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Beech tree forest in Germany
“Trees don’t read the Wall Street Journal.” Hans-Joachim Seyfarth, head of forestry and agriculture at MEAG, which manages more than €2bn of forestry assets worldwide, was quoting an American investor’s adage. But it captures the investment case for forestry more precisely than most research notes manage to do. Equity markets fall, bond markets become volatile and property transactions stop. Trees carry on growing.
MEAG, the asset-management subsidiary of Munich Re, owns 3,500 hectares in Bavaria alone. Its commitment reflects the attraction forestry holds for conservative institutions seeking tangible assets with little correlation to conventional markets.
At a recent webinar organised by Private Banking Magazin, Florian Kirchner and Björn Nikolaus of Austrian investment manager FLE made the case for European forestry. “Forests are not a short-term yield product, but a long-term tangible asset,” Nikolaus said. Biological growth, stable returns and low correlation, he argued, make the asset particularly suitable for investors with long horizons. The emphasis on long is important.
Growth without liquidity
FLE’s European forestry fund has a minimum holding period of eight years and requires two years’ notice for withdrawals. Even that understates the duration Nikolaus believes the asset requires. Investors should preferably be thinking over 20 or 30 years.
That may sound forbidding after a period in which investment products attempted to make almost everything appear tradeable. Nikolaus drew an uncomfortable comparison with real estate, where managers had created “apparent liquidity from an illiquid product”. Forestry makes fewer concessions to impatience. Its illiquidity is not an inconvenience that can simply be engineered away; it is part of the investment.
The fund was seeded by a German church, precisely the kind of institution whose intergenerational outlook can accommodate that duration. Its minimum investment is €500,000, with typical commitments ranging from €2m to €5m.
FLE uses no debt. It regards forestry as a pure equity investment for which leverage is neither particularly useful nor, under current financing conditions, readily available. Its portfolio is expected to generate annual cash returns of approximately 2–3%, principally from timber sales and leases. Biological growth and appreciation of the underlying land contribute to the longer-term total return.
That distinction matters. A tree adding another annual ring is not the same as cash reaching an investor’s account. The financial value of biological growth depends on species, timber quality, harvesting costs, access to processing capacity and the price available when the tree is eventually felled.
Forestry nevertheless offers unusual flexibility. When timber prices are weak, harvesting can often be delayed for one, two or even five years. The tree continues to grow while the owner waits for better conditions. But this optionality is not unlimited. Disease, storm damage or an ageing stand may dictate the timing before the market does.
One FLE-owned forest in Slovakia has produced a cash-on-cash return above 5% for two successive years. A surplus of mature timber allowed increased harvesting while the manager gradually restored a more balanced age structure. Nikolaus cautioned against extrapolating that result across the portfolio. Finding such an opportunity, he said, required searching for the needle in the haystack.
Prince Constantin zu Salm-Salm, whose family has managed forests for more than 30 generations and who, with his colleagues, oversees around 150,000 hectares worldwide, similarly stresses scale and duration. He cites international timber returns of 4–8%, depending on the country and local demand, but says sufficiently large investments generally require €5m–€10m.
“Forests are a cross-generational investment,” he said. “You’ll have to look elsewhere to make a quick buck.”
For investors, the question is not whether forestry is illiquid. It plainly is. The question is whether its income, biological growth and land value adequately compensate investors for committing capital on those terms.
Germany's abundance problem
Germany appears well supplied. Its forests contain more than 3.64bn cubic metres of timber, the largest standing inventory in Europe. Approximately 100m cubic metres are added through biological growth each year and, over many decades, more timber has generally grown than has been harvested. Yet abundance does not necessarily create an investable market.
Roughly half Germany’s forests are privately owned, but ownership is divided among approximately 2m owners. Most private holdings contain fewer than 30 hectares, too little to support professional management economically. Large contiguous estates rarely come to market, while demand from buyers motivated by ecology, emotion or hunting helps sustain prices for smaller plots.
“Professional investors are hardly active in Germany,” said Eckbrecht von Grone, head of Land & Forestry at Colliers. In the US, Australia and Scandinavia, institutional investors can acquire large forests alongside established markets for their timber. Germany remains much more fragmented.
Woodland is also comparatively expensive. According to Colliers, forest land in Bavaria costs approximately €3–€4 per square metre, three to four times the corresponding level in Brandenburg. Depending on the region, ten hectares can cost between €100,000 and €400,000. Typical German forestry returns of around 1–3% are correspondingly modest.
Germany’s 2025 harvesting data add another complication. Total felling fell to 57.3m cubic metres, 6.4% below 2024 and well short of the ten-year annual average of 66.8m cubic metres.
The decline was concentrated in spruce, where harvesting fell 14.3%. The Federal Ministry of Agriculture attributed this largely to substantial losses of standing spruce in previous years, following compulsory felling caused by natural disasters. Harvesting of pine increased 9.2%, oak 7.9% and beech 2.4%.
Germany continues to accumulate timber overall, but the species data reveal a forest economy still absorbing the effects of storms, drought and pest damage. Biological growth does not abolish physical risk. It merely operates alongside it.
For an investor, sustainability therefore becomes a measure of asset quality rather than a label attached to the fund. Kirchner recalled a university professor describing spruce monocultures as being “for gamblers”. If one pest or climatic event targets the dominant species, much of the value of the holding can be affected simultaneously.
The answer is not indiscriminate variety. Kirchner’s principle is to place the right tree on the right soil, taking account of the climate the site is likely to experience over the coming decades. FLE’s successful Slovak holding, for example, is approximately 80% beech because beech is naturally suited to that location.
Creating resilient forests requires specialist knowledge, time and capital. Managers must assess soil, species, age distribution, access, local timber demand and exposure to storm, drought, fire and pests. FLE supplements local foresters with drones and satellite monitoring. Certification under FSC or PEFC provides external oversight and access to timber buyers demanding evidence of sustainable management. It does not, by itself, generate additional income.
Carbon sequestration, biodiversity and renewable-energy leases may eventually improve returns. FLE expects carbon credits to contribute approximately 0.5 percentage points from 2028, with further potential from wind and solar leases. But none of these prospective revenues is required for its base investment case, which rests on timber income, biological growth, land appreciation and conventional leases.
That caution is appropriate. Carbon credits depend upon additionality, reliable measurement, verification and protection against double counting. Biodiversity payments are less developed still. Nikolaus compared their present position with that of carbon markets 10 or 15 years ago: economically plausible, but not yet producing dependable cash flow.
For institutions able to invest directly or through a specialist vehicle, forestry offers something increasingly scarce: an unleveraged real asset whose underlying production continues without a liquid transaction market. But its apparent stability should not be confused with simplicity. Modest current income, potential inflation protection and low correlation come with active management, geographical diversification and capital prepared to remain committed while both forests and timber markets pass through long cycles.
For investors able to supply that patience, as Seyfarth’s trees quietly demonstrate in Bavaria each year, the Wall Street Journal remains entirely optional reading.