The 2023 UK Forest Market Report (FMR) is a perfect example of how much markets can change over the course of year.
This time last year we reported that the 2022 FMR revealed that the forestry sector was bucking the global trend of uncertainty and was demonstrating welcome stability, with commercial forestry values increasing by at least 15% in the preceding 12 months.
The 2023 FMR presents a different picture. It is not all gloom and doom – far from it – but it certainly shows a sector taking a breath and taking stock of current and predicted market dynamics.
The report, which was jointly produced by Tilhill, the UK’s leading woodland creation, forest management and timber harvesting company (and part of the BSW Group, a member of Binderholz) and specialist forestry firm Goldcrest Land & Forestry Group, was launched at the WWT London Wetland Centre (from where it was also livestreamed) and at The Signet Library in Edinburgh on two consecutive days in November.
Xander Mahoney, head of forestry investment at Tilhill, gave the headline figures in his market overview, but before doing so he highlighted the FMR’s introduction, which is in praise of Sitka spruce.
The non-native species, says the report, suffers from “a veil of unacceptability” that still pervades public opinion, when, in fact, “Sitka spruce grows the fastest in our climate, on otherwise unproductive land, produces desirable timber and is most resistant to disease”.
For the forestry and timber sector Sitka spruce is “as vital as the potato”, but while Sitka is still reviled in some quarters, the spud, which is also a non-native species, grown in a monoculture and harvested annually, is a staple of our everyday lives and respected by comparison.
The reason may be that “nobody mourns a potato, but as we know from Sycamore Gap, we can absolutely mourn a tree”, says the report by way of explanation, going on to say that as a sector “we need to work together to change public attitude to Sitka spruce. It is, after all, the industry’s commercial crop and the workhorse of our timber industry. Spruce is as fundamental as potatoes – and arguably more versatile in the scope of what it delivers.
“We must balance the vital need to use home-grown timber to meet UK demand for construction timber, landscaping materials and the vast array of wood-related products with public acceptability,” the report goes on. “We must also strive to reduce the UK’s heavy reliance on timber imports.
“We have an outstanding manufacturing base for timber from seed to finished product, right here in the UK. It is one of our few remaining industries and one which we should be truly proud of. And the bonus is it could not be greener!
“Given the urgent need to grow more UK timber – and meet climate mitigation obligations – we must address how the timber industry can make Sitka spruce more palatable.”
Onto the figures and the headline is that after two exceptionally buoyant years and one “uncertain” one, the FMR shows commercial values down 10-20%, the first decline in forestry values since 2016.
The report said: “Compared to the rampaging run of forestry as an asset class over the last 17 years, the lagging effect of economic turmoil from the mini budget, the war in Ukraine, and rising interest rates have softened market activity across the board in both afforestation and commercial/amenity woodlands.”
While highlighting the enduring “resilience” of UK forestry, the continuing emergence of new investors – with “specialist forestry investors back in the driving seat after the pandemic market” – and confidence in the long-term future of timber underpinned by the need to replace plastic, steel and concrete with sustainable forest products, the report found that supply tightened, prices dropped and buyers became increasingly selective in the last year. Additionally, demand for timber slowed sharply in the short-term, leading to a dramatic reduction in processing volumes.
2023 saw £212m of commercial forestry listings on the open market, up 9%, with two huge properties (£100m+, 3,800ha Griffin in Perthshire and £30m, 1,500ha Glen Shira in Argyll) accounting for an “extraordinary” 70% of the total value listed for sale and flattering a market that was otherwise unusually small. Scotland enjoying a 91% market share. However, the number of listings fell 39% to just 35 properties, well below the historical range and below even the low of 50 properties in 2008.
“There is no headline shortage of supply – it is in line with recent years,” said Mr Mahoney, adding that without the Griffin and Glen Shira assets “we would have had less supply than we had in the middle of the financial crisis in 2008. It has been a quiet year”.
The agreed deals observed by the report authors up to August 31, which excludes the two large properties, have been at a significantly lower price per stocked hectare, down 20% year-on-year to £22,500 – although that is set against “a particularly spectacular set of properties in 2022, so we are seeing good properties down something more like 10%,” said Mr Mahoney.
And the average price of a sale was £6.1m, up 77% year-on-year – bolstered by Griffin and Glen Shira.
There were fewer “blue chip” deals in 2023, he said, and the best performers were distinguished by “scale, high yield classes and Sitka proportion, and good access”. Marginal properties were a tough sell.
The market size of planting land was also down, by 24% year-on-year, making 2023 “a tight year in terms of supply that has been exacerbated by regulatory tightening; it’s getting harder to get permission to get trees in the ground”.
Jon Lambert, partner at Goldcrest, picked up on the problems associated with the availability of good planting land.
He highlighted a continuing demand for good quality planting land but said appropriate sites were hard to find. The total value of planting land listings amounted to £49.9m, down 24%.
In Scotland, average prices for planting land suitable for commercial forestry dropped 22% from £12,800 per gross hectare to £9,900 per gross hectare “in the most significant development across all forest market data this year”. England and Wales fared better, increasing 42% to £16,600 per gross hectare and £13,400 per gross hectare respectively.
It was hoped, according to the report, that a “normalisation in commercial planting land prices in Scotland would spur much needed woodland creation, both commercial and native” going forward.
Just 13,000 hectares of trees were planted this year, a drop of 7% and 43% of the national target of 30,000 hectares. While Scotland continued to lead the charge with 8,200 hectares planted – more than two-thirds of which were conifers – this was a 27% drop from 10,400ha in 2022. Broadleaf planting amounted to 51% of all UK tree planting.
The report found that land listed for sale which could offer natural capital potential reached a massive £276m, up 241%, dwarfing the land suitable for commercial forestry. England had the biggest market by value with £144.5m while Scotland had the most land available with 13,394 hectares. Prices were highest in Wales at £17,000 per hectare.
Mixed woodland listings were down 18% at £15.8m with a 14% fall in average price to £12,500 per hectare. England, while marked by a 45% fall in total value and a 48% drop in total area, saw a rise in the number of listings (16) and a modest 5% rise in average value to £17,300 per hectare. In Wales, listings rose from three to 10. Average woodland values remained almost static in Scotland and Wales at £9,500 per hectare and £9,600 per hectare respectively.
Reflecting on the decrease in completed transactions – down 10-20%, as highlighted by Xander Mahoney – Mr Lambert said that most properties brought to market had still sold but that “purchasers are generally more cautious than 12 or 18 months ago, leading to longer due diligence periods, an increased demand to rectify ‘blemishes’ before completion and a desire for higher yields”.
“It is clear there is money in the system – a large quantity of it and demand still outstrips supply,” said Mr Lambert. “However, some previously aggressive buyers have taken their foot a little off the pedal and are now searching, watching and waiting, ready to jump on a perceived opportunity. They are increasingly selective, but in a market of few opportunities, deals are sometimes missed.”
He added that the purchasers, both national and international, comprise high net worth individuals, family offices, institutional buyers including pension authorities, some charities and end users. “They are satisfied with the long-term fundamentals of commercial conifers,” he said.
“The UK imports a staggering 81% of its wood products, third in volume only to China and the US,” he continued. “There is an increasing world population, although the dynamics are changing in some continents. Developing countries consume more timber as their affluence grows. Concrete, steel and plastics are becoming increasingly unfashionable and timber is in short supply across the globe. Undoubtedly, demand for timber-producing forests remains. In a global context, the strength of our legal system, political stability and robustness of the economy, underlines the appeal of investing in the UK and confidence remains in long term forestry investment at home.”
SUPERIOR SITKA
As the demand for home-grown timber becomes ever greater and with forest planting failing to keep pace with this predicted growth in demand, the imperative to grow the best quality trees has never been greater. So said Ben Goh, commercial manager at Maelor Forest Nurseries, which is part of the BSW Group.
Writing in the FMR and speaking at the launch event, Mr Goh outlined some of the work at Maelor, which is a commercial tree nursery at the cutting edge of genetic technology, striving to produce the most productive trees. It is also a founder member of the Conifer Breeding Co-operative (CBC), which was formerly known as the Sitka Spruce Breeding Co-operative. The CBC is dedicated to improving the quality of UK-grown trees.
The prime objective of improving Sitka spruce is timber production and the traits that are selected to achieve that are diameter (volume), form (branches/knots), density (strength and stiffness), and acoustic velocity (the speed at which sound travels through timber is a key determinant of strength and widely used in sawmills for strength grading).
Mr Goh highlighted that when improvements to volume and quality are achieved, the result is an increase in sawn timber per hectare. “Crucially that’s not just standing volume, not just sawlogs but the actual sawn timber,” he said. “It’s an increase in sawn timber of approximately 100% per hectare, without a drop in grading quality – so you are not dropping below C16.”
“I can’t overstate how important that is in terms of the challenges we have in terms of land availability and timber demand – if you can double your output then that is something that is worth talking about, and I don’t think it is talked about enough.”
The increase in timber yield clearly has huge benefits for the landowner and the market and there are other advantages to improving Sitka, such as a reduction in rotation length, increased efficiency at the sawmill, and improved land use efficiency.
“It is important to say that we are at quite an interesting time in tree improvement – we’ve got two generations of improvement,” said Mr Goh. “If you look at other countries and their breeding programmes and other species – Sweden for example, where Norway spruce is their species of interest – they are on their fourth generation of breeding. Breeding is very intensive, it is very costly, and it takes a long time because of the breeding cycle of a tree, but there are further gains that can be made. We are just on the first rungs of the ladder.”
