The Value of Berths on the French Riviera, South France, Economics of Buying Selling Renting

The Value of Berths on the French Riviera



The Value of Berths on the French Riviera


















Anyone who first considers acquiring long term rights on a berth in the South of France will have the rational approach of comparing the relevant mooring rental rates and the asking prices - just as one would do prior to buying property – and find that there is no correlation between the two. Even nowadays with shortening leases and a declining world economy, the price one could buy long term rights on mooring for is substantially higher than the income you could expect to receive from renting out the same berth until the end of the port’s lease. In the South of France, these rights are linked to the ownership of port shares which is why they are continuously traded.


This article is an introduction to some methods we use for the valuating the use of a berth over a period. It is intended to help buyers and sellers understand each other and reach a fair price.
 





Berth Values

 
You will find below definitions of “berth values”. We will refer to these definitions in the rest of this article in order to better appreciate the economics of pricing the rights on berths.
 
Berth Rental Value (or BRV)
This value is equivalent to the cost of using a mooring in a harbour. It is what one would pay until the end of a port’s lease for renting and using that berth.
 
·         “T” is the time remaining until the end of the concession
Note: In order to have an accurate value, it is better Time be counted in months rather than years.
·         “Rp” is the rental rate of the berth
·         “C” is the cost of using the port’s facilities, such as the average cost of consuming its water and electricity but could also include the cost of using the port’s car park.

The Berth Values is : 
 

BRV       =          T x Rp + T x C

Or more simply

BRV       =        T x (Rp + C)


Berth Return on Investment Value (or BRIV)

If you are looking to acquire long term rights on a berth as an investment, that is, to rent it out over a period of time to receive a return on investment, the calculation of the mooring’s value must also take into account the cost of detaining rights the berth, such as the annual service charges, but also the costs associated for acquiring these rights.
·         “SC” is the Annual Service Charges
·         “P” is the price of the port shares required to request the rights on a berth (for instance) as well as the cost of purchasing these such as the port administration fees for registering the change of ownership, the taxes to be paid to the Treasury, and any similar costs that occur only at the time of purchase.
·         “PC” is the port’s commission (a percentage of the rental income) for managing rentals. In most ports of the Cote d’Azur, the administration has exclusivity over this management, meaning the berth owner has no right to rent out his berth directly to the tenant. Consequently this cost is unavoidable.

 

The Berth Return on Investment Value is :

BRIV      =          T  [ Rp  (1 – PC)] – (P + T x SC)]

Or more simply

BRIV      =          T  [ Rp  (1 – PC) – SC] - P

 


 

Berth Use Value (or BUV)

If you are looking to acquire rights on a berth not as an investment but in order to use it yourself for your own boat or yacht, on an almost permanent basis - as the berth will be rented out while you are cruising, the rental income can be considered negligible - the Berth Use Value is:

BUV      =          P + T (SC + C)

 

 


 

The Basic Underlying Economics of "Berth Pricing"

 

The reason why berths on the Cote d’Azur are highly priced is that the demand for these berths is considerably greater than the capacity ports have. This fact is confirmed by every port administration in the area, as they keep receiving overwhelming requests to rent berths on annual basis, in addition to the huge number of the requests for short term mooring.


The graphs below are based on the standard supply and demand model.

 

Case 1: No shortage of moorings to rent with constant occupancy

In a given port, for a particular berth size,
·         If the majority of the berths are being used all year around (90% occupancy)
·         If it is possible to rent a berth on an annual basis or on a short term basis (without waiting lists)


Then there is no scarcity of berths to rent and there is the certainty of regular rental income.


Then the purchase price or selling price of “berth rights” should be equal to the equilibrium price or even slightly lower, as in this case there must be a possibility of generating interest on investment for the buyer.
 

 

 

In this situation, the share prices in private ports (P1 represented on the graph) and the rental rate are correlated. In other terms, we could consider that P1 ≤ BRIV

 

This equilibrium status is now long gone in the South of France. It occurred when the ports were being built and it remained a few years after their delivery.


This similar equilibrium can be observed in other parts of the world, not far from the Cote d’Azur, along the Italian Riviera where, over the past five years, new marinas have been built and are gradually nearing full capacity. This equilibrium can be found with a number of new ports and marinas all over the world and in developing yachting destinations.

 
 

 

Graph diagram representing the basic equilibrium price longterm berth or mooring economics theory valutation methods

 

Case 2: Berth shortages

When a port or marina begins to experience a shortage of berths to satisfy an increasing demand, boat and yacht owners find it increasingly difficult, impossible, to rent the same berth for long periods. It is then that detaining rights on a berth becomes the solution to secure a berth in a specific port over a long period.

In the meantime, as port shares are increasingly traded to satisfy those with higher purchasing power to keep their yacht moored on the same location permanently, fewer berths are available to be rented out and fewer shares become available to be purchased.

Unlike what we see in typical consumer markets, ports and marinas cannot change their “production” or capacity to welcome more tenants. They may in rare cases build extensions or modify their layout to adapt to larger yacht requests for instance. Here, Offer is static.

 

However berth rental rates do not increase to reflect the shortage. Most of the time, the increases in mooring rental rates, year after year, are only designed to keep up with inflation.


Consequently as share prices rise (P2) and there are fewer shares available to purchase (Q2), the rental prices remain almost unchanged.
 

This means that whilst Berth Rental Value remains unchanged (proportionally to the time remaining of the port’s lease):

·          The Berth Use Value soars
·         The BRIV declines (unless the berths were purchased during case 1)

 

Représentation graphique de l'offre et de la demande de places de port lorsque la demande de postes à la location dépasse la capacité d'accueil

 

 


 

Conclusion :

 

This is a simplified presentation of different economic concepts applied to the “Berth Market”. Various underlying aspects have not been taken into account to be concise and these models have their limits. This is an unusual market in a many ways:
 
·         A Product?
A berth, a location in a harbour on which you can moor on, cannot really be compared to a product. It is not tangible. What is sought is mainly the privilege of benefiting from a home for a boat or a yacht.
What is traded between people in this market are the shares, or to be more general, the rights corresponding to the berths, but in no case on the French Domaine Public Maritime can a berth be sold like one would sell property. In some ports, even though acquiring shares from an individual is a requirement in order to apply for the right to use a berth over time, it is not necessarily the only condition one must fulfil to obtain that right from the authorities, France. The conditions and terms of the “Contrats d’Amodiation” or of the “Garantie d’usage” vary subject to the rules and practices in place in each private port or marina.
 
·         In France, a berth is not an investment
On the French Domaine Public Maritime, the right to use a berth in a port is not destined to be put up for rental like one would rent out an apartment. Since the construction of the last ports on the French Riviera, France has revised its rules applicable to such rights and considers that the “Right to Use” cannot be granted to someone who does not use a berth to moor his or her own boat. However, the private ports of this area were built before these administrative evolutions and consequently rules vary between ports.
 
·         Segmentation and port diversity
The market is clearly a segmented one. We have in this instance approached it like a homogenous one, where berths are substitutable. The value of a berth varies depending on the perception of different individuals. Two berths which have the same size in two different harbours may not appeal to the same boat owners. Each berth is unique to an extent.
 
MooringSpot.com; January 2013
 

 


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