Growing forestry sector turns a new leaf

New investors and government policies are boosting NZ's forestry sector

A new wave of investors, favourable government policies and the ongoing push for sustainability have reinvigorated New Zealand’s forestry sector, says the country’s top forestry broker.

Warwick Searle, who leads Colliers International’s specialist forestry sales team, has transacted the bulk of New Zealand’s major on-market forestry deals in recent years.

He says the sector is undergoing a renewed period of growth, which in turn has attracted new investment.

“Forestry’s renaissance has largely been driven by the fact that returns have increased in recent years, and remain at very strong rates,” he says.

“The forestry sector has long been dominated by a core group of long-term wholesale investors, and these players continue to be active. Some 70 per cent of New Zealand’s productive forestry land is owned by less than 30 parties.

“What’s changed is the entrance of a new wave of investors at a similar scale. We’re seeing more big timber funds and private family companies looking at the market, many of which have not been active before.

“These new players are predominantly from Europe and North America, but there has also been an increase in Asian investment as well.”

Searle says these new parties are attracted not only to the strong returns they can get, but the relative safety and low management costs this asset class offers.

“Log prices have been undergoing steady growth in the past decade. Export prices have grown from $121 to $165 per cubic metre a decade ago, to $176 to $222 as of March this year.”

Searle says that with the government supporting continued investment in the sector, there is good reason to remain optimistic about forestry’s fundamentals.

“There has been a period of adjustment while the industry waited for certainty around the government’s changes to the Overseas Investment Act.

“It’s been tough in recent years, but I think government has been proactive in listening to industry, and we now have new OIO legislation going through Parliament that will help give overseas investors confidence in the sector.

“New government incentives, like the One Billion Trees planting programme, can only help bolster the sector. So I anticipate that we will see more greenfield planting to achieve those government targets.”

Searle says a growing awareness of sustainability is also helping to bolster the forestry sector.

He points to plans, both locally and internationally, for ‘wooden skyscrapers’ that are both ecologically and seismically beneficial. Sir Robert Jones is behind one such project for a 12-level wooden-framed office tower in Wellington.

“What we are seeing globally is a push towards more environmentally sustainable products being used, and wood is certainly at the forefront of that. So I think overall, it’s looking very positive for the wood product sector.”

New Zealand exported $5.47 billion of forestry products in the year to June 2017, comprising $2.69b of logs and $2.8b of other products.

The sector also generated more than $3.5 billion for New Zealand’s GDP – two fifths of which came directly from forestry and logging.

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