Rising timber prices drive up forestry returns

UK forestry investments have outperformed the commercial property markets for the fifth year in a row, according to the Investment Property Databank (IPD) UK Forestry Index.

Rising timber prices drove returns on forestry investment last year to their highest level since 2007, at 20 per cent. This is an increase of almost nine percentage points on the 11.1 per cent total return seen in 2009.

In 2010 returns were roughly on a par with rates achieved in 2006, although not as high as the 31.6 per cent seen before the economic downturn in 2007.

Forestry was one of the few property assets classes to avoid negative returns during the financial crisis. Over a three-year period, it easily outperformed other asset classes, delivering returns of 12.6 per cent, compared to 7.7 per cent for gilts, 1.4 per cent for equities and -2.5 per cent for commercial property. Its five-year return rate was even more pronounced at 17.7 per cent. However, over 18 years returns were a more modest 6.3 per cent.

The IPD UK Forestry Index, which tracks the returns from privately owned UK coniferous woodland worth £148.1 million, said: "The UK’s commercial forests are a unique renewable asset. The growth of competing demands for both sustainably grown wood products and for wood based energy and heat generation underpin their value.”