Does buying woodland instead of property make financial sense?

There is a frightful interval between the seed and the timber.” So said the 18th-century wit and writer Samuel Johnson, but wait patiently for your forest to flourish and you could see a significant return on your investment. Forestry has been the top-performing asset class in the UK over the past three years, with total returns of 14.7 percent, according to the market, beating returns on commercial property, homes, equities, and bonds. As investments go, though, is it a little unsexy? “It’s an asset you can enjoy.” People looking for shooting estates, for example, or may want to invest in one with a portion of commercial woodland. For Richard Davidson, investing in woodland is about the bottom line. He bought a 740-acre forest in Scotland in 2004. “At the time, the cost was the same as a two-bedroom flat in West London, so it didn’t feel like a huge expense,” he says. Thirteen years later, he owns forestry across southern Scotland and Aberdeenshire, all of which has been commercially planted with Sitka spruce, the species that dominates the forestry industry in the UK. Sitka spruce is a large, coniferous evergreen, originating from the US. It produces the most sought-after timber, because, as well as being a species that grows quickly and in poor soil — it reaches maturity in a relatively rapid 35 to 55 years — it has few branches, meaning few knots. Then there is Douglas fir, which was brought to the UK in 1827 by David Douglas, and Scots pine, the only native softwood. Scots pine can take more than 70 years to reach maturity but its distinctive shape and ability to attract wildlife make it an attractive choice for those who care about enjoyment as well as the commercial benefits of the forest.

Plantations in Argyll and Aberdeenshire, southern Scotland, upland areas of Wales and the north of England are considered prime, especially for spruce trees. The reason is not just the quality of the woodland but how near they are to sawmills. With sawmills in Aberdeen, Inverness and nearby Huntly, the lot is well located for getting timber to the point of sale. After two years commercial forests are entitled to 100 per cent business property relief, no capital gains, and relief from inheritance tax. Anyone looking to preserve capital that way may want to leave the trees in the ground. Excess profit from timber sales is essentially recreating taxable cash. Yet, with Brexit on the horizon, many forestry investors have a new spring in their step. The UK imports 80 per cent of the wood it consumes, according to Confor, the forestry trading association.

With sterling weakening, countries that were selling their timber to the UK are looking elsewhere. “Less imported supply has boosted domestic timber prices.” What is more, the Forestry Commission forecasts a 30 per cent decline in timber availability, mainly due to the budget of 1988, when Nigel Lawson was Chancellor, which effectively ended the tax incentives associated with planting. This has led to forestry aged 21 to 30 years increasing in value by about £800 an acre over the past two years. Also, reports renewed interest in land suitable for forests of spruce and Douglas fir. With most global prime property markets showing only meagre growth or decline, according to the market perhaps UK forestry is a more exciting prospect than first thought.

How forests help pension funds shelter from market storms

Dozens of mythologies and religions around the world consider trees sacred. Buddha, after achieving enlightenment, sat under a banyan tree for seven days. In the Garden of Eden, the two most important plants were the tree of life, and the tree of knowledge of good and evil. In Celtic mythology, trees were of vital importance to Druids, for whom the oak was one of the most sacred objects.

Nowadays, trees have largely lost their spiritual value, gaining a financial one instead. Apart from their long-established importance to several industries, trees and farmlands have emerged as an interesting way for institutional investors to tap uncorrelated returns.

The Sitka spruce grows quickly compared with other trees: a full-cycle takes 35-40 years. Its financial appeal is now so large that today one out of every two trees that grow in the UK are the Alaskan-native conifers. 200 years ago, there were none.

The good thing about timber is that it’s not like wheat or barley or any other agricultural crop, meaning you don’t have to harvest it at a certain time. The tree just continues to grow for up to 200 years. So if you don’t like the price today, and you’ve got enough cash to pay the bills, then you can leave the trees to grow for another year or two.

When you do come to harvest, there’s more timber there. Because the trees just get taller and broader every year.

New research unlocks forests’ potential in climate change mitigation

For the first time, scientists have created a global map measuring the cooling effect forests generate by regulating the exchange of water and energy between Earth’s surface and the atmosphere. In many locations, this cooling effect works in concert with forests’ absorption of carbon dioxide. By coupling information from satellites with local data from sensors mounted to research towers extending high above tree canopies, O’Halloran and his collaborators throughout the world have given a much more complete, diagnostic view of the roles forests play in regulating climate.

Their findings have important implications for how and where different types of land cover can be used to mitigate climate change with forest protection programs and data-driven land-use policies. Results of their study were recently published in the journal Nature Climate Change.

“It’s our hope that such global maps can be used to optimize biophysics in addition to carbon when planning land-use climate change mitigation projects,” said O’Halloran, assistant professor of Forestry and Environmental Conservation at Clemson’s Baruch Institute of Coastal Ecology and Forest Science in Georgetown.

Previously, scientists measured vegetation’s impact on local land temperatures using satellite imagery, which is limited to only clear-sky days and few measurements per day, or they used local stations, which are limited in their reach. Integrating data from towers extending more than 100 feet in the air with satellite measurements allows for a more advanced view of the variables impacting surface temperature. The research team found that forests’ cooling effect was greater than thought and most pronounced in mid- and low-latitude regions.

This new statistical model of analyzing forests’ impact on local temperature will allow communities around the world to pinpoint ideal locations for forest protection or reforestation efforts.

“We wanted every country in the world to have some estimation of the cooling effects of forests and vegetation,” O’Halloran said. “It’s about optimizing the benefit of land management for climate change mitigation.”

A tower similar to those used for this study is under construction at Baruch in collaboration with the University of South Carolina to help provide greater analysis of local climate, he said.

“The towers will really help us understand how ecosystems respond to change,” O’Halloran said. “In South Carolina, we’ve had a lot of extreme weather events, droughts, flood and hurricanes. This will help us understand the resilience of local ecosystems to those types of events.”

O’Halloran co-authored the article in Nature Climate Change with lead author Ryan Bright of The Norwegian Institute of Bioeconomy Research in Norway and several additional collaborators throughout Europe and the United States.

Unlike local climate changes owed to global emissions of CO2 and other greenhouse gases, local climate changes linked to land-related activities are unique in that they are only influenced by the local land-use policies that are in place, Bright said.

“The results of our study now make it easier for individual nations or regions to begin measuring and enforcing climate policies resulting in tangible mitigation or adaptation benefits at the local scale,” says Bright. “This is especially critical moving forward in a world facing increasing competition for land resources.”