The IPD UK Annual Forestry Index has shown a total return of 15.8 per cent for the year to the end of 2013, a step down from the 18.6 per cent seen in 2012 but continuing the trend for very strong performance.
The three-year annualised total return of 22.2 per cent is nearly triple the 8.5 per cent annualised total return achieved over the past 21 years.
The distribution of three-year annualised total return shows that the median, at just 16.9 per cent falls well below the weighted average, of 22.2 per cent, indicating that larger lot sizes have generally outperformed smaller ones. Over the 21 year history higher value lots have tended to outperform with the annualised weighted average total return 1.4 per cent higher than the median.
The decade to the end of 2013 has seen continuous stellar performance by UK forestry investment with annualised total returns of 22.2 per cent, 19.7 per cent and 17.9 per cent over three, five and 10 years respectively and no years of negative returns. This performance should be noted for its superiority over commercial property, residential property, equities and gilts in all cases over three, five and 10 years.
The previous decade represented tougher times for UK forestry, having underperformed other UK property classes but nonetheless maintaining superiority over the core asset classes, equities and gilts with an annualised total return of 8.5 per cent over the full 21 year timeframe.
The South of Scotland remained the best performing region of the sample over five years with an annualised total return of 23.3 per cent year on year to the end of 2013. Also the largest region, this area contains 62 forests and represents over 50 per cent of the total value. All other regions posted very strong annualised total returns in the three years to 2013, ranging from 18.8 per cent in Wales to 23.9 per cent in North Scotland. The South of Scotland has been the strongest performing region over the 21 year history of the index with an annualised total return of 10.6 per cent, several percentage points in excess of all the other regions. Notably timber sales by weight of value were once again markedly above average in the North of England in 2013 at 7.7 per cent, suggesting high levels of harvesting helped drive performance in this region.
Mark Weedon, vice president, IPD, says: “The IPD UK Annual Forestry Index return over 21 years to December 2013 rose to 8.5 per cent. Forestry is a long-term investment and has shown low correlation with equity performance, but does show performance trends in response to the fundamental return drivers. Land-based assets are providing an alternative home for cash deposits in times of low interest rates and for investors in general, seeking less volatile markets. The value of land underlying forests continues to rise in real terms and is increasingly important as a determinant of returns.”
Edward Daniels of FIM Services Ltd says: “On a long term basis, forestry continues to outperform equities and gilts and provides investors with a stable, low risk, alternative investment. The future looks encouraging for forestry owners with timber prices expected to remain at comparatively high levels as demand from the construction industry picks up. RICS forecast house starts to be 15,500 in 2014, up 24 per cent from 2013, and 55 per cent from 2012.”
Jason Sinden, head of investment and property at UPM Tilhill, says: “The latest IPD results show that UK Forestry has been the top performing investment class over the last 10 years. However, with UK timber prices continuing to increase, the sector still looks a good investment.
“When you invest in forestry, the main costs are at the time of investment, with returns often many years in the future. As such returns are subject to price increases, this makes investing in trees an excellent hedge against inflation.”
The IPD UK Annual Forestry Index is calculated from a sample of private sector coniferous plantations of predominantly sitka spruce in mainland Britain. By the end of 2013 the 143 forest holdings in the index had a total capital value of GBP237.2m.
The IPD UK Annual Forestry Index is released in conjunction with FIM, the Forestry Commission, Fountains Forestry, Scottish Woodlands and UPM Tilhill and is supported by Border Consultants, Highfield Forestry and Stellar Asset Management.