SECTOR HAS WEATHERED THE STORM
WEDNESDAY 24th SEPTEMBER 2014
Order books for top-end boats and racing sailing vessels look healthy but mid-market sales remain becalmed, writes Richard Donkin.
As the luxury yachting world descends on Port Hercules today for the annual Monaco yacht show, well heeled owners and industry brokers will be reflecting on another tough year for the mid-market against improving orders and sales in large high quality superyachts.
It is a buyers’ market for second-hand vessels, so would-be sellers – faced with the growing expense of mooring, crewing and maintaining their assets – have been forced to lower asking prices and cut their losses if they want to step up to something better.
At the rarefied billionaire-owner end, where some yachts have begun to take on the dimensions of floating mansions, orders continue to materialise. Specialists in custom-built big yachts, such as Germany’s Lürssen and the Dutch Feadship, report healthy order books.
The tightening of building slots at the quality end is beginning to have a knock-on benefit for other yards.
Another boost to competition among north European yards has been the widening of canal locks used by the Feadship builders, Royal van Lent and Royal de Vries, which means more of their yards can build yachts longer than 100m.
Across the broader superyacht sector, production is nowhere near pre-2008 levels when there was barely enough capacity to meet demand. The past year has seen some superyacht deliveries but fewer of the eye-popping launches of previous years.
Azzam, the world’s largest yacht at 180m, is moored outside Lürssen’s yard, where it was built, a year after its formal delivery to Sheikh Khalifa bin Zayed al-Nahyan, ruler of Abu Dhabi. The yacht is fully crewed but, other than sailing trials, it has yet to be used by the sheikh who suffered a stroke in January.
Another Lürssen yacht, the 86m Quattroelle, one of the stars of last year’s Monaco show, has already been sold on by its first owner, Canadian billionaire, Michael Lee-Chin, apparently at a small profit. “It seems someone made the owner an offer he couldn’t refuse,” says an executive close to the deal.
The sale is encouraging for yacht builders and brokers, since it demonstrates that new yachts at the very top of the market can hold their value.
Nicholas Edmiston, chairman of Edmiston, a luxury yacht broker, says: “We’ve had a 20 per cent increase in superyacht sales since this time last year but prices are still low. They should improve at the quality end, as there’s a shortage of good stuff on the market.”
Barry Gilmour, executive chairman of Royale Oceanic, a luxury yacht services business, says the market has stabilised, “but it’s nowhere near as robust as it was in 2007 and 2008 and life is still pretty hard in the sub-50m sector. Part of the problem is that it’s difficult for people to find finance for their yachts.”
A logjam in sales among less attractive second-hand yachts may force the most pressed owners –or repossessing banks – to consider scrappage as an option.
Allan Foot, managing director of Solent Refit based in Hythe in the UK, says he was asked by a bank to scrap a 58m yacht, Lady K II, in the south of France. Instead, he found a client interested in a restoration and has brought it to the UK for an 18-month refit.
“This one was costing £2m a year to maintain. The question is whether a boat is beyond economic repair. It probably was, if the work had been done in France, but we can do it here more cost-effectively.”
Talk of scrapping superyachts paints a gloomier picture than the overall sector deserves, particularly within sailing as a sport. Technical innovations and improved event organisation have pushed competitive sailing into a new era, led by a growing enthusiasm for multihull racing.
The 35th America’s Cup to be held in 2017 will build on the success of the foiling AC72 catamarans that in 2013 delivered one of the tightest match series in the history of the competition. Multihull competition has come of age and research into “flying” yacht systems has been stepped up, after Australian Paul Larsen smashed the sailing speed world record at the end of 2012 with a run averaging 65.45 knots over 500m.
The Larsen team is now working on an ocean-going sailing vessel that, Mr Larsen says, will be capable of outpacing the fastest motor-powered boats.
A few wealthy yacht buyers have begun to show interest in catamarans that offer both speed and comfort. “I’m just back from delivering a catamaran where we were sailing across Biscay at 29 knots with no trouble at all. It was calm below,” says Mr Larsen.
The yacht was the 24m performance catamaran, Allegra, designed by Nigel Irens and built by Green Marine in the UK.
For now, ocean racing is still dominated by single-hulled yachts. Next month, seven yachts will be lining up off Alicante for the Volvo Ocean Race, calling at 11 ports and covering 38,739 nautical miles.
If competitions such as the Volvo and Vendée Globe are at the vanguard of sailing as a sport, the structure of yachting is supported by thousands of events and suppliers catering for all ages and tastes.
For traditionalists, events such as the Panerai Classic series attract new and old designs. The UK Panerai event includes a class for modern classics such as Spirit Yachts made in the UK. Spirit has broken into the superyacht market with the 31m Gaia. The company now has plans for a 40m yacht and wants to build a wooden yacht for J-Class competition.
While big sailing yachts tend to attract experienced owners, many brokers advise chartering as a first step to ownership. “It makes sense to try before you buy,” says Chris Cecil-Wright who runs a boutique yacht brokerage.
Expanding the superyacht-owning market is proving the greatest challenge. In the past few years, the top of the market has profited from strong interest among wealthy Russians and Arabs, but the Ukraine crisis has led to nervousness among the Russian business elite and some have postponed purchases.
Beyond Russia, the market is struggling to identify the next growth area. In the meantime, builders are relying on mature markets. Sunseeker says its strongest sales stream has been in the US.
“We have seen record sales in 2013-14, driven by the returning North American buyers, but also from Mexico and Brazil,” says Sean Robertson, sales director of Sunseeker International.
Kurt Fraser, sales and marketing director of Camper & Nicholsons Marina Investments, points to a need for better yachting infrastructure, including high quality marinas. His company has launched the 1782 Club to brand marinas in the same way some hotel groups aim to impose a standard quality in worldwide chains.
Individual jurisdictions also need to streamline their chartering and tax arrangements if they are to enjoy a slice of the superyacht market.
Spain has revised tax arrangements that deterred big boat chartering, but the move has yet to have a significant impact on the Spanish charter market.
“In yacht sales, those that are sensibly priced are selling,” says Charlie Birkett, cofounder of Y.CO, yacht brokers. “Brokerage margins have been hit too. The whole market has had to face up to a new sense of realism.”
