As the world’s population increases and baby boomers retire, boat ownership is rapidly increasing and available options for parking boats are decreasing. In fact, “one out of every three Americans takes part in some form of boating each year,” according to the Insurance Journal.
Boat slips in general are seeing rising demand, but slips for large boats are in especially high demand. Limited supply and increasing demand across the globe make boat slips an intriguing opportunity for investors.
Slip types and ownership
There are two main types of boat slips. A dry slip, when the boat is stored in a rack in a building on land, is often called a rackominium. Rackominiums are similar to RV storage: they allow owners to park their vehicle someplace other than their own driveway when it’s not in use. This frees up space and prevents the idle vehicle from becoming an eyesore.
Rackominiums outnumber dockominiums and can store more boats, Brian Jackson-Pownall, an owner of Florida-based Victoria Investments, Inc., said.
Rackominiums are “like a hotel for your boat,” Joy Koch McPeters, president and CEO of Baltimore-based Marinalife, a travel service for boaters, said. “You don’t have weather issues…you’re much more protected.”
A wet slip, when the boat is parked dockside in the water, is commonly called a dockominium. Dockominiums can range from concrete docks to marinas or clubs with extensive amenities, such as restaurants, golf courses and swimming pools.
“There are some marinas that will just offer the slip,” Koch McPeters said, “but more what we’re seeing is a trend toward offering…perks that people are looking for.”
Because rackominiums can typically store boats of up to 45 or 50 feet, larger boats usually must be stored in dockominiums.
Fee simple ownership is ideal for an investor, Jackson-Pownall said. “You own the land on which the water is sitting and you have the ability to rent it out to whomever you wish.”
However, “Bottom land, even if it’s just mud, tends to have lease ownership. At that time, you’re not getting a fee simple situation,” Jackson-Pownall said. “It’ll be for a determined period of time.”
Long-term lease programs, rather than fee simple ownership, are the norm in the Caribbean and in Europe, Ginger Hornaday, broker and owner of Florida-based AquaMarine Realty, said.
Because fee simple dockominiums are hard to come by, “those of course are, I would think, the most valuable,” Hornaday said.
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A slip’s type, location, size, available amenities, fees and a variety of other factors comprise its value. Investing in boat slips requires “a lot of investigation,” Hornaday said. “You really have to do a market analysis of the area.” What’s available and desirable varies from area to area.
Research of the individual slip is also important. Slips vary in the protection they offer from inclement weather. The most important things to keep in mind when researching boat slips are “the location of the slip and the size,” Koch McPeters said.
“Price is often no longer the deciding factor for people” looking to buy or rent a boat slip, Jackson-Pownall said. Instead, boat owners are concerned with the location, in terms of both climate and protection, and available amenities. “Convenience, necessity drives the market.”
It can be a bit harder to finance a boat slip purchase than a typical real estate purchase because not all banks are familiar with the concept, Hornaday said; 90 percent of the boat slip owners she has worked with purchased their boat slip with cash, largely because they intend to use it as a rental property, she said.
Supply and demand
Both the general population and the boating population are increasing. “There are now an incredible number of people in the world, in the last 10 or 15 years, who can afford boats and a vastly restricted amount of real estate where those boats can be kept,” Jackson-Pownall said. “We’re looking at now a very tight market.”
In many areas, there simply isn’t enough waterfront property. “The desire for boat ownership is expanding exponentially…over and above the available landspace,” Jackson-Pownall said. “We’ve seen a huge increase in demand” but “no real increase in supply.”
Florida alone is “losing 2,500 slips per year” because of waterfront development, Steeven Knight, CEO of Yacht Clubs of the Americas said in a statement.
“If you own a boat [in Florida], you’re not guaranteed you’re going to have a place to put that boat,” Koch McPeters said.
Another factor causing supply to dwindle is conversion of marinas into real estate developments. Marinas are “going out of existence at about 6 percent per year” because land values for real estate development are increasing, Jackson-Pownall said. Fewer marinas combined with more boats means that demand for boat slips will only increase in coming years.
“I see the demand being constrained by physical limitations, and therefore prices continuing to rise,” he said.
“I think this trend [of growth] is going to continue because there is just a shortage of slips,” Koch McPeters said. “People keep buying boats.”
There is in particular a shortage of boat slips for large boats, which, for the most part, cannot be stored in rackominiums. “There’s definitely a shortage of what we call mega yacht slips,” which are meant for boats of 80 feet and up, Koch McPeters said. “It’s obviously a good investment right now.”
“The bigger, the better—if you can find the bigger boat slips, I say buy them,” Hornaday said.
Still, the average boat size is 55 feet, and according to Jackson-Pownall, “there is an equal demand for boats of that size, and an equal lack of waterfront facilities to handle them.”
Demand for boat slips is growing across the globe. “Croatia is what’s becoming the new Mediterranean,” Hornaday said. In addition, she said, “There is a need for new marinas in the Caribbean.”
New marina construction in Costa Rica is selling at $3,000 to $6,000 per foot; in Grand Bahama, such construction is selling at $7,000 to $9,000 per foot, Hornaday said.
“There are quite a few marinas being built in the Bahamas now. I think that’s a very good place for investment because of [its] proximity to Florida…but you also have to be cognizant about hurricane issues,” Hornaday said.
Because boat slips are in such demand, the rental market has “been fairly steady and, in most regions, increasing,” Koch McPeters said. Even if all the boat owners in one area have boat slips, there could be seasonal demand for boat slip access from non-local boat owners.
Some markets, such as southern California and Miami, have waiting lists years long to rent slips, enabling boat slip owners to charge higher rents; in areas where there is adequate supply, such as Annapolis, boat slip owners aren’t able to demand premium rental rates, Koch McPeters said.
Larger slips and those with amenities are rented at higher rates. “The larger the dockage…the more you can charge,” Hornaday said.
People who rent out boat slips typically see returns of 4 to 10 percent, though the returns tend to be on the lower end of that range because of the fees associated with owning a boat slip, Jackson-Pownall said.
“You treat it just like a condominium product, so you’ll have common area [fees], maintenance fees and insurance for those maintenance fees, a dock master or marina manager, security, amenities…it just depends,” Hornaday said. “You’ll also have the property taxes.”
“The rental values have not yet matched the asset values, but you do have very large capital appreciation and the ability to turn around and sell,” Jackson-Pownall said.
Capital appreciation is less likely for small boat slips, because it is always easier for owners of small boats to find alternative means of storing their boats. Further, “the larger the rack, the easier it is to sell,” Hornaday said.
“Prices have been rising at least 25 percent per annum,” Jackson-Pownall said. “You’re looking at a vast appreciation with really no possibility of it going backwards because there is no backlog of slips being produced.”
“You’re looking at a supply and demand issue,” Koch McPeters said. “Obviously it should continue to appreciate.”