Stagflation threatens brokerage market
Spitfire is for sale with Christie Yachts and Denison.
Cutting through the geopolitical noise and trade tantrums, there could be a more latent threat lapping at the superyacht sales market.
The spectre of stagflation – the combined effects of inflation and stagnation – in the brokerage space is a distinct possibility, according to Will Christie, founder, Christie Yachts.
“The issue is there are not a huge amount of attractively priced yachts for sale on the second-hand market today,” says Christie. “And there is a disparity between what buyers are willing to pay and what sellers want to achieve, caused by the massive increase in new construction prices.”
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While deals always come down to negotiations over price, Christie cites the fictional example of an owner looking to upgrade from a 55m built for €40m five years ago to a new 65m boat from the same shipyard which is now quoting €125m.
“The owner knows the replacement cost has gone up a huge amount so wants a premium for their existing yacht or they will just not sell,” says Christie, who has the joint central agency for the 51m Ares Yachts Spitfire new-build project with Alex G. Clarke of Denison Yachting.
“To be fair to shipyards, it’s out of their control because of inflation and rising costs, especially labour, considering 60-70% of a custom superyacht construction is labour cost.”
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‘Confusion in the market’
In the past, he says, the process was “very orderly” with prices at shipyards rising steadily by about 4% and yachts depreciating by about 4-5% a year. Boats from reputable yards even held their value quite well in the first few years because people were willing to pay a premium for immediate delivery instead of waiting three of four years, he adds.
“But when new construction prices go up by 50% in the space of three years, that creates confusion in the market,” he says. “It becomes harder to do deals, because expectations of both parties are quite a long way apart. Buyers haven’t acknowledged that second-hand values are holding a bit firmer, and owners sometimes think they should receive a lot more for their boat than they originally paid.
“Rich people don’t like making other rich people even richer; they are allergic to that idea. As brokers, trying to bring those two parties together is more challenging and could mean fewer boats coming onto the market. That could slow down sales activity in the short term while everyone gets used to the new reality.”
He says that recalibrating expectations happens at a “glacial” pace in yachting, adding that anyone waiting for new construction prices to eventually come down is missing the point as the labour inflation is now “built in”.
“Our industry has always taken a long time for that equilibrium to come about because there is simply not the volume compared with other asset classes. But there are still good value options to be found if you know where to look. Only last week we completed the sale of a yacht, totally off-market. It was a good deal for both parties,” he says.
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‘Brokers are greedy’
From his US perspective, Clarke is buoyed by the buzz around the market in the wake of the election, notwithstanding the latest presidential proclamations.
“This year in general we’ve already seen a huge uptick and substantial activity,” says Clarke, who started the superyacht division of Denison Yachting with founder Bob Denison about 15 years ago.
“The phone is ringing more, some clients have shortened their timeline to making a decision in purchasing, no longer waiting for the election. A lot of wealthy Americans wanted this outcome.”
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Clarke also combined with the London-based Christie as the joint central agents for the sale of the 26m Nordhavn explorer yacht Solace late last year.
“I’ve got a good rapport with a good number of brokers, and I’ve partnered up with people who are like-minded, people I trust,” says Clarke, who also did a 52m Baglietto with Jim Evans of SuperYachtsMonaco last year.
“Each of us represents a different dynamic or demographic of buyer so we complement one another. It gives the client confidence.”
Clarke admits joint central agencies might not be for all − “brokers are greedy, right?” he laughs − but says he is a big believer in selling a yacht quickly to achieve the best price.
“If that means involving another broker at another firm who is maybe in a different part of the world, then absolutely that’s the best way to help your client with their best interests in mind,” he says.
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