As the US farmland market is slowing down, returns from buying forestry land is picking up, lifted by demand from China and recovery in the US housing market.
US timberland values returned by 9.8% in the year to the end of March – the strongest annual performance since the third quarter of 2008, as the world was entering economic crisis, the National Council of Real Estate Investment Fiduciaries said.
These returns are still lower than those obtained from cropland, estimated by the council last week at 17.4% over the past year.
However, on terms of price appreciation alone, the forestry market has nearly caught up.
The timberlands return figure comprised price growth of 7.0%, with the balance from income.
Growth in cropland values has slowed to 8.4%.
The rising returns reflect in part revival in US housebuilding, a key source of demand for timber.
"US housing recovery continued at a modest pace, supporting increased timber harvest volumes across the US," said Mary Ellen Aronow, chair of the Ncreif timberland committee, and a senior forest economist at Hancock Timber Resources Group.
However, she also highlighted "strong" export orders for wood, "in particular demand from China".
This demand was "reflected in record-setting prices for timber in the Pacific North West," a key US timber-growing region, largely in Washington state.
Indeed, returns in the Pacific North West were particularly strong over the year to the end of last month, hitting 18.1%, up from 14.1% in the previous year.
Ms Aronow forecast continued strength in the sector, terming "positive" the outlook for both timber and forestry markets.
"The timberland market proved more active during the first quarter of 2014 compared to the first quarter of 2013, with timberland activity increasing," she said.
The comments follow the release by Weyerhaeuser, the US timber giant, on Friday of results showing a 27% rise to $183m in earnings for the January-to-March quarter, on revenues up 1.7% at $1.98bn.
The profits were swollen by one-off factors such as asset sales, excluding which earnings growth, per share, was flat at $0.26, although this was still ahead of Wall Street expectations of a $0.24-a-share result.
The group, based in Washington state, highlighted that selling prices for logs improved at its western US operations "across export and domestic markets", with slower growth in prices in the south of the country.
Weyerhaeuser also noted the strength in Chinese demand, saying it "expects increased Chinese export log sales volumes" in the April-to-June period, although it forecast lower average prices for its timber sales.
In another sign of the strengthening market, Washington-based timber operator Northwest Hardwoods, which Weyerhaeuser sold three years ago, is reported to be up for sale again – for a significantly higher price.
American Industrial Partners, which bought Northwest Hardwoods for $108m in 2011, has hired Goldman Sachs to market the business, for a sale which could reportedly fetch $700m.
Northwest Hardwoods, which claims annual revenue of $480m, produces lumber from 14 species of tree, including cherry, maple and oak, and has 10 mills in seven US states.