Mike Tustin
Director, Rural
The MSCI IPD UK Forestry Index measures un-geared total returns from direct investment in a sample of private sector-owned coniferous plantations of predominantly Sitka spruce in mainland Britain.
Download the full report as a PDF, which includes graphs showing the results
The MSCI IPD UK Forestry Index measures un-geared total returns from direct investment in a sample of private sector-owned coniferous plantations of predominantly Sitka spruce in mainland Britain (but mostly in Scotland (and southern Scotland in particular) and Wales). The 2016 sample is 142 forest holdings with a total capital value of £342m.
Key points on the 2016 Index performance are:
- Total return was 10.7% in 2016, a slight drop from 10.9% in 2015 and below the ten year average of 17.4% pa. However it remains one of the highest performing asset classes.
- Capital growth remains the main driver of returns, at 10.9% in 2016, due to continuing strong demand for forest land as an investment.
- Capital receipts from timber sales were equivalent to 4.7% of the total value of the index. This can be loosely considered an annual income yield from forestry, although the income is lumpy, with most generated when a forest is thinned or felled.
- The tax reliefs on commercial forest investment did not change and continue to be held constant by successive governments.
- In terms of transactions of forest investments, 13,000 stocked hectares were sold, in 67 transactions, with a value of £79m, according to The UK forest market report 2016 by John Clegg and Co and Tilhill Forestry. This was an almost 50% drop from 2015’s record £150m of sales, which was exceptional mainly due to the sale of UPM’s portfolio worth £50m and the end of the Forestry Commission’s disposal programme, and broadly similar to 2014’s £82m of sales.
- Average capital values of forests in the Index in 2016 are: £6,100 per hectare in north Scotland, £6,340 in mid Scotland, £7,900 in south Scotland, £8,600 in north England and £7,100 in Wales.
- There is growing evidence of the forestry grant, administration and regulation system in England preventing the planting of new forest areas. This is shown by only 525 hectares of new woodland being planted in England in the year ending 31 March 2017, according to the Forestry Commission. This is massively below the national targets for planting. Most of the planting was done in early 2016 with very little planted since. Our experience, through John Clegg and Co, is that some remarkable issues are being raised to frustrate planting proposals, such as partial rush cover on one site.
- Planting in Scotland, which has a different governance structure, is likely to hit its annual target of 10,000 hectares a year and there are plans to increase the target further.