Growing demand for forestry as returns achieve record highs

RETURNS on Scottish forests hit record highs in 2011 as demand for “alternative assets” among investors continued to rise, a report is set to reveal this week.

The IPD UK Forestry index will say that forests returned a 34.8 per cent yield in 2011, the highest in the index’s history and outstripping growth in the value of comparable assets such as commercial property, equities, and gilts.

The report cited rising timber prices and improved efficiency in sawmill facilities as significant drivers of the forestry boom, but noted their use as lucrative wind farms and their status as a “tax efficient” investments also played a major part in their popularity with investors.

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According to research firm IPD, 76 per cent of all forest investment was in Scotland last year. Alastair Sandels, managing director of woodland manager Fountains Forestry, said: “The fundamental drivers of the sector remain strong, with investors able to take advantage of special tax benefits appropriate for a long term investment.

“The increasing demand for renewable energy production mean that land values in such suitable locations for wind farms, or the production of wood, a renewable fibre and energy source, are set to remain high.”

He added that its status as a safe haven asset is “likely to further increase pressure on prices”.

However, the research points out that there remains “considerable opportunity for expansion in the sector” as demand for timber in the United Kingdom still far outstrips supply.

Foreign imports account for between 70 and 80 per cent of UK requirements.