Emerging attractiveness of the marina sector for investors

In this article, we highlight the key facts that are increasingly encouraging investors to enter the marina sector. In addition, the article describes the main strategic aspects driving the success of marina’s business worldwide.

Even though marinas are infrastructure investments, they are seen by investors as a “real estate” asset. This perception is driven by their high recurrent margins, with relatively low Capex requirements, especially when compared to other port infrastructure. The previous is mainly derived from long standing lease contracts with upfront payments.

In this context, marinas are becoming increasingly attractive for investment funds and banking, private equities, etc. At the same time, the current high fragmentation of the market is encouraging a consolidation process that implies attractive investment opportunities.


Why are investors increasing their interest in marinas?

Investors are increasing their interest in marinas, which are seen as real estate assets that provide interesting risk-reward ratios, for the following reasons:

Low entry barriers: The marina sector is a highly fragmented and mature market, in local and national operators’ hands due to historical regulations (over 700 marinas in the Mediterranean Sea, accounting for 20% of the world total). In this context, a consolidation process has begun, providing great opportunities for investors to enter this market in a competitive manner and to increase their presence in a relatively rapid manner.

Long-term lease contracts with customers: A significant part of the berth plan is usually allocated by operators to long-term lease/ concession contracts. The rationale of this approach is to benefit from a stable long-term revenue stream with significant upfront payments to reduce financial exposure. The percentage of the total berths used for long-term leases vs rental agreements varies according to the business strategy of each marina.

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Benchmarking of leasing vs rental berth structure. Source ALG project

Demand stability on a yearly basis: Even if marinas may have high intra-annual demand volatility depending on the type of marina and its seasonality (ie many marinas have peaks during spring-summer period), they also benefit from a stable demand on a year-on-year basis. This is due to the fact that customers have high loyalty rates, where leakage to other competitors are not common.

Ancillary services: In addition to the core revenue stream of the marinas (such as mooring and dry docks services), additional incomes related to ancillary services increase the attractiveness of the business itself. Ancillary services are usually represented by: retail services (i.e. restaurants, cafés, shops etc.), parking facilities, yacht clubs etc. These services are commonly outsourced to third parties in order to keep the cost structure as flexible as possible.

Relatively low CAPEX: The investment needs of marinas are low compared to other port infrastructure businesses (i.e. commercial terminals), due to their lower infrastructure requirements, in term of berths, breakwaters, etc., and lower equipment needs (i.e. cranes, etc.). On top of that, it must be pointed out that part of the marina investment needs are commonly financed through upfront payments of customers’ long-term lease contracts.

High recurrent margins: The marina business is characterised by high profitability compared to other maritime businesses. In fact, marina EBITDA margins range between 30%-50% depending on the marina strategy and offering: berth distribution plan by LOA, pricing and tariffs, additional value added services, etc.

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Examples of EBITDA margins of different marinas (Illustrative). Source: ALG project

 

What are the key strategic drivers of a successful marina?

Investors have to clearly define a marina’s business strategy and competitive positioning in order to build a solid and successful business. To do so, several key strategic aspects need to be analysed in depth:

Target customers and value proposition

Marina customers can be classified into two main groups:

  • Private owners are the boat owners and hence the final customers of the marina. They usually look for safe and reliable marinas with high value-added services aligned with competitive tariffs.
  • On the other hand, charter companies are mainly focused on marinas to which their customers can have easy access (i.e. close to airports) and with low tariffs. Value-added services instead are a less important component in their selection process.
  • Within the industry, the latest trend includes a move towards a value-added model in order to increase revenues and profitability while strengthening the loyalty of the customers.
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Value proposition of a marina

Yacht size and berth plan distribution

The berth plan entails a trade-off decision between number of berths and the size of berths within the concession area. This ends establishing the target customers and consequently the marina’s competitive positioning and business strategy.

An approach based on a large number of small berths will drive a marina aimed at small-sized boats, where fewer value added services are generally required as customers focus on accessibility and convenience. Meanwhile, mega yacht marinas are oriented towards fewer but larger berths, with significant value-added services as customers look for luxurious services and exclusivity.

Berth occupancy

Berth occupancy levels of marinas also depend on several factors such as the type of customers, yachts, seasonality, etc. Usually marinas can be characterized by:

  • Annual/long-term occupancy marina that have customers using the marina as their homeport all year round.
  • Transient/mid-term occupancy marina that have customers that use their facilities for a specific period of time.

Seasonality

Marinas can also be classified into three different types based on their seassonality and related services offer:

  • Summer marinas are closely related to areas of heavy tourism, with high peaks of demand during the spring-summer time; low tariffs are offered in low season to attract demand.
  • Winter marinas mainly provide facilities for yacht wintering such as dry docks and maintenance services, and do not experience significant peaks of demand nor of tariffs.
  • All-year-round marinas are used during the whole year, experiencing high demand peaks like summer marinas.

Pricing strategy

Pricing usually depends on multiple factors, such as: contract duration (long-term leasing, annual or seasonal, and transient), either boat or berth dimensions (even surface of water offered), seasonality of the marina, etc. Discount policies are usually applied to long term/ annual lease contracts, while higher prices are usually applied to transient visitors.

Conclusions

Marinas offer interesting opportunities for investors interested in getting attractive returns with limited investment exposure. Nevertheless, the marina sector is characterized by complex dynamics, sometimes local (small, all-year-round and long-term occupancy marinas), sometimes competing with marinas very far away (specially for winter marinas or marinas focus on mega-yacht segment). A detailed comprehensive strategic analysis of the asset, entailing the assessment of several aspects driving the business, is the key step to ensure a successful investment. Specially to understand demand driver, defining the appropriate value proposition in order to maximize profits and returns.

About ALG activities in the marinas sector

ALG has acquired a solid and vast experience in the marina sector by supporting major private equities, investment funds, asset management firms, marina operators, port authorities and government organisations with a full suite of customized services able to tackle clients’ specific needs. ALG’s services include technical & commercial due diligence, market assessments, traffic forecast, benchmarking analysis, support in tender processes, quality assurance plans, etc.

For more information about this article or if you want to get a better understanding of ALG’s services in the marinas sector, feel free to reach us at the contact emails below.


About the authors
Pablo Ruiz del Real is MSc in Civil Engineering, Partner at ALG and Head of Middle East operations
Ibai Erdozain is Senior Manager at ALG
For more insights, please check www.alg-global.com or contact:
pruiz@alg-global.com
ierdozain@alg-global.com