May 2010 Market Report

From the point of view of brokerage sales, May 2010 proved to be a solid if unspectacular month with 21 superyachts over 24 metres sold at total asking prices of €145 million, a dip from the previous month’s 24 yachts sold asking €261 million.

The largest yacht sold was DCAN’s 75.31m Phocea asking €9.9 million, while the figures do show an increase on May 2009 when 17 yachts totalling €132 million were sold.

Jonathan Becket, CEO of Burgess, gives his views on the current brokerage market: “2009 will be remembered as a tough year for brokerage, but in the final analysis, a reasonable number of sales were completed, although these were at price levels in favour of buyers rather than sellers. At the start of this year there was optimism by some that the market had gained momentum and trading conditions would continue to improve, but in practise this has not been borne out.

“In the pre-credit crunch bull market, activity levels were strong year-round, but the trend has now reverted to the historical pattern of a soft first quarter followed by a strong second quarter, with a potential final flurry of activity in October/November. Undoubtedly, buyers are still incentivised by price right now and brokers who identify the best opportunities will see results, although transactions continue to remain challenging and very hard work”.

“When the market dived, determining the value of a large yacht was somewhat of an enigma, but with a track record of new values established over the last 18 months, valuing a yacht has now become feasible again. Values are substantially lower now than during the bull market phase, and some buyers that purchased pre-owned yachts at the top of the market have been caught out. By the same token, sellers that commissioned new builds a few years ago are achieving a good return at re-sale, although the days of turning a profit on re-sale are over, at least for the time being. Until the supply/demand balance shifts again when brokerage listings start to dry up which will in turn stoke new build orders, pricing levels of the current market are unlikely to alter in any significant way for another couple of years. Movement on yachts over 70m is considerably slower than for the 38m-70m sector, with only two brokerage sales completed so far this year.”

And Jonathan’s certainly right about the supply/demand balance for, while we reported 21 yachts sold last month, we counted 36 superyachts entering the market and, of course, that doesn’t account for the yachts we know are very discreetly for sale. This oversupply means that prices continue their downward trend, with 33 price reductions reported in May.

Chart 1: Month-on-month and year-on-year comparisons by total value and volume

Chart 2: Month-on-month and year-on-year comparisons broken down by length

A Builder’s Perspective

The largest new build recorded in May was a 61m motor yacht from Turkey’s Sunrise yard for delivery in 2013 but new orders remain thin on the ground so far this year. We counted 14 superyacht launches in May, the largest being the 78.43m Titan from Abeking & Rasmussen. Henk De Vries at Feadship gives his view from a builder’s perspective.

“The statistics speak for themselves: 250 yachts above 40m were delivered in 2005/6/7 of which about half by the 20 SYBASS members, averaging two boats per yard per year. The other half came from over 100 yards, averaging one boat per yard over the three year period. Needless to say, many of those yards no longer exist.

“The market has shown a sustainable demand level of 30-40 boats per year over the past decades, so the ‘fantastic ride’ of the first years of the 21st Century was indeed enjoyed by all of us. I used to say that anyone with a large enough backyard and a welding torch was becoming a superyacht builder. Wise companies gradually expanded capacity and booked longer backlogs.

“The first three quarters of 2008 were incredible, with 100 new contracts signed up, real clients, but also projects financed, multi-yacht deals, speculative builds. And then, in the last quarter of 2008: 2 (yes, two). The year 2009 closed with less than a dozen signed up and 2010 until now shows a handful. The new build market still experiences competition from secondhand and speculative yachts coming on the market, but this supply will lessen in the coming year or so. The unreal projects of 2008 were cancelled or are coming out in the coming period, and after that we are back to reality.

“The good yards did sign up some new orders, and we are in good shape because we had good order books in 2008. Our experience is rewarded with our clients’ trust. We see lesser yards keel over and some weak ones being purchased, keeping under-performing companies in business for now. This is still not a stable situation at the lower end of the market.

“It is good to see that the serious clients shun the less experienced companies, and demand from true yachtsmen is back. The finance-driven clients have disappeared, making our industry healthy again. The challenge for the new-build yards is to explain price levels which are naturally higher than second-hand because material and labour costs have not dropped; now is a good time to look at more efficient production and business re-engineering. We will come out stronger. A much smaller group of experienced yards who know the real costs of creating works of art will cater to the demands of much wiser clients.”

The Charter Market

The charter market is a good barometer of conditions in the superyacht industry and here again we sought the views of an expert:

“The Summer is now in full-swing, but the bookings are still shy of what they were in the past”, according to Jennifer M. Saia, President and Charter Specialist at The Sacks Group Yachting Professionals. “The negotiations take longer and the rates are lower, leaving less in commissions at the end of the day to show a profit for our company.” This was confirmed as well by the members of the FYBA Charter Professionals Committee at their recent monthly meeting with such firms in attendance as IYC, Fraser, CNI, and other major players in the industry. Managers and owners are starting to say “Thanks, but no thanks” to the ridiculous discount rates being offered by charterers. There has also been a trend of new “all-inclusive” rates which are not realistic. This said, firm bookings have increased slightly in comparison to Summer 2009.

“At The Sacks Group, we are communicating via various means with our repeat clients more than ever in order to keep piquing their interest in charter vacations worldwide…when they are ready, they know who to call”, adds Jennifer. “Of the book of business looking forward, 80% seem to be repeat or referral clients. Wealthy and smart business people recognize this fact and continue to charter. However we, as an industry, need to address ways to attract new customers”. This is the agenda for the American Yacht Charter Association’s (AYCA) PR Committee, which Jennifer chairs for the balance of 2010: to get the “Best Kept Vacation Secret” out to the high-net worth public.

“Yacht charter is the best luxury travel ‘bargain’ in the world. It costs a fraction of owning a vessel; however, in this economic climate it seems that owners are subsidizing charter clients’ vacations with all the discounts.” Says Jennifer, “I anticipate this will change as we get further into the Summer and high season prime dates are booked for August.”

Finally, to end on an optimistic note, ten yachts have been reported sold in June 2010 already, with the palm going to the 85m Alysia, the largest superyacht sold so far this year.

Read additional analysis of brokerage sales in the Market Intelligence section of Boat International

Tags: Brokerage, Charter

Category: Industry