New Yards Set Their Sights On Booming Market
Speculation that the superyacht market is leveling off may be just that — speculation.
A recent survey produced by UK-based First Marine International Ltd. on behalf of the Society of Maritime Industries (SMI) suggests that the long-term outlook for the market is extremely promising.
The study also concluded that the recent lull in orders for top-of-the-range craft is, in fact, just a lull and nothing more.
Commissioned by the SMI to provide British firms with market intelligence to support an expansion of their sales in the superyacht sector, the report evaluated the health of the worldwide superyacht business. It highlighted the dramatic increase in the volume of superyacht work won by European yards and the relative lackluster performance of U.S. yachtbuilders.
The recent surge in demand has resulted in the market becoming more competitive, with more than 150 yards actively building superyachts.
European yards now hold approximately 65 percent of the worldwide market. However, over the past four years, noted First Marine, the 40-percent market share previously held by U.S. yards has slumped to just 22 percent, though the actual number of vessels on order in the United States has remained stable.
The worldwide fleet of superyachts has reached approximately 1,600 vessels, a 90-percent increase over a 10-year period. The output of yards that are involved with the design and construction of superyachts has leaped by some 40 percent in the same period, according to Damien Bloor, one of the authors of the Superyacht Marine Equipment Study.
“In general, the market has shown a strong upward trend, growing in particular from the second half of the 1980s onwards,” noted First Marine in its report.
In broad terms, the volume of deliveries into the super-yacht fleet has approximately doubled every 10 years over the past 30 years.
Market Lags Economic Trends
Underlying this strong upward trend, the superyacht market has shown a cyclical tendency, with peaks being followed by troughs before the market picks up again.
The underlying reasons for this cyclical behavior are factors such as the state of the equity markets, economic developments, consumer confidence and fashion, among others, according to the report.
“In particular, it appears that the market has been subject to periodic re-adjustment with output declining following strong peaks,” said First Marine.
While it has often been assumed that the yacht market does not follow economic trends, and indeed often appears to behave counter to prevailing trends, First Marine’s analysis suggests that the market does follow trends but with a lag of about two years.
“This means that the peak in demand at the present time really reflects economic conditions two years ago, including very high stock values,” Bloor explained during a press conference at the Southampton Boat Show in the United Kingdom in the fall.
“A reaction to the current negative economic conditions, with falling stock values, economic recession and considerable uncertainty, could be reflected in a downturn in output in about two years’ time,” he said.
Current Order Book Appears Strong
First Marine noted that the level of deliveries from the current orderbook is particularly strong, with 309 yachts of more than 30 meters (98 feet) due this year and 102 more in 2003.
“However,” Bloor explained, “as a result of schedule changes, it is likely that the deliveries of these yachts will be spread over the next few years, and the important question is whether this increase is a sustainable increase in demand, or whether this is a cyclical peak that will be accompanied in the short term by a re-adjustment.”
Bloor said a number of other factors also have to be considered. While the number of wealthy consumers appears to inevitably increase over time, the level of wealth fluctuates with capital markets. For example, re-adjustments in stock values saw the number of billionaires listed by Forbes fall from 538 in 2001 to 497 in the latest Forbes’ survey.
In the short term, such fluctuations are likely to have a knock-on effect in the market, but greater fluctuations may be triggered by economic shocks, such as the Gulf War, or the after-effects of the September 11, 2001 terrorist attacks.
First Marine used Organization for Economic Cooperation and Development (OECD) statistics to help examine the effects of economic developments on the market, highlighting recent OECD statements that increased uncertainty about the economic climate could lead to a “wait and see” attitude among consumers and investors.
Taking all of these factors into consideration, First Marine predicts that although there may be a temporary downturn in the market, it will resume its former levels of growth, and it is likely that any downturn in growth rates will be short lived.
“Based on OECD’s predictions, the recovery will be seen sooner, rather than later,” said First Marine in its report. “Given the underlying growth factors, related to increasing wealth and relatively low prices, sustained growth over the longer term should be expected.”
Pattern of growth expected to continue
If indeed the perceived slowdown in demand for larger recreational craft is simply a lull, yacht builders should expect an increase in business when demand picks up.
“Our forecast concludes that, in general, the coming decade will see a substantial increase in orders for yachts of 30 meters and above, repeating the pattern of growth seen over previous decades,” Bloor explained, noting that First Marine expects that there will be a small downturn in the market in 2004, based on current ordering patterns and prevailing poor economic conditions.
In the period 2007 to 2011, First Marine anticipates an average of 124 boats to be delivered per annum, although this should only be regarded as an indication of the potential market direction, said Bloor, rather than an accurate annual forecast of output.
One trend that has become evident in the last few years is for owners to build ‘exploration’ yachts and yachts with trans-Pacific range. That trend is likely to continue, noted First Marine, as marinas in the Mediterranean become more and more congested and over-priced, and owners become increasingly adventurous.
Another key trend identified by First Marine is that although there has been growth in all vessel sizes, there has been particularly strong growth in the 24-meter to 35-meter (74-foot to 115-foot) size bands. A large percentage of these boats are semi-custom craft, and in the coming years, many owners of such craft are likely to move up and become potential clients for larger boats as their assets increase in value.
As has traditionally been the case, the sailboat sector is not expanding as rapidly as the motoryacht sector.
Are U.S. Superyacht Enthusiasts Looking Overseas?
Only four major sailing yachts are under construction in the U.S. at present, as more and more U.S. boat owners are choosing non-U.S. yards for their projects, reported First Marine International in the results of its recent survey.
Ironically, there are no power or sailing yachts in excess of 50 meters (164 feet) currently being built in the United States, but a large percentage of yachts of this size that are in build elsewhere are for U.S. clients.
“This is because U.S. owners believe that European builds provide a higher level of quality and engineering compared to a U.S.-built yacht and that it will have a higher status in the sector,” said First Marine International, noting that this phenomenon was “similar to their perception of European cars.”
That doesn’t mean that the superyacht crowd is losing interest in North America, however. At the Fort Lauderdale International Boat Show in October and November, there were 227 yachts in the 80-foot plus category, with 126 over 100 feet and 14 over 150 feet.
Among large North American vessels on display were the 156-foot Anson Bell from Wisconsin-based Palmer Johnson and the 145-foot Prima Dona from British Columbia-based Christensen.
In addition, Palmer Johnson announced it had a backlog of orders for power superyachts ranging from 96 to 151 feet in length.
“I’m proud to say that the earliest delivery date we can quote right now is early summer 2004,” said Phil Friedman, Palmer Johnson president and chief executive officer.
An official at Directors Shipyard confirmed that it had a yet-to-be-named 150-foot sailing yacht under construction at the company’s new Bridgeport, Connecticut, yard.
In Savannah, Georgia, Intermarine is wrapping up the construction of a 120-foot power yacht, and an official there said the company has three 123-foot yachts on spec right now. The same company launched a 145-foot vessel in 2001.
New additions to ranks of superyacht /b>
As the worldwide market for superyachts has grown, so have the number of yards involved in the market, with more players from outside the traditional boat building market diversifying into construction of superyachts.
Numerous shipyards in Europe have recently won superyacht work, which is expected to create additional competition for boatbuilders, not just in Europe, but elsewhere.
The yards that are best placed to diversify into the superyacht market are those that already build to very high specifications — for the military, for instance — or those that have always specialized in passenger vessels and see large leisure craft as a natural extension of this market.
Most team with established yacht brokers and designers to help them break into the market.
Van der Giessen-de Noord in the Netherlands is a typical example of a yard that has specialized in passenger ships until recently, but now sees the superyacht market as a niche in which it can specialize.
Van der Giessen-de Noord officials say the company aims to build superyachts and megayachts “in an industrial fashion,” and is targeting boats in excess of 260 feet in length.
It has teamed with a well-known yacht broker, as has Danyard Aalborg shipyard in Denmark. The second and third superyachts for which Danyard Aalborg has bid are due to be delivered by April 2003.
Another example of such a yard is Intermarine in Italy, now part of the Rodriquez group, which is best known as a constructor of naval craft, although it had won contracts to build a 45-meter (147-foot) superyacht and smaller boats for Wally Yachts prior to becoming part of the Rodriquez Group.