September 2011 Market Report

September 2011 in numbers

New Build

For the first time in two years, reports of new orders have outstripped reports of brokerage sales. Seventeen new orders were reported in September, compared with five in August (and 10 in September last year) – an annual high by some distance. Mike Kelsey, president of US builder Palmer Johnson, believes that part of the reason for the increase is the changing mindset of clients, who in recent years have been conscious of spending so much on a luxury item, when others have been suffering financially.

‘An intangible that never gets talked about enough is the psychology. It was all wrong in previous years. There were a lot of people that had the money to do it, they just didn’t want to do it. And I think we’re seeing a change now. There was a lot of really bad press that occurred towards a lot of luxury goods and we’re seeing now that people are starting to realise that there’s nothing wrong with aspiring to be very successful and have nice things,’ he says.

‘People only want to stay in the shadows for so long, they still want to go on and enjoy their lives. And I can tell you that being in the Mediterranean again this year, people will still stand in queue to watch a beautiful yacht come into a dock. They’re not standing there making faces at it, they’re admiring its beauty. You still see excitement in people’s faces. That’s still going on and I think that’s healthy for our industry,’ says Kelsey.

Indeed, his company Palmer Johnson have an 82-metre ice class PJ World under construction in Norway, while in the US it has two 63.47m PJ210 yachts, a 52.2-metre PJ170, and a 41.1-metre PJ135 sports yacht in build.

‘At the latest stage of construction is the fifth in our 135 series. That boat is past 90 per cent complete and with the activity we had out of Monaco I fully expect it to be sold shortly,’ says Kelsey.

The fifth PJ135 yacht is nearing completion at Palmer Johnson's yard in Wisconsin

Kevin Merrigan, president of US brokerage house Northrop and Johnson believes some very tangible factors may also be in play.

‘There are buyers out there now and if they’re not able to find exactly what they want in the used market place, they’re going to take a look at the new build prices and what the shipyards are offering,’ he says.

‘Labour rates are at a low, interest rates are low, the cost of materials is most likely going to go up – there’s probably never been a more opportune time than now to build. And shipyards are hungry for contracts, so they’re being as efficient as they can in their pricing.’

Click here for more details and analysis of orders for new superyachts in 2011

And what kind of people are making new orders? Toby Allies, sales and marketing director at UK superyacht yard Pendennis, has found that repeat work from satisfied customers, rather than orders from new clients, has characterised his recent new build and refit business.

‘From our point of view it’s the more experienced buyer that’s coming through, someone who’s owned a boat before that’s enquiring for a bespoke new build that they can tailor to their specific needs. So often new construction clients that are approaching us are existing, mature superyacht owners, rather than new entrants to the market,’ he says.

‘We’ve also had a high demand for refit slots. We were already at full capacity by the beginning of the 2011/12 winter refit season. The high level of refit facilities combined with the in-house skilled workforce has driven client retention as well as attracted new business.’

Sales

Although they don’t compare favourably with new build figures, sales of existing yachts have remained steady after the August drop, with 14 sold in September compared to 12 the previous month (a far cry from the May’s 35 and June’s 34). As discussed in the previous issue, this second quarter high and third quarter dip reflects a natural annual cycle – fewer people buy yachts as winter approaches.

Chart 1: Yacht sales by quarter

But Mike Kelsey points out that a more buoyant year could have lifted us above such cyclical trends. ‘If the market is crazy, as in 2006 for example, you’re not going to see wild spikes, there’ll be an evening out – because a rising tide lifts all boats,’ he says. ‘But overall, especially when there are fewer buyers, you’re going to see the trends work around the seasons when people normally buy yachts.’

Click here for more analysis of superyacht sales in 2011

But the statistics are still more promising than last year’s, with an overall tally of 212 sales compared with 146 by the same time last year. Just as Mike Kelsey suggests above, Kevin Merrigan believes the market is regaining its footing.

‘For us it’s been a very good and steady year. The sellers have also got much more rational and adjusted to the new economics, like real estate, like stocks, the selling of yachts has changed. And thank goodness we have buyers in the market that appreciate great value.’

The 50.3m Feadship Sweet Pea was one of three sales closed by Northrop & Johnson in September

‘I think it’s going to be a very exciting Fort Lauderdale boat show. There are some very motivated sellers out there, and I think that the buyers who come are going to be pleasantly surprised at the values offered,’ he says.

Indeed, the Fort Lauderdale International Boat Show is likely to be an important bellweather for the coming months. Toby Allies feels it will clarify positive signs from Monaco Yacht Show in September.

‘Fort Lauderdale usually is the weeding out the reality of some of the enquiries from Monaco. It’s a really nice opportunity to have some quiet time to follow up on the enquiries that came from Monaco. It is not such a short, intense period,’ says Allies.

‘We’ve seen very encouraging signs in the last three months. We had a lot more enquiries at Monaco than last year,’ he says.

Mike Kelsey also had positive experience at the Monte Carlo event: ‘Monaco looked better this year than it looked last year by far – there’s no question. We had more buyers in the stand than we probably had in two Monaco shows. Talking to a couple of the European yards that were next to us, they were experiencing the same. Obviously that doesn’t equate to immediate sales, but it certainly is a good sign because it means that the psychology is there to start buying again,’ he says.

Launches

The effects of these positive signs are yet to be felt in our launch figures. Six September launches were reported, a drop from 13 in August. Last year launches tapered from 12 in July and seven in August, to three in September 2010.

The highlight of September’s launches was the 96m Vava II from Devonport, which became part of Pendennis in February 2010 and has recently been rebranded as Pendennis Plus. Pendennis was also responsible for the launch of the world’s largest sailing catamaran, the 44.2m Hemisphere, launched in July. Toby Allies says the Devonport acquisition has improved their large yacht capability by extending the in-house expertise beyond the 60m range, with several new build and refit enquiries in this arena.

‘We had a choice of having two brands trying to communicate similar messages, in terms of having a UK facility and a UK offering, which was proving confusing to the marketplace and our clients, so we decided to integrate Devonport into the Pendennis family, with Pendennis Plus focussing on the larger side of the business,’ he says.

‘We have one large refit project, Dona Amélia in the outer dock at the moment and another 62m is arriving within the next couple of weeks, alongside numerous enquiries in the new construction side,’ says Allies.

And as September’s bumper crop of new orders begin their journey to completion, superyacht yards are likely to be bustling for some time to come.