Caribbean Property & Investment Review — October 2016

Publication Date: 3 October 2016  |  Coverage Period: 3 September – 2 October 2016

Morning Briefing

• URGENT: Hurricane Matthew — which formed on 29 September 2016 in the southwestern Caribbean — is rapidly intensifying and tracking toward the Greater Antilles and the Bahamas. As this edition goes to press on 3 October, Matthew is approaching Category 4–5 strength, with maximum sustained winds near 145 mph and a track that places Haiti, Jamaica, eastern Cuba, and the Bahamas in its direct path. Property owners, hoteliers, and investors across this arc must be in full storm preparation mode now.
• Caribbean property markets delivered a strong third quarter overall, with Jamaica, the Dominican Republic, and Guyana all reporting positive transaction and development activity through the September coverage period. The approaching storm is the most significant near-term risk to that positive momentum.
• Jamaica’s tourism sector closed its strongest September on record by most metrics, with year-to-date stopover arrivals running approximately 10–12% above the same period in 2015. The full-year arrivals record is within reach.
• Guyana’s ExxonMobil-driven property market has maintained its exceptional momentum through September, with commercial office and executive residential demand continuing to outstrip available supply as the Liza Phase 1 project moves into detailed engineering and contracting.
• The US presidential election on 8 November is six weeks away, with polling showing a contest that has tightened significantly through September. Caribbean stakeholders are monitoring the candidates’ trade, immigration, and Cuba policy positions carefully.
• Trinidad & Tobago’s government is expected to present its annual national budget on Monday, 3 October — today — a document that will test the Rowley administration’s capacity to balance fiscal consolidation with social and capital expenditure commitments at a time when oil prices remain below breakeven.

URGENT: Hurricane Matthew — A Potentially Catastrophic Storm Approaches

As this edition goes to press, Hurricane Matthew represents the most serious and imminent threat to the Caribbean property and tourism landscape that the region has faced since Superstorm Sandy struck the Bahamas and the US East Coast in October 2012. The storm, which formed rapidly in the southwestern Caribbean on 29 September, has undergone dramatic intensification over the warm waters of the western Caribbean, and the National Hurricane Centre’s current forecast track places the centre near or over the southern peninsula of Haiti, then tracking north along the western coast of Cuba and toward the Bahamas, with Jamaica’s north coast lying in or near the dangerous right quadrant of the storm as it makes its passage.

For the Caribbean property and investment community, the implications of Matthew are not yet known — the storm has not struck as this edition goes to press, and the precise track and intensity at landfall remain subject to forecast uncertainty. But the potential consequences are severe enough to warrant urgent attention to several categories of risk. First, direct physical damage: a Category 4 or 5 hurricane making landfall in Haiti or Jamaica would generate catastrophic wind and surge damage to coastal and inland property alike. Haiti, with its extremely limited building standards and pre-existing vulnerabilities from the 2010 earthquake, faces the most acute physical risk. Jamaica’s northern coast — the heart of the country’s tourism property portfolio — is in the forecast zone for major storm-force winds even if the eye track passes slightly south of the island.

Second, the tourism and hospitality sector impact: even a near-miss that does not result in catastrophic infrastructure damage will generate mass booking cancellations for the affected markets in the immediate post-storm period. Hotels in Montego Bay, Negril, and Ocho Rios are implementing hurricane preparation protocols, with guests being evacuated or sheltered in place according to individual property emergency plans. The timing — early October, at the transition from shoulder season to the early-bird pre-booking period for the winter high season — means that any reputation damage from storm coverage could affect bookings at a critical commercial moment.

Third, the insurance market impact: Caribbean property insurance market pricing for coastal assets in storm-exposed jurisdictions has been moving cautiously upward through 2016, reflecting both the Paris Agreement-driven conversation about long-term climate risk and the incremental tightening of underwriting standards. A major Matthew landfall in a primary Caribbean market would be a significant reinsurance loss event that could trigger further premium increases and coverage restrictions in the 2017 renewal season. Property owners in Jamaica, Haiti, Cuba, and the Bahamas who do not have current, adequately valued, comprehensive wind and flood policies are in an extremely vulnerable position as this storm approaches. It is too late to obtain new coverage before Matthew passes. After the storm, those without coverage will face the full economic impact of any damage.

Caribbean Property Market: Strong Q3 Before the Storm

Notwithstanding the urgent storm warning that dominates this edition’s attention, the underlying Caribbean property market delivered a notably strong third quarter through the September coverage period. Jamaica’s tourism sector posted what may be its strongest September on record, with the Jamaica Tourist Board reporting year-to-date stopover arrivals running 10–12% ahead of the same period in 2015. The north coast resort corridor — the same geography that Hurricane Matthew is threatening as this edition goes to press — has been operating at high occupancy through the traditionally quieter shoulder season months of August and September, reflecting the growing success of the JTB’s year-round tourism marketing campaigns.

The Dominican Republic maintained its position as the Caribbean’s highest-volume tourism market through Q3, with Punta Cana International Airport setting new monthly passenger records in July and August. The DR’s east coast resort residential market absorbed new supply from several completed villa and condominium projects without meaningful price softening, and several additional phases of existing master communities — Cap Cana, Puntacana Resort & Club, and Cabarete on the north coast — launched pre-sales programmes that were reported to be attracting strong early buyer interest from North American markets.

In Guyana, the property market boom driven by the ExxonMobil Stabroek Block programme shows no signs of abating. Georgetown’s commercial office market is operating with near-zero vacancy for Class A and Class B+ space, and the pipeline of new development — office parks, hotel facilities, serviced apartments — that developers are planning in response to the oil-driven demand surge is beginning to move from concept to construction in some cases. The fundamental supply-demand imbalance in Georgetown’s quality property stock will not be resolved quickly, and rental rates for executive residential properties remained at historically elevated levels through September.

US Election: What Caribbean Property Investors Should Watch

With the US presidential election now six weeks away, the Caribbean property and investment community is beginning to assess the implications of each potential outcome for the region’s economic and market prospects. Caribbean economies are deeply integrated with the United States through tourism, remittances, trade, and capital flows, and a significant shift in US policy orientation — in either trade, immigration, or Cuba engagement — would have tangible Caribbean implications.

The most directly relevant policy dimension for Caribbean property markets is the US-Cuba normalisation process, which has been proceeding under the Obama administration since December 2014 and which has generated significant speculation about the prospects for US property investment in Cuba. A continuation of current US policy under a Clinton administration would likely sustain the gradual pace of US-Cuba engagement and maintain the incremental opening of travel and commercial channels that has been generating cautious interest from US hospitality and real estate investors. A reversal of the normalisation process under a Trump administration would likely close those channels and potentially suppress the speculative Cuba property investment interest that has been building in segments of the US real estate community.

For the broader Caribbean tourism market, the US economic outlook under either administration matters more than specific Caribbean policy stances. US consumer confidence and employment drive Caribbean leisure travel demand at a fundamental level, and any major disruption to US growth — from trade policy shifts, domestic policy uncertainty, or external shocks — would eventually be felt in Caribbean hotel occupancy rates and property valuations. The US economy’s current trajectory — solid but not spectacular growth, near-full employment, and steady consumer confidence — is the most supportive possible backdrop for Caribbean tourism property investment.

Trinidad & Tobago Budget Day: Energy Sector at the Centre

Today, 3 October 2016, Trinidad & Tobago presents its annual national budget, and the document will be closely scrutinised by Caribbean property market observers as a barometer of the T&T government’s fiscal trajectory and its implications for the property sector. With WTI oil prices having recovered from January’s $26 low to trade in the $44–48 range through September — still well below the $75+ at which T&T’s national budget was originally formulated — the Finance Minister faces the challenge of presenting a credible medium-term adjustment path without generating the kind of expenditure shock that could further dampen consumer and business confidence.

For the T&T property market, the budget’s most relevant dimensions will be: the trajectory of public sector employment and wage growth, which drives a significant portion of middle-market residential demand in Port of Spain and the Western Corridor; the scale of capital expenditure, which affects construction activity and the commercial property market in infrastructure-adjacent locations; and the government’s stated approach to attracting foreign investment in the non-energy sectors, particularly tourism, creative industries, and financial services. A budget that credibly commits to medium-term fiscal consolidation while maintaining targeted capital investment in growth-enabling infrastructure would be the most positive outcome for the property market.

Caribbean Leaders This Month

Jamaica north coast — before the storm — Through the September coverage period, Jamaica’s north coast tourism property corridor delivered exceptional performance, with record arrivals, strong hotel occupancy, and active developer engagement with branded hotel operators. As this edition goes to press, the same corridor is in the direct path of Hurricane Matthew. The market’s near-term trajectory will be determined by the next 72 hours.

Guyana Georgetown — continued boom — Georgetown’s oil-driven property market maintained exceptional momentum through September, with executive residential and commercial occupancies at historic highs and rental rates continuing to rise. The Liza Phase 1 project’s detailed engineering phase is generating increasing contract activity with knock-on effects for local professional services property demand.

Dominican Republic Q3 performance — The DR closed Q3 with arrivals data confirming another record year in prospect, and the resort residential market on the east coast absorbed new supply without meaningful price softening. The DR’s Matthew exposure is on the northern coast — Samana, Puerto Plata — rather than the primary east coast resort corridor, limiting the storm risk to the most commercially significant market segments.

Barbados advance booking season — Barbados’s hotel and villa operators are in the early stages of the advance booking season for the November–April winter high season, and early indicators are broadly positive despite the ongoing effect of sterling weakness on UK buyer volume. North American and continental European bookings are partly offsetting the UK softness.

Cayman Islands institutional property — Grand Cayman’s Class A office and residential markets continued to perform at high occupancy levels through September, supported by the jurisdiction’s continued growth as a centre for alternative investment fund administration. The Cayman Islands is outside Hurricane Matthew’s forecast track and is not facing immediate storm risk.

Haiti pre-storm vulnerability — Haiti’s property market entered October in the direct firing line of Hurricane Matthew, with the southern peninsula — including the urban areas of Les Cayes and Jérémie — forecast to receive a direct hit from one of the most powerful storms to threaten the Western Hemisphere in years. Haiti’s construction quality and disaster preparedness infrastructure will be tested severely.

Trinidad & Tobago budget day — The national budget presented today will set the fiscal and economic tone for T&T’s property market through the first half of 2017. The Rowley administration’s capacity to maintain adjustment credibility while avoiding a growth-suppressing austerity shock will be the key variable to watch.

Overall regional performer: Guyana retains the top position for the fourth consecutive month, its oil-driven property market operating in a different demand dimension from the rest of the Caribbean. Matthew poses no direct threat to Guyana, and the Georgetown market’s exceptional momentum is set to continue regardless of the storm’s outcome elsewhere in the region.

Looking Ahead: Matthew’s Aftermath and the Winter Season Test

By the time our November edition goes to press, the Caribbean will know Hurricane Matthew’s full impact. If the storm tracks as currently forecast — a potentially catastrophic landfall in southern Haiti, followed by a dangerous passage near Jamaica’s northern coast and then through the Bahamas — the human and physical consequences could be severe, and the property and tourism market implications across the affected arc of the Caribbean will be material. Our November edition will carry a comprehensive assessment of Matthew’s aftermath, including the immediate damage to property and infrastructure, the insurance market response, the pace of tourism recovery, and the longer-term implications for coastal property investment in the most affected markets.

For Caribbean property investors beyond the immediate storm track, Matthew serves as a stark reminder of why hurricane risk management — adequate insurance coverage, resilient construction standards, diversified portfolio geography, and robust business interruption protection — is not an optional extra but a core component of Caribbean property investment discipline. A single catastrophic storm can erase years of capital appreciation in the affected market, and the property owners who emerge from storm events most intact are invariably those who maintained comprehensive coverage, invested in resilient building standards, and had diversified their income exposure across multiple properties or markets.

The winter high season — the Caribbean property market’s most commercially critical period — begins in earnest in November. Beyond Matthew’s immediate aftermath, the Caribbean’s ability to rebound quickly and demonstrate the operational resilience of its tourism infrastructure will be decisive for the investment conversations of the first quarter of 2017. Markets that recover rapidly, communicate effectively with international visitors, and deliver high-quality experiences in the months following a storm event consistently demonstrate long-term property value resilience. The capacity for rapid recovery is one of the Caribbean’s most underappreciated competitive assets, and one that Caribbean property investors should factor prominently into their risk-adjusted assessments of coastal market exposure.

The Caribbean Property & Investment Review is published monthly. Edition 118 covers the period 3 September to 2 October 2016. Hurricane Matthew had not made landfall at the time of publication — the storm struck Haiti and Jamaica on 4 October 2016. All market data reflects information available at the time of publication. This publication does not constitute investment advice.

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