It’s like a shopping mall at sea, beyond your typical tourist boutiques. Starboard Cruise Services, a company owned by French luxury corporation LVMH, is now featuring an upscale retail experience aboard the Celebrity Apex cruise ship. It includes “iconic heritage brands, destination-inspired collections, multi-sensory retail experiences and sustainable product offerings.”

Imagine stepping aboard a cruise ship with high-end boutiques, including brands like Montblanc, Cartier and Bulgari. The curated retail offerings include fashion, wellness and sustainable brands such as Stella McCartney. The shopping selection is what Lisa Bauer, Starboard’s President and CEO, called “a thoughtfully-curated collection of upscale and sustainable products, first-at-sea concepts and iconic heritage brands that contribute to the guests’ transformative and stylish retail experience.”

Their wellness advisor is Gwenyth Paltrow, founder of Goop. With an effort to create “responsible retail” onboard, Paltrow is selling GoopGlow skincare on the cruise ship, alongside other sustainable brands, like Beekman 1802 skincare and Italian shoe company Marni. These brands are showcased on “Luxury Avenue,” an area on the cruise ship’s Deck 5.

Retail is alive and well at sea. But are cruise ships considered commercial real estate? Cruise ships are not a mainstream CRE asset class, but especially with retail offerings, they’re still considered CRE. Retail on a cruise ship is leased and owned by the company that owns the ship, in most cases.

But it depends on how you look at it, according to one expert, Gabriela Niemiec, a Real Estate Credit Associate at Lev. “It depends on what terms,” she said. “An individual can’t take out a mortgage on a retail shop on a cruise ship, nor can an individual own a cruise ship. Cruise ships are owned strictly and directly by cruise lines or companies.”

Niemiec said cruise lines can be a value add for certain ships that are geared toward wealthy clientele. “But that depends on the ship type, age and clientele interested in that trip or ship,” she explained. “If you look at Disney’s cruise ships, they are more aimed at families and the family experience, therefore, having luxury retail may not be as beneficial, but if the cruise ship is more luxurious, it may indeed be a value add.”

The space for luxury retail on cruise ships is very small, in comparison to what ships must make space for restaurants and accommodation.

According to a recent report from Cruise Market Watch, the cruise industry was hit hard by the pandemic. Operators saw a drop in sales, but numbers recovered to 2006 levels by the end of 2021. Roughly 14 million passengers were welcomed aboard cruise ships, which is roughly half of the numbers we saw in 2019.

The most successful cruise line of 2021 is Royal Caribbean, which brought back 20 of its 24 ships, and Carnival, a company based in Miami. 25 new cruise ships should hit the sea in 2022, like the AIDAcosma from AIDA Cruises, which cost $950 million to build, and can accomodate 5,400 people, and the Evrima cruise by the Ritz-Carlton, which cost $225 million, and can accomodate 298 guests onboard.

Many of the new cruise ships are being powered by Liquified Natural Gas (LNG), the cleanest fossil fuel, as an alternative to diesel gas. The goal for many cruise ships is to reduce greenhouse gas emissions. The Carnival cruise ships are leading the way, since they introduced the world’s first LNG fuel cruise ship in 2015, the AIDAsol, and have since added three more.

Nonetheless, there are less cruise ships than there once were. According to Cruise Market Watch, there are 323 cruise ships across the world, 6% less than in 2019. The Cruise Lines International Association claimed there are 50 cruise lines operating (the newest is the Ambassador Cruise Line, and soon, the Titanic II is set to launch in Australia this year).

But when we think of the Titanic, which sank in 1912, one can’t help but think about insurance. There are many types of insurance with cruise ships, and the policies can get tricky.

“If we are thinking in terms of property, the cruise ships have their own insurance there, but retailers could have their own insurance on value of the goods in the store,” Niemiec said.

Could retail potentially thrive at sea? According to Cruise Market Watch, in 2021, Princess Sky Princess made the most: $189 million. Following was the Regal Princess, which made $170 million, and the Carnival Mardi Gras cruise which made $155 million.

Cruise ships make this money in two ways: Ticket sales and purchases made onboard (everything from alcoholic drinks to casino gambling, gifts and spa treatments). On average, tickets make for 62% of the total revenue, and onboard purchases make up 38%.

“If you think about traveling and people, we tend to buy things as memories and treasures,” Niemiec said.

Ultimately, cruise ships are a valuable asset class, but many are sold off-market. Still, many are for sale publicly on YachtWorld.com for $70 million, up to $300 million.

“One thing to figure out here is how many tons of steel is a cruise ship and how much does it cost to make a profit on that steel, so what is the residual value of a cruise ship,” Niemiec said. “Cruise lines report the cruise ship they purchase and their applicable value. Unfortunately, however, a cruise ship’s valuation or appraisal is only a page long, and it is so hard to determine what honestly drives the value and how it is looked upon at sale as these numbers are not public.”

There is data from the Cruise Lines International Association, but their 2022 report focuses mostly on sustainability efforts of cruise ships, age groups of customers and pandemic recovery methods.

“The market is also very small, so comps data is limited,” Niemiec noted. “If we think about what happened during COVID and the industry, those ships values were erased, now as cruise lines recover, we should see a trend in the values of new cruise ships being ordered from cruise ship builders and be able to tell if the values are going up (inflation will have an impact here), or maybe down.”

“It’s due to the risks associated with the industry and current leverage issues, as well as cruise lines’ possible purchasing power, as cruise ship builders may also be willing to make discounts to make sure their businesses are running,” she added.

“Thinking in terms of cruise lines themselves, their shares have not been able to recover while new orders for ships during the height of the pandemic were at a freeze. Cruise lines order their ships years ahead, so it will only be now when we may see new orders come through and at what price points given the most recent CDC guidelines.”