoming more and more understood by investors as a portfolio diversifier for individuals, investment funds, and financial institutions. The tax benefits are evident for high–net–worth individuals.”

In 2018, the price of each hectare was around £9,332. Now it has risen to £19,300.

That’s a 106 per cent increase in just three years. Will the bubble ever burst? Maybe, but it could be some time yet.

“Have we reached a peak in the market?” asked Edward. “I suspect we have not.”
The bigger worry, for Edward, was the continued rise of cheaper imports into the UK and the impact that will have on timber prices.

Forestry Journal:

“The outlook for timber prices remains extremely positive. However, the impact of higher interest rates on the value of sterling has not been witnessed for over 10 years. This may have an impact on supply sales.

“Cheaper imports, especially of construction timber, will impact the value of standing timber of forests in the UK.”

But, he finished: “With global trends pointing to an increased demand for wood products, from the construction industry specifically, this is expected to lead to a strengthening of timber prices, which suggests commercial forestry will continue to appeal to a wide range of investors.”

When the FMR was launched, COP26 was only just off the news agenda and Greta on her way back home from Glasgow, so it was no surprise to see ‘net-zero transitioning’ come up next. Guest speaker Stuart Dobrijevic, asset manager at investment firm Abrdn, offered the perspective of investors and why, he argued, more and more are looking to put their money into “nature-based solutions”.

“Clearly, there is no silver bullet to tackling climate change. This is crucial in terms of maintaining a habitable planet for our children and generations to follow us. This requires a holistic approach.

Forestry Journal: Greta Thunberg and COP26 were very much on the agenda during the presentation Greta Thunberg and COP26 were very much on the agenda during the presentation

“Nature represents the most deliverable and scalable means of removing vast quantities of carbon dioxide directly from the atmosphere.

“Our investors have ambitious targets. Many of our clients want to be net zero by 2040, some even earlier.

“A balanced approach is required and we are encouraged by the solutions on offer today.”

Giving an example of clients who were striving to become net zero by 2030, Stuart told how they had invested in 1,400 ha of native woodland in Newtonmore, Cairngorms. 

“This is an example of a client setting out and delivering on a pathway. The fund is taking a leading role in estimating its carbon footprint across the vast portfolio.

“It estimated the residual carbon problem over time and made an assessment of the requisite capital needed for nature-based solutions to help address its residual carbon problem.

“The outcome is we have acquired a 1,400 ha estate in the Cairngorms. This is a restoration project. It will deliver substantial native woodland creation and peatland restoration. There will be 1.5 m trees planted.

“This is clearly an exciting time for the forestry and rural management industry. You, as an industry, have an important role to play in enabling larger-scale institutional capital into the market.”

With the end of Stuart’s presentation, the first questions of the day from the audience arrived.

Forestry Journal:

Who actually is paying the money to buy that land?

“The fund is listed on the London stock exchange and is made up of potentially hundreds of investors. It could be pension funds or managers investing into the fund to access real estate returns.”

Are they doing it because they have to do it? Or are they doing it because they want to do it?

“This is the equity within that fund. This is very much seen as a specific initiative. The potential beauty of this is that it is quite efficient in terms of the percentage of that fund that is required relative to the impact it can have.”

What about the financial returns? What are the projections?

“Effectively, it is a cost function. It is really just looking at the costs of the project relative to the carbon output. It is flipping conventional returns on their head, really.

“What does the cost of carbon look like? It is an asset on a balance sheet and over time the validated carbon units will be increasing in value so there will technically be capital value growth.”

Last, but not least, came Dan from Edinburgh Napier, who began by saying: “I am going to make some bold predictions and I invite you to come back in the future and challenge me when we know the answer. So I’ll see you again in 60 or 70 years.”

Asking ‘What future is the forest growing?’, the university’s head of the Centre of Wood Science and Technology went on: “We can’t really talk about good quality of wood because it depends on what we are growing it for.

READ MORE: Time for Timber: COP26 leaders told to recognise need for wood in construction

“Why are we growing wood and what for in 50 or 60 years’ time? We don’t know because we don’t know what the world will be like in 50 or 60 years. Look back 50 or 60 years ago and the world has changed enormously.” The key thing, for Dan, is always having the knowledge of wood properties.

“Species is both irrelevant and hugely important. For certain markets of the wood, it is very dependent on the species. But for many markets, including construction, no one gives a chuff about what species it is. What matters are the properties of the wood.

“Most of the time if you ask somebody they will just say spruce.”

Are we making the most of wood in the UK? In short, no, according to Dan.

“The biggest limitation on greater use of wood is the boxes we have in our own heads about what we can do with it. The biggest box we have about UK-grown timber is that it is unsuitable for construction because it grows too fast and is low density.

Forestry Journal:

“That is totally wrong. Totally wrong. I could show you graphs and graphs and speak for hours and hours and show you data that proves this is wrong, yet it is a consistent thought that is commonly repeated. This is not true.”

While we can’t know for sure what the future will look like, Dan pointed to several factors likely to affect the coming years as he urged guests to consider moving to a circular economy.

“The stuff we are going to be using in 2050 is already growing in the ground. So in terms of forester time, we are already in 2050. Those decisions are baked in. We have that resource and there’s nothing we can do about it.

“We have to move to a better, circular economy to cope with the raw material crisis. It’s not just a crisis of wood but of sand and cement.

“There is a growing, global hunger for wood. That growing, underlying demand is going to be very influential.

“We need to get more from less. We need to move from the traditional forestry sector to something we’d call a circular forest-based bio-economy.”

This could be a seismic change for the industry.

“We move away from the traditional value chains for timber into a bunch of things we never used timber before for. Somehow, though, preserving all the good aspects of the sector that already exist.

“There are two horizons for the future of wood. There is the one that is already set by what’s growing in the ground. We have already made those decisions about the species and there’s nothing we can do about it. That’s the 30– or 40–year horizon.

Forestry Journal:

“The next horizon is the future we are planting now and the future we are making for our children and grandchildren. We are now making decisions about what species we are going to plant and making decisions about how we establish those forests and how we do the forest management. They will have influence on the wood supply.”

Warning of a “sparse period” to come, he went on: “We need to continue to increase the productivity of our commercial forests because there will be more pressure on them. We are going to be setting forested land aside for other reasons.

“We are never, ever going to be self-sufficient in timber. Global politics will continue to interfere with that supply.”

It’s simple. To avoid disaster, we need to diversify the species we use.

“Resilience will be the watchword for the next horizon. The future is good for wood but we need to plan ahead.”