2024 timberland investment performance set to meet or exceed 2023
Last year's U.S. private timberland investments look likely to overtake their previous year's performance. As we await full-year reporting inclusive of annual valuations through appraisals or market transactions, this performance could offer an indication of what to expect for 2025.
U.S. timberland performance through Q3 2024 reveals strong capital appreciation driving 2024’s year-to-date total return ahead of the same period in 2023, with its 5.41% year-to-date total return of 55 basis points (bps) above the same period last year.1 Appreciation is driving performance so far in 2024 (3.96%), running ahead of 2023 (2.93%).
U.S. timberland year-to-date 2024 performance is outpacing 2023 (%)
An active timberland transaction year offers appraisers a deep comparable sale database for benchmarking property valuations. However, timberland revenue compressed in 2024 as wood products demand continued to soften, resulting in a wave of capacity reductions across most regions within the United States that weighed on timber harvest volumes and prices. Year-to-date returns reveal that timberland managers are addressing the current weakness in demand for forest products, such as lumber, panels, pulp, and paper, by maintaining flexibility in their harvest decisions in anticipation of stronger markets ahead.
Reviewing 2023’s U.S. timberland performance in a historical context across key U.S. timberland regions provides an informative backdrop in anticipation of 2024’s full year of benchmark performance, which will be released in a few months.
2023 total returns were driven by continued strength in timberland capital appreciation
The National Council of Real Estate Investment Fiduciaries (NCREIF) collects U.S. timberland property-level performance realized by institutional investments and reports the aggregated results within its Timberland Property Index (TPI).1 The TPI’s 2023 calendar year total return of 9.45% exceeded the historical average annual return level of the past 10 years (5.80%) and past 20 years (7.20%), but reflected some softening since 2022’s strong total performance (down 345bps since 2022).1
U.S. timberland performance was 9.45% in 2023
NCREIF U.S. Timberland Property Index, annual income and appreciation (%), as of year end December 31, 2023
Driving total returns in 2023 was continued strength in timberland capital appreciation, and overall strong interest shown in timberland investments provided a deep pool of comparable sales for appraisers to benchmark against. However, 2023’s timberland income was pulled lower as a result of persistent weakness in residential construction and home repair and remodeling expenditures—principal drivers of U.S. sawtimber harvest demand—resulting in lumber and panel prices falling to historically low levels. This forced production curtailments at high-cost producers in all regions across the United States, with reduced mill production translating into decreased demand for timber harvests and lower timber prices.
In 2023, NCREIF’s TPI incorporated performance metrics from 443 distinct timberland properties across the United States with a combined area of 12.7 million acres and combined market value of $26.5 billion. NCREIF separates total returns into two components: net operating income (EBITDDA2) and realized capital gains (or losses). In 2023, U.S. timberland capital appreciation exceeded the 10-year average across the United States, while operating income returns fell below the 10-year average. Net operating income for private timberlands returned 2.6% during 2023, 30bps below their historical 10-year average. The capital appreciation component of the TPI is based on annual third-party appraisals of timberland market values, required for all properties included in the NCREIF TPI. In 2023, capital appreciation reached 6.7%, a 287bps decrease from 2022’s capital gain of 9.6%, but still more than two times greater than the 10-year average of 2.9%.1
NCREIF timberland performance is reported in four geographic regions within the United States: Lake States, West, South, and Northeast. The TPI is heavily weighted toward the South, which represents 65% of the index by market value. Southern timberland properties in the TPI are predominantly pine plantations, with a smaller percentage of mixed pine/hardwood forests. Timberland properties in the Western United States represent 26% of the U.S. index by value, and the remaining 9% of the U.S. index value is split between high-value hardwoods and mixed softwood/hardwood timberland in the Northeast (5%) and the Lake States (4%).
Timberland properties in the West and South comprise over 90% of the U.S. NCREIF Timberland Property Index
Regional share of the Timberland Property Index by value (%)
Strong timberland performance for southern and western timberlands
Across the four major geographic regions in the United States, 2023’s annual total returns ranged from nearly 2.9% in the Northeast to 11% in the South.1 Timberland property performance in the West was 7.7% and 6.1% in the Lake States.1
Accounting for nearly two-thirds of the market value of the TPI, the 11% total return for private timberland investments in the U.S. South represents a decrease of 240bps from 2022 (at 13.4%) yet remains over 500bps above the 10-year historical average of the region’s total return. Total timberland returns in the U.S. South in 2023 comprised operating income at 3.0% and capital gains at 7.8%. Operating income in 2023 exceeded the region’s 10-year average income return by 69bps and was 8bps above 2022 operating income. Capital appreciation in the U.S. South for 2023 was 243bps below 2022’s capital appreciation yet still more than triple the average capital appreciation over the past 10 years.
Private timberland investments in the U.S. West, with a total return of 7.65% in 2023, performed above the 10-year average total return in the region. Income returns in the West, at 1.90%, were historically low, despite the region’s tight supply-demand balance, as the slowdown in demand for timber harvests from lumber and panel producers became acute in 2023.
2023 timberland performance was above its 10-year average
Annual timberland EBITDDA and appreciation returns by region (%)
Performance within the Lake States and Northeast, comprising less than 10% of the total TPI, fell in 2023 compared to 2022, with weaker capital appreciation driving the decline in performance.
Regional U.S. timberland calendar year performance (2023 compared to 2022)
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