|Source: IPD Forestry Index and IPD UK Annual Index|
Increasing timber prices drove forestry
investment returns in 2010 to their highest levels since 2007, at 20.0%,
according to the
IPD UK Forestry Index.
For the fifth consecutive year forestry outperformed commercial property
markets. As a strategic limited resource and with strong demand from all
sectors, underlying investor sentiment has remained strong. As a result forestry
was one of the few property assets classes to avoid negative returns in the
Over a three year period forestry outperformed other asset classes by a
substantial margin, delivering returns of 12.6%. Gilts delivered 7.7%, Equities
1.4%, and commercial property -2.5%. Over a five year period the outperformance
is even more pronounced, with forestry returning 17.7%. Over an 18 year period
forestry has returned 6.3%.
The IPD UK Forestry Index sponsors’ committee 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.
"Forests have a key role to play in carbon capture and sustainable
development. This value will be realised on a sustainable basis only if UK
government policies balance the interests of the owners of forests and competing
wood using sectors."
Drivers of Performance: Timber prices rebounded by up to 38.5% over the
year to March 2011. Forestry returns are closely linked to these, though timber
prices are the more volatile asset, whereas the forestry returns remained
relatively stable, and are considered to have a low correlation with other asset
The double-digit annual return is an increase of almost
nine percentage points on the 11.1% total return seen in 2009. Returns are on a
par with those seen in 2006, but are not quite as high as the 31.6% seen before
the downturn in 2007.
The IPD UK Forestry Index - -
calculated from a sample of private sector coniferous plantations of
predominantly Sitka spruce across 144 forests worth £148.1m – is derived from a
series of annual valuations and cash flows.
Over a three year period plantations in South Scotland
continued to outperform the other areas in the UK, with returns of 17.9%.
Commercial forestry in Wales was the worst performing region, delivering returns