The building of a bubble?
How sustainable is the purple patch being experienced by the new build and brokerage sectors likely to be?
Following on from the various reports that highlight a booming brokerage sector in 2020 and 2021, we consider whether or not the sheer number of sales that have occurred signal the building of a bubble, as well as chronicle the market conditions that led to this purple patch for new build and brokerage activity.
“Much like the charter market, the brokerage market started with mass hysteria and the beginning of the pandemic. Some owners were massively impacted and quickly decided that they wanted to get rid of the large financial noose around their neck (the superyacht),” starts Geoff Moore, managing director of West Nautical. “There were a lot of owners selling and it became a buyer’s market.”
Towards the beginning of the pandemic buyer’s took their opportunity to put in low offers, many of which were accepted. There was a raft of sales early as opportunists looked to buy and certain sellers looked to dramatically reduce their monthly outgoings by getting rid of an asset that was likely to costs 10s of, if not 100s, of thousands of pounds a month.
“However, the market slowly changed. During the summer, people realised that yachts could become an extension of their bubble,” continues Moore. “New build sales went through the roof. Every shipyard manufacturing sub-30m projects, whether it was sailing yachts or motoryachts, became absolutely rammed with orders. However, there were also significant delays. Shipyards were delayed because of lockdown and social distancing measures and this has become exaggerated with all the new orders. What might have taken 12 months to build is now likely to take 18 months or two years, perhaps even longer.”
Moore explains that, towards the tail end of 2020, a number of charter clients, especially those that had been chartering large superyachts, started to buy. If they chartered large then they bought slightly smaller. Interestingly, however, there have also been a number of new entrants to the superyacht market. By August and September, when the financial impact of the pandemic became clearer, those that had been able to weather the pandemic, or indeed profit from it, became more confident in their determination to purchase superyachts.
“By this point, the brokerage sector had become a seller’s market,” explains Moore. “The flat sale boats had gone and everything that needed to go quickly or that had an attractive reduction had also gone.”
With the best deals gone and capacity within the market across a variety of size ranges dramatically reduced, seller’s quickly grew wise to the shift in power, especially as many of these sellers had not been as dramatically impacted by the pandemic financially as they initially predicted.
“Vessels that had not necessarily been the top of anyone’s lists started to look appealing. We are seeing yachts that have been on the market for a long time having offers put in on them because the new entrants to the market are less knowledgeable than those savvy buyers that made offers at the beginning of the pandemic,” comments Moore. “They love the idea of yachting, they have the money, but there are question marks over the extent to which some buyers understand the true cost of ownership.”
It could be argued that the unique environment created by the pandemic, which has seen a heady mixture of wealthy individuals growing in terms of their financial profile and being locked down, has lead to a number of knee-jerk superyacht purchases.
“I would agree that there has been some knee-jerk buying,” says Moore. “People have got the money but don’t necessarily understand exactly what it is they are buying in terms of the running costs. We’ve sold a number of boats through new brokers who just have rich clients but haven’t demonstrated an in-depth knowledge of the industry,” continues Moore. “Does the end buyer know this or not, who knows? But, they’ll soon find out when the invoices start coming in.”
The major concern associated with sales that have not been underpinned by a deep understanding of the market on the part of the buyer’s team is that they may find themselves with projects that are deemed to be too complex, in terms of their need for refit and maintenance, or they may simply buy too large without realising the associated operational costs. Equally, it may be the complexity of the overall experience has been misrepresented. In these instances, the boats will quickly end up back on the market and the industry at large will have lost an engaged client.
“There will always be buyers that think they can reinvent the wheel, and generally these are the owners that struggle with yacht ownership,” explains Moore. “In the buoyant charter market that we are experiencing now, a number of new buyers are doing well. But, we probably have another six months before it tapers off and that will have a huge knock-on effect over the next two or three. The shipyards are full and many of those who want a yacht have already bought one, so both new build and brokerage will most likely drop off quite dramatically. Then there will be the issue that people who bought them and can’t afford them or can’t find the time to use them when the world returns to normal will put them back on the market.
“That being said, no one I know in the industry has ever known such a buoyant time as right now, especially where it comes to new owners.”
With the market buoyant at this time in terms of both shipyards being full with new orders and limited capacity in the brokerage sector, this period has all the hall marks of a growing superyacht sales bubble. With limited capacity and high demand may we reach a point where buyers who can’t necessarily afford to take delivery of projects are looking to commission builds and flip the projects before their conclusion or upon delivery, has this point already been reached and how long can this high-demand market sustain itself?
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