2011 Superyacht Market Report

2011 in numbers

108		231		221		471		650		264
New orders		Launches		Deliveries		New for sale		Price updates		Yachts sold

In 2011, clients tentatively reacquainted themselves with the superyacht industry. A dearth of customers in the preceding three years had withered prices, left shipyards empty and flooded the marketplace with the yachts of nervous owners. The landscape that buyers have stepped back into has changed – and it offers them a much better footing.

We spoke to some of the world’s leading superyacht brokers about the year’s trends, to establish what happened in 2011 and what it means.

‘Whether or not it was a healthy market depends on where you’re sitting,’ says Jonathan Beckett, chief executive of Burgess. ‘If you’re a buyer I’d say it was a good market, if you’re a broker it was a good market. If you were a seller, it was a tough market. In some cases a very tough one.’

29% increase in superyacht sales year-on-year (264 in 2011 compared to 205 in 2010)

Price updates

We reported 650 price updates in 2011, compared to 441 in 2010 and 231 in 2009. Last year’s reductions ranged from 1 per cent to a massive 80 per cent in one case, the average being 13 per cent. Fifty yachts had reductions of 25 per cent or more. Prices have been slashed in all size brackets and many owners have found them difficult to accept.

The hesitation is understandable. For an owner who bought their yacht in the inflated market that preceded the global financial crisis, pricing it for the current one is an unattractive prospect.

80% the largest price reduction we recorded in 2011 (the average was 13%)

‘If you bought your boat at the right price originally, as opposed to an inflated price, you should be able to get that money back or at least within 10 per cent,’ says Beckett. ‘The problem is between 2003 and 2008 people thought you’d build a new top quality yacht for say €30 million and in three years time you’d sell it for €38 million. The reality is it’s now worth €28m.’

The good news for the market in general – although scant comfort for sellers – is that brokers seems to agree that in general values have fallen back to earth, rather than through the floor. ‘Prices dropped 30-40 per cent in 2009 and two years later the prices are still at the same level,’ says Hein Velema, CEO of Fraser Yachts. ‘People see a constant stream of price reductions – but that doesn’t mean the prices are going down. What you see is a huge amount of boats for sale at prices that are far too high and it takes time for owners to accept a price level 30-40 per cent below what it was. Prices are low but stable.’

Yacht sizes

We reported eight yachts of more than 70 metres sold in 2011, seven in 2010 and six in 2009. Nicholas Edmiston, founder of Edmiston & Company, which focuses on the top end of the market, has found that even here prices diminished in 2011 – perhaps due to a dearth of desirable stock, rather than the factors that have affected lower echelons of the market.

‘There was a lack of very good quality, very big yachts for sale last year,’ he says. ‘In the very healthy market of 2008 there were some big transactions where people were benefiting from premium prices. Even among the top, top yachts there was an absence of premium prices in 2011.’

€2.6 billion total asking prices of yachts sold in 2011

Beckett, whose company also specialises in big superyachts, has had a similar experience in 2011, and believes it has encouraged new builds. ‘There have been a number of new construction projects at €100 million or more, and more than that – several hundred million – in the last three years.’

In the 60-70 metre range Boat International’s statistics show seven were sold in 2011, nine in 2010 and one in 2009. But in this bracket Beckett believes buyers are less likely to turn to yards.

‘It’s going to cost you €60-70 million to build a new 60 or 65 metre at a pedigree North European shipyard,’ says Beckett. ‘You can buy a three, four, five year old one for between 35 and 40 million, in good condition. It’s very hard to justify paying nearly twice as much to build a new one, which you’re not going to get for three or four years anyway.’

Existing yachts in the 30-40 metre bracket have been leaving the market faster than those in any other category. A hundred were sold in 2011, roughly 40 per cent of the total sales tally for the year.

More data and analysis of superyacht sales in 2011

And why did these boats sell so well? Kevin Merrigan, president of US brokerage house Northrop & Johnson, believes boats around the 36m mark have taken a big price hit because there’s such a glut of them on the market from sellers who are no longer comfortable with owning an asset of that value.

‘The owner whose net worth is $20 million and owns a $3 million boat doesn’t want that boat – he wants a $1 million boat,’ says Merrigan. ‘Unfortunately the boat he paid $3 million for is now worth $1.5 million or $2 million.’

As Claude Niek, managing director of CSO Yachts, noted in February’s Market Analysis, price drops mean those who enter the market intending to buy a 24m metre yacht, ‘are almost ready with the same amount of money to buy a 31/32 metre. The market has been translated from the 25/30 metre to the 30/40 metre.’

155 yachts between 24 and 30 metres came on the market in 2011 (80 were sold)

Where does that leave the 24-30 metre market? In terms of sheer sales numbers, it appears in a good state. In in 2011, 80 were sold, in 2010, 66, and 2009, 57. But there are a huge number of these boats for sale and consequently in terms of prices, ‘the 24m to 30m bracket has been the worst hit,’ says Nick Dean, managing partner at Ocean Independence.

Yacht types

Every broker we spoke to mentioned the glut of fast boats on the market in 2011, meaning that, as Edmiston puts it, ‘the ones that have sold have probably sold at half their asking prices.’

‘The Mangusta range – there are hundreds of them,’ says Nick Dean. ‘Very few banks are prepared to lend on this stuff anymore, whereas four or five years ago they were lending without checking the value or whether the boats even existed.’

‘And the people who were in that market are the ones who haven’t had bonuses for the last four years. Hedge funds seem to be doing quite well now, but can they be seen to be spending 3, 4 or €5 million whilst employment is so tough?’ he says.

Indeed, the absence of buyers combined with the number who bought prior to the financial crisis and now want to sell, created a turgid market. ‘There are problems in fast boats,’ says Velema. ‘A huge number of new fast boats were sold, often to newcomers to the market, and a lot wanted a new boat – they didn’t buy a secondhand Mercedes so they didn’t want a secondhand boat.

‘Now that part of demand has dropped, so there’s an oversupply for sale. Now people think much more about spending the right money but also they are more into comfort, long-term stability,’ he says.

Velema has noticed that 2011 buyers have been more interested in explorer yachts, which fit more with the current mood that eschews ostentatious wealth. ‘For some people it is because they want to go off the beaten path and explore,’ he says. ‘But it’s also very much an image thing – why do people buy a 4×4 car? Most don’t buy it because they want to go off-road.’

Seasonality

There has always been a seasonality to yacht sales, but 2011’s figures showed a May high significantly above the previous two years, and a December dip lower than the previous two years. Brokers felt the trends were in large part seasonal, but influenced by the mood of 2011.

‘It’s a logical thing to buy a yacht in spring, to have it ready for summer. That’s always been the case,’ says Velema. ‘The problem was you may not have been able to find a yacht to buy at that moment. Due to the amount of yachts for sale in 2011, people could choose the time that they bought them.’

Chart 1: yacht sales by quarter

Nick Dean’s experience shows that similarly, people are choosing not to take on yachts early and pay for winter upkeep. ‘With Christmas breaks we don’t expect clients to come back until later in January. But in January 2011 there was a deathly hush, and that seemed to be across the market. This year we have had good retail inquiries, people wondering if they’ll do something this summer, but they’re more comfortable. They know they can get a good deal when they want,’ he says.

New orders

Tracking new orders is notoriously difficult, but we recorded 108 for yachts of 24m and above in 2011, in comparison with 112 in 2010. The number of boats on the market in general is likely to have kept orders modest, and with small profit margins, yards can reduce prices much less than sellers of existing yachts.

‘The shipyards that have been successful are the ones that have already made an effort in cost reductions,’ says Velema. ‘Ones that build more in series, like Amels and Heesen, for example, but also Benetti. They were earlier able to drop their prices because they had better cost control.’

Smaller yards also appear to have been pushed out of the market during the economic gloom, leaving the playing field more level for established yards, viewed as financially stable or reliable. In the US, Kevin Merrigan has watched with sadness as the order books of historical yards lie empty, but in Europe yards such as Feadship, Amels, Lürssen and Royal Huisman appear relatively healthy.

53 yards received new orders for superyachts in 2011 (we recorded 108 new orders in total)

Edmiston believes the purging of smaller yards may have been good for them. ‘If someone wants to buy something that’s just been delivered and there’s nothing else on the market, they’ll be back to getting premium prices,’ he said.

More data and analysis of new superyacht orders in 2011

Emerging markets

The industry has been watching India, China and Brazil with expectancy in 2011.

‘China’s been a bit disappointing,’ says Neil Cheston, director of sales and charter at Y.CO. ‘We’ve all persuaded ourselves that yachting is about to explode in China, but people are questioning China’s officially released figures of economic growth.

‘Their economy is growing rapidly but stories about so many billionaires having been created overnight in Beijing? It sounds a bit far-fetched, but even if it were true it would be a long time before they get into Western style yachting on any large scale.’

India, Velema found, is ‘much more developed already in terms of larger yachts especially’, but there is a long way to go.

Most recently, Brazil’s surging economy has got brokers’ pulses racing, although current regulations are stifling trade. ‘There’s a huge import duty on foreign-built yachts,’ says Cheston. ‘So there is a growing industry for Brazilian-built and -assembled boats, which is why the likes of Ferretti and Azimut are already assembling yachts over there.’

Because of this duty, and since facilities for building and keeping large superyachts in Brazil are limited, some Brazilians buy and keep their yachts in France or Italy. Cheston believes the appetite for large superyachts within Brazil has not yet developed, whether through prohibitive tax or inclination.

‘If you go to Rio Yacht Club, or any of the other yacht clubs in Brazil, most of the yachts tied up are modest in size by European standards. There are billionaires in Rio, but their yachts tend to be much smaller, i.e. 12-24m, as opposed to the 70-100m we see over here. It’s partly because of import tax but also there is a cultural reluctance to display conspicuous wealth. Ostentation is not so cool in Brazil,’ he says.

The economic outlook

The ailing euro has some brokers worried, but Hein Velema is relaxed about the issue. ‘The euro is still historically very high, so for us it would help if the euro would go down.’

‘What’s strange is when the euro is high for a long time you would expect European buyers to be more interested in buying in the States, because the boats were more attractively priced, but it never happened. The other way around it works better.

‘In America, the boats for sale are very much for the American market. But it’s also perhaps because there are so many boats for sale here, why would you go to the US? Actually Russians would rather buy in the US than Europeans,’ he says.

Whatever side of the Atlantic and the economic outlook, some people will always be able to buy a superyacht – while many of the problems the market faces today are due to the fact that others over-leveraged and over-reached to do so. In this vein, Nicholas Edmiston offers some sage advice.

‘If you’re very rich, if you’re worth a few billion, frankly it doesn’t really matter to you if someone in Greece is paying their tax – that doesn’t have any direct effect on you. If you want to buy a yacht, if you can afford it you’re best to get on and do it. If you can’t afford it you shouldn’t even think about it,’ he says.