Returns on forestry investments were six times higher than equities in 2007. New figures show that while equities returned a profit of 5.3% to investors, the IPD UK Forestry Index returned a staggering 31.6%: the best result of all asset classes.
The return from forestry investments was five times higher than bonds, which managed 6.4%. This is the first time in the IPD UK Forestry Index has outperformed all the other main asset classes. Commercial property in particular looks to have had its day, returning a dismal -3.4% to investors.
So why have forestry investments enjoyed such a boom of late? One reason is the increasing demand for timber and the corresponding price rises. Experts have advised that while there has been a recent slowdown in the price increases, there is plenty of room for continued growth.
More and more, timber is replacing fossil fuels as a sustainable energy source in industry. Even taking into account the recent slowdown in new construction (due to the credit crunch), timber is frequently being selected over and above alternative materials for its eco-friendly attributes.
The demand for timber is expected to keep going strong because it has a number of unique qualities that make it an attractive investment proposition. Timber is sustainable, renewable, and keeps a healthy distance from financial markets. Timber is linked with commodity markets and prices of raw sustainable materials are expected to continue growing in the medium term.
The Confederation of Forest Industries (CFI), has expressed its opinion that we are not far away from a worldwide shortage of sustainably produced timber, so it looks like the investment potential is sky-high.