What happened in the Finnish forest property market in 2021?
Updated: Feb 14
According to Metsälehti, in 2021 the average price of a hectare of forest traded in Finland increased by 19%. This takes the average traded value of a hectare of forest in Finland to just over €4,000. The sum of the open market transactions in 2021 was around €177m which was spread over 1,300 transactions and covered almost 44,000 hectares.
Despite the large number of transactions, the total market size of €177m reveals that the average transaction size is relatively modest. Forestry Investment Advisor noted that only around 5% of transactions had asking prices which exceeded €300,000. Despite this, the appetite of institutional investors is reportedly continuing to increase, with just under two thirds of acquisitions falling to this segment of the market, which suggests that smaller transaction sizes are still somewhat attractive to institutional buyers.
The ability of institutional investors in the forest market to accommodate smaller transaction sizes is variable, but for those with sufficient portfolio smaller deals can work, especially where properties add to other nearby existing holdings. Also, regular forest purchase deal flow adds to the efficiency of acquisition target appraisal, such that required input on due diligence from management teams is reduced.
What has caused such a startling increase in the value paid for an average hectare in the market? Some of the increase can be explained by the basket of properties traded, which in 2021 had slightly higher timber volumes and slightly greater proportions of sawlog content compared to the previous year. However, the greater part of the change seems to be attributable to market forces, especially on the demand side.
Although supply of forest property is slightly down in 2021 compared to 2020, on the demand side there is notable growth in institutional investor interest. The approach taken by institutions to value forests is typically on an income basis independent of the market, and as such different forest assets may be worth different amounts to different buyers. This has meant in some cases significant variance between asking prices and transaction prices, with forest assets with the strongest income outlook being most fiercely contested.
With an increasing proportion of the market using an income approach to value forest assets, successful purchasers in competitive bid situations will be those who have the most bullish outlook for key drivers such as the cost of capital and timber prices.
All that said, the sheer volume of transactions still presents space for new entrants, and whilst €/ha prices have risen steeply in % terms, compared to elsewhere in Europe purchase costs certainly appear still to be affordable. The stage is well set for an exciting Finnish forestry market 2022.
See the full article here (in Finnish) Hannun hintaseuranta: Metsätilamarkkinoiden yleiskatsaus 2021 - hehtaarihinnoissa voimakasta nousua - Metsälehti (metsalehti.fi)