Fresh report on the German forestry sector and wood market
The land and forestry division of real estate consultancy Colliers has published a major report on the German woodland and timber market, offering the first comprehensive overview with a detailed analysis of the sector. This comes as the conversion of forests to climate-resilient mixed woodland becomes a hot topic and the report emphasises that woodland remains an attractive investment, despite the damage brought about by climate change.
The report headlines the main reasons for an investment in woodland:
- Woodland properties offer favourable investment returns, assuming professional management
- Woodland serves to diversify investment portfolios to manage risk and hedge against inflation
- Woodland is environmentally-friendly, helping to remove CO2 from the atmosphere, filter air and water and provide areas for recreation
- Wood is in increasing demand as new technologies enable plastics, steel and concrete to be replaced by timber, e.g. in construction
- Woodland offers tax breaks, in particular in terms of inheritance tax
- Woodland can generate additional sources of income, such as game and hunting.
Nils von Schmidt, Co-Head Land & Forestry at Colliers says “Woodland is a very important sector, which employs a workforce of over one million in Germany. That makes it a larger segment than mechanical engineering or the automotive industry. The 2018 turnover was just under €190 billion, including goods and services, which equates to 5.5% of total German GDP and emphasises the economic importance of the sector. There is a sustainable demand for good quality wood, which guarantees long-term returns. The diverse functions of a forest contribute enormously to our society, combining ecology and economy.”
By way of example, the state of Thuringia is around one third forest (34% or just under 550,000 ha), of which around 43% is in private ownership. An average of 3,500 ha woodland changes hands every year at an average deal size of 3.5 ha, and prices have risen by over 80% since 2009. But like all German forests, Thuringia faces challenges. Over the last few years it has been hit by calamities such as storms, drought and beetle infestation. The result has been a significant increase in tree-felling from around 3.4 million cubic metres in 2018 to some 5.2 million by 2020. The increased volumes have pushed wood prices for spruce down from just under €90/m³ in 2017 to €65 in 2019. But the markets are starting to recover in early 2021 with an increase in prices.
The average price for woodland in Germany was around €12,700/ha in 2018. The huge price range from €5,000/ha in Thuringia to up to €60,000 for a small plot in upper Bavaria appears to be commercially unjustifiable according to Eckbrecht von Grone, Co-Head Land & Forestry at Colliers. The timber market is dominated by a small number of large sawmills, which contributes to the regionality of the market as the size and number of the sawmills varies greatly between the federal states. The regional price differences for typical assortments of spruce, pine and beech show the dominance of the local market structure.
Things are changing. Since 2002, more than 19,000 ha have been converted from coniferous to deciduous forest, i.e. have been converted to climate-resilient mixed forests. Forests in Thuringia now comprise around 61% coniferous to 39% deciduous.