NOW is the time to invest in Scottish forestry. That was the message from the recent Forestry Investment in Scotland seminar. Held in the Churchill Room at the Palace of Westminster, the event focused on why Scotland is doing so well and what the opportunities and potential returns are for investors.

Confor’s David Lee, who chaired the seminar, said: “We expect planting figures to show that around 80% of the UK’s new woodland creation is happening in Scotland, where forest cover is between 18 and 19% compared with a UK average of 13% (10% in England) and a European average of around 36%.”

Confor represents 1,500 forestry sector businesses, including nurseries and growers; those planting, managing and harvesting trees; and sawmillers and panel-board manufacturers. They engage with the sector, and work with NGOs and politicians throughout the UK.

Confor Chief Executive, Stuart Goodall, said that forestry investments have a positive story to tell: “For productive woodland creation, Scotland is the place to be. Forestry is unusual in that people interested in forests often do not manage them themselves, contracting that work out to an agent.”

‘Productive’ planting provides the financial returns. Figures released at the time of writing show that 11,200 ha of new woodlands were planted in Scotland last year, successfully exceeding the Scottish Government target of 10,000 ha per year. Confor’s work with Fergus Ewing, streamlining grant support and changing the mindset of the regulatory system that approves forestry planting, and with downstream industries, has borne fruit.

Political cross-party support gives forestry in Scotland security beyond short electoral cycles, as does the amount being invested in timber markets by sawmills, power boards and by energy producers. “To supply these markets, Confor is calling for increased planting targets of 40,000 ha a year by 2030 across the UK.”  Scottish Government targets are currently 10,000 ha, rising to 15,000 ha by 2025. Beyond this, in Scotland, Confor is calling for 18,000 ha by 2030.

David Robertson, head of investment and business development at forest management company Scottish Woodlands, discussed the forest freehold investment market. Scottish Woodlands currently manages 200,000 ha of forestry across the UK, harvesting 1.2 million tonnes of timber per annum, and was responsible for a third of all new planting in Scotland last year.

He said: “The medium-term average of sales of UK forest land is 17,000 ha per annum, trading at an average annual value of £99 million. Over 85% of this is in Scotland. During the last four years, increasing amounts of capital have come into the investment market, but there has been a drop-off in area marketed.

“In the year to end September 2017, the overall average price of forested land was £6,400 per gross hectare (including open ground). In 2018, a total of 14,750 ha of forest land traded at £118 million, raising that figure to £8,000 or a 25% increase in gross values per hectare.”

Highlighting expected investment returns based on current markets and using a projected case study for new planting, he continued: “An investor buying a commercial-scale new planting subject in Ayrshire could, over a ten-year period, expect to see a return in excess of 5% per annum. Often the cost of planting is offset by grants.”

Mr Robertson added that, due to high levels of interest, forestry sales on the open market were fetching higher prices, which could mean accepting lower returns.  Where they can be agreed, ‘off market’ sales can provide better returns and provide the flexibility for the investor and seller to agree flexible terms for entry and management of the land.

Other speakers at the seminar included Don Macleod, partner at law firm Turcan Connell, who spoke on further investment drivers, and Drew Hendry MP, SNP spokesperson for Business, Energy and Industrial Strategy at Westminster, who noted that 2019 is an important year for forestry, highlighting the full devolution of the sector and the government’s new long-term Forestry Strategy.

Concluding the seminar, David Lee summarised in four Ps why Scottish forestry is doing well: “Process: the processes are simpler. Policy: the drivers are there; climate change, house-building, [and timber security]. Politics: a supportive political environment with cross-party support. Price: the current price you get for forestry and for timber is very good.”