Saturday, 1st March 2014
It would be easy to assume the yachting industry has been immune to the effects of the global financial crisis. Given the sheer wealth of those involved in the purchase of yachts - some of which have a starting price in the tens of millions - you would be forgiven for thinking the industry was safe.
However, the recession hit the yachting industry hard, and for several years it was in a state of flux. “In 2009, the market just went completely dead,” explains Laurent Perignon, chief operating officer of Sackville Street-based luxury yacht broking firm Camper & Nicholsons. “The market was down perhaps 50 per cent in terms of value following the recession. Very suddenly there was an influx of yachts which were being put up for sale in the market.”
There was a significant decline in yacht orders and, as a result, the price of yachts fell significantly. New yacht construction business alone fell a staggering €1.45 billion to €4 billion in 2009. Individual broking houses based in Mayfair also saw losses. For example, Grosvenor Street based broking firm Sunseeker posted a loss of £4.6 million in 2011.
Rory Trahair, a broker for another yacht seller, Edmiston in St James’s Street, explains it was not just a question of clients struggling to finance the purchase of a new yacht - although in isolated incidents some clients were losing hundreds of millions of pounds during the depths of the crisis.
“A lot of our clients are business owners, and if their business was struggling, or not performing as well as it should have been, for them to be flaunting their wealth with a large, luxury yacht was not an image they wanted to portray,” he says. “In fact, when the recession hit, the yacht was the first thing to go.”
Thankfully for those involved in the industry, the dark days could be behind them - it seems that, for some, yachting is back on the agenda. According to the Superyacht UK Survey, the value of the superyacht industry alone grew in 2012-2013 to £460 million, compared to just over C440 million in 2011-2012. In addition, the number of yachts sold overall increased in 2012-2013, as did the number of new owners entering the sector. Broking houses also started to recoup losses; Sunseeker last year posted a pre-tax profit of £20.7 million.
So could 2014 be the start of a turnaround in the yacht market? “The market has operated on a bit of a time lag of the general economy,” explains Tom Chant, international development manager at the British Marine Federation, the trade body for the UK yacht industry. “Initially, after the recession started, the industry was still pretty strong, on the basis that when a buyer orders a yacht it sometimes takes up to five years for it to be designed, built and delivered. Some owners did not pull the plug, and took delivery of their boats.” Indeed, Edmiston sold 32 yachts in 2010, during the depths of the recession.
Much like owning a property in Mayfair, owning a yacht is seen by some as the key indicator of wealth - reserved for the world’s richest. Buyers are more often than not multimillionaires or billionaires, and this clientele bracket is only becoming larger, richer and more exuberant in their purchases.
“When I joined the yacht broking industry in 1993, a really big boat was around 50 metres, costing - roughly - around US$20 million,” says Chris Cecil-Wright, who left Edmiston to form his own boutique business, Cecil Wright, last year. “Today, a large boat is classed as over 100 metres and can easily set buyers back €300 million.”
Cecil-Wright’s new business, based in St James’s Street, is a boutique targeting the upper tier of the market in terms of boat size and value. When describing the buyers he deals with, he explains that by default they are usually well known in their line of business but want to remain discreet in their purchases. After all, they are buying assets worth tens of millions of pounds.
Prices for yachts vary hugely. In Mayfair, €10 million is more than enough to buy a three or four-bedroom flat. However, in the yacht broking world, €1O million is perceived to be the “lower end” of the market - though second-hand yachts can be bought for much cheaper than this.
Trahair says the average price of yacht Edmiston sold in 2013 was €20 million, for boats measuring between 45 and 55 metres. Anything above this size would be a design-and-build, where costs can spiral upwards of €80 million.
Buyers in the market are also becoming ever more adventurous with their demands. Perignon says there is no shortage of electronics or gimmicks on board yachts today, and shipmakers such as Pendennis are able to supply clients with virtually any features they want.
Cecil-Wright is currently selling Pegasus V, a 78-metre yacht with six cabins and 26 crew. Onboard amenities include a helicopter landing pad, swimming pool, movie theatre and dance floor, as well as a massage room, deck Jacuzzi and a gym. The cost? A mere US$88.5 million.
Yacht builder Heesen says a new trend emerging over the past five years has been to open the boat to the environment that surrounds her: fold-out balconies and double-sided swimming platforms, for example, are a must nowadays, as they connect the guests with the sea.
Of course, the price of the yacht is one thing, but the cost of running it is another. With a crew to provide for, not to mention fuel and porting costs, it is suggested many yachts will cost ten per cent of their purchase price to run each year.
Such costs have not deterred buyers from wanting to buy a yacht in 2014. In fact, Camper & Nicholsons’ Perignon explains buyers have “evolved” over the past 15 years, with an influx of millionaires from Russia and Eastern Europe in particular. Often they are entrepreneurs, having made their fortunes from businesses that they may have sold or still run.
Edmiston’s Trahair says the uptick in the market more recently has seen buyers from a wider range of nationalities. Whilst buyers from central Europe and North America have noticeably declined in recent years, in line with the regions’ economic performance, there are new wealth hubs being created elsewhere.
“Nationality and location have become separated, so a lot of Russian clients are actually today living in or are based in Monaco or London,” he says. “But there are new nationalities entering the fray too - we sold a yacht to a Mexican national last year, though the South American market for yachts is not a core market as yet. We are taking our yachts to the Dubai yacht show too, because there is more interest from that part of the world today.”
Many luxury industries - including the yacht industry - have earmarked a future boom in sales based on the development of the Far Eastern markets. This has not yet materialised, however, with Perignon stating it is a region not yet attracted to the yachting lifestyle.
Until it is, perspective buyers still have the option to charter a yacht - something that has remained popular during the recession, due to the cheaper cost.
Edmiston’s Trahair says chartering prices typically range from around €35,000 a week for a 30-metre yacht to in excess of €1 million a week for any1hing above 85 metres.
Such is the calibre of the group’s clients that 95 per cent of their yachts are chartered for family holidays, by celebrities, or by a client who has not yet “got around to buying his own”, he says. More often than not, the client will later buy their own yacht.
At the other end of the spectrum is hospitality chartering, which has been an area of the market under huge pressure in recent years.
Mike Slade, chief executive of Farm Street-based developer Helical Bar, who owns a 1OOft yacht called Leopard, says whilst chartering a boat in the Caribbean for US$70,000 a week was the “name of the game” pre recession, today the harbour is often full of unwanted boats. In many cases, owners will have to provide discounts on hospitality terms to provide value.
Slade focuses on providing hospitality charters as well as race and regatta charters too. Currently, Leopard is in the throes of being prepared for a race regatta in St Martin’s this month.
But prices overall - be it for buying a yacht or chartering - remain under pressure in 2014, and Perignon says there has not been a wholesale recovery of the industry - yet.
“We have reached a position where we can confidently say the market has bottomed out and we can see, from the volume of activity in 2013, there has been an increase on 2012 of around 20 per cent in both volume and value. But prices are still under huge pressure.”
He is adamant, however, that despite the slow recovery, the number of buyers wanting a slice of the luxury yachting lifestyle is only going to grow in 2014.Download Article