The UK's commercial forestry market continues to forge ahead, with average prices in the year to September 2006 rising by approximately 20% on the previous year for like-for-like woodlands The findings are reported in the latest Forest Market Report, now available from UPM Tilhill, the UK's largest timber harvesting company, and Savills, an international property services company.

Prices have risen by about 60% over the last four years with the average plantation price at £2358/ha. The year also saw the speed of sales double with an average four months from marketing to final completion against the previous year's eight-and-a-half months.

In addition, the average premium over guide price reached 16% over the previous year's 11%, all factors characteristic of a strongly rising market. The total market size in 2006 was £35m, with the average transaction value at £289,000.

Most of the forests currently being traded were originally planted between the 1960s and the late 1980s by private investors with Schedule D Income Tax relief. Market size and liquidity were boosted from 1980 onwards by the sale of Forestry Commission properties, a process that largely dried up following new government policy in 1997.

The secondary market developed initially from direct investment by UK company pension funds and then by private individuals and family trusts. The pension funds have been net sellers during the last 10 years and are largely out of the market. The market is now dominated by UK-based private individuals and, increasingly, collective funds.

Last year produced some surprises and ended with a more positive mood in the timber market than for some time. Unusually, sawmills ended the year with full order books and strong ongoing demand. This has been driven by the continued dearth of imported sawn wood, allowing mills to gain price increases for their products. A mild early winter in Russia and Scandinavia has led to problems with harvesting and extraction and meant a shortage of supply in these areas.

The impact of price increases and heightened demand has not been lost on the growers who have seen significant rises in standing timber sale prices throughout 2006.

Apart from increased demand for timber, the main impetus for the surge in interest in woodland are the tax advantages arising from owning forestry land. Currently, income from timber sales is exempt from both income and corporation tax and growing timber is exempt from capital gains tax.

The tax position for commercial woodland ownership has been stable for 15 years. This is an important factor in the freehold market, especially for new investors and their advisers. The combined package of exemptions from UK taxes continues to provide great encouragement for the medium-to-long period of commercial woodland ownership.

"The year to September 2006 concluded in the most positive mood that the market has seen for some time," said Ewan Berkeley of Savills. "The forestry market remains very buoyant with numbers of buyers exceeding sellers and further price rises expected," he added.