Caribbean Property & Investment Review — Edition 110, June 2017

Publication Date: 3 June 2017  |  Coverage Period: 3 May – 2 June 2017

Morning Briefing

• The 2017 Atlantic hurricane season officially opened on June 1, with NOAA’s updated seasonal forecast calling for an above-normal season — 14-19 named storms, 6-9 hurricanes, and 2-5 major hurricanes — elevating preparedness urgency across Caribbean property and insurance markets.
• Caribbean hotel development pipeline remained among the busiest in its history, with new hotel openings and under-construction projects across Jamaica, the Dominican Republic, and the Eastern Caribbean confirming the industry’s sustained confidence in regional tourism fundamentals.
• Guyana’s Liza Phase 1 oil development is advancing on schedule, with ExxonMobil’s procurement and construction programme maintaining momentum toward the late 2019 first oil target.
• Trinidad and Tobago’s LNG sector faces market headwinds as global LNG supply growth competes with Atlantic Basin demand; T&T’s energy revenues remain under structural pressure despite some oil price recovery.
• Jamaica’s tourism sector delivered strong May performance, with the shoulder season showing better-than-expected occupancy driven by strong North American demand.
• Caribbean investment sentiment remains positive, with several significant commercial property and resort development transactions completing or advancing through May across the region.

Hurricane Season 2017: Above-Normal Forecast and Property Preparedness

The official opening of the 2017 Atlantic hurricane season on June 1 comes with an above-normal seasonal forecast from NOAA that should command serious attention across Caribbean property markets, insurance portfolios, and investment planning frameworks. NOAA’s May 2017 outlook calls for 14-19 named storms, 6-9 of which could develop into hurricanes, with 2-5 potentially reaching major hurricane intensity (Category 3 or above). Colorado State University’s seasonal outlook similarly points to an active season, driven by warmer-than-average Atlantic sea surface temperatures and the absence of the El Niño suppression effect that helped moderate the 2015 and 2016 seasons.

The memories of Hurricane Matthew — which struck Haiti, Jamaica, and the Bahamas just seven months ago in October 2016 — are still fresh across Caribbean government emergency management agencies, insurance markets, and property owners. Matthew’s devastation in Haiti’s southern peninsula, where reconstruction is still very much in progress, provides a vivid and proximate reminder of the catastrophic consequences that a major hurricane strike can have for communities and property markets. The active 2017 seasonal forecast intensifies the imperative for property owners, developers, and investors across the region to review their risk management frameworks before the season’s peak activity period, which typically runs from August through October.

For Caribbean property insurers and reinsurers, the above-normal seasonal forecast will inform their approach to renewals and their management of Caribbean catastrophe exposure. The reinsurance market has been managing Caribbean hurricane risk through a sustained repricing process since the active 2004-2005 seasons, and while capacity has remained available — partly due to the growth of insurance-linked securities and catastrophe bonds — the active 2017 forecast may prompt further scrutiny of Caribbean risk accumulations and pricing adequacy. Primary insurers in Jamaica, Barbados, Trinidad, and across the Eastern Caribbean will be watching reinsurance renewal discussions carefully.

For property owners and investors, the hurricane season’s opening is an annual prompt to review the adequacy of building construction standards, the completeness of insurance coverage, and the currency of emergency preparation plans. Properties built to modern construction codes with proper wind and flood resilience are meaningfully less vulnerable than older stock or informally constructed buildings, and the investment in bringing properties up to current standards — through structural reinforcement, impact-resistant windows and doors, and elevated electrical and mechanical systems — is both a risk reduction and an insurance cost management measure. Prudent property investors in the Caribbean treat hurricane preparedness as an ongoing operational discipline, not a seasonal afterthought.

Caribbean Hotel Development Pipeline: A Market at Full Throttle

The Caribbean hotel development pipeline as of mid-2017 is at one of its most active levels in years, reflecting the industry’s sustained confidence in the region’s tourism fundamentals and the investment that global hotel brands and regional developers are making in expanding their Caribbean presence. The STR Global and Caribbean Hotel and Tourism Association pipeline data for 2017 reflects a combination of new build hotels, major resort renovations, and brand conversion or repositioning projects that collectively represent billions of dollars of investment in Caribbean tourism infrastructure.

Jamaica’s hotel pipeline is among the most active in the region. The north coast corridor from Montego Bay through Ocho Rios has seen sustained new hotel development and major refurbishment activity, with global brands including Hard Rock, Royalton, and Moon Palace (Palace Resorts) all having significant Jamaica presences or development plans. The Jamaican government’s active engagement with international hotel investors — through the Tourism Enhancement Fund, the Special Economic Zone framework, and the Jamaica Promotions Corporation — has created a policy environment that international hospitality investors find supportive. New hotel rooms coming to market in Jamaica over the next two to three years will meaningfully increase the island’s capacity to accommodate growing visitor volumes, and will add to the inventory that supports competitive rates and occupancy in the tourism sector.

The Dominican Republic’s hotel pipeline continues to represent the most significant volume of any single Caribbean market, with multiple large-scale resort developments advancing in Punta Cana, Cap Cana, and the north coast. The Meliá, AMResorts, Iberostar, and Barceló groups all have active development and expansion programmes in the DR, and several new branded residences and mixed-use resort projects are in advanced planning. The scale of the DR’s hotel pipeline — and the associated residential and commercial property development that accompanies major hotel projects — sustains the country’s position as the Caribbean’s pre-eminent development market across multiple property categories.

In the Eastern Caribbean, hotel development activity is concentrated in the luxury and upper-upscale segments, where several notable projects are either under construction or recently opened. Antigua’s tourism infrastructure has been enhanced by new luxury villa and boutique hotel developments; St. Lucia continues to attract investment in its luxury resort segment; and Grenada’s combination of natural beauty and improving airlift has supported new hospitality investment. The CBI programmes of these territories play an important role in financing hotel development through the real estate investment route, and the continued flow of CBI capital into approved resort projects underpins a significant portion of the Eastern Caribbean’s development pipeline.

Guyana Oil Development: Milestones and Market Impact

ExxonMobil’s Liza Phase 1 development in Guyana’s Stabroek Block is advancing through its construction programme on a trajectory that continues to generate both practical property market effects in Georgetown and growing regional and international investment community interest in Guyana as a frontier market with genuinely distinctive characteristics. The FPSO vessel that will be central to the Liza Phase 1 production operations is progressing through its construction and outfitting programme at a Singapore shipyard, while subsea infrastructure procurement and installation planning is advancing in parallel. The late 2019 first oil target remains the programme’s central milestone.

The Georgetown property market continues to respond to the expanding oil services community’s accommodation needs. Demand for quality residential accommodation from expatriate professionals — ExxonMobil engineers and project managers, Hess Corporation personnel, CNOOC representatives, and the growing ecosystem of service company staff — has pushed rental rates for premium residential properties measurably above their pre-oil-boom levels. New residential developments targeting the expatriate market are advancing in Georgetown’s established neighbourhoods, though the pace of supply response lags the demand growth, maintaining upward pressure on rental rates for quality stock.

The commercial property market in Georgetown is also seeing continued development activity. New office buildings targeting international occupier standards are under construction or in planning, and the serviced office and co-working sector is beginning to develop to meet the needs of smaller service companies and consultancies establishing Guyana presences. Infrastructure investment — in roads, utilities, and telecommunications — is proceeding, though the pace of public infrastructure development continues to lag the private sector’s demands. For investors willing to commit to Guyana’s frontier market environment, the timing remains early in the country’s pre-oil development cycle, with the most dramatic property market movements still ahead as first oil approaches and then is achieved.

Trinidad and Tobago: LNG Headwinds and Property Market Realities

Trinidad and Tobago’s LNG sector — which, through Atlantic LNG and the country’s significant natural gas resources, has been a cornerstone of the national economy — continues to face structural headwinds from the dramatic growth in global LNG supply that has characterised the sector over the past several years. The emergence of major new LNG supply from Australia, the United States, and other sources has increased global LNG supply competition, putting pressure on prices and contracting terms for established Atlantic Basin suppliers including Trinidad. This structural shift compounds the impact of the lower oil price environment that has been constraining T&T’s revenues since 2014.

For T&T’s property market, the extended energy sector difficulty has maintained a broadly subdued environment in the domestic residential and commercial segments. Port of Spain’s prime office market has seen some softening of rents as energy companies manage their accommodation footprints carefully in the austerity environment. Residential property in the upper-middle segments — where energy sector professionals have historically been important buyers — has experienced some price softening relative to the boom years of high energy revenues. The construction sector — which benefited significantly from the energy-revenue-funded public infrastructure programmes of the boom years — has seen reduced activity as government capital spending contracted.

There are, however, areas of continued activity and resilience in T&T’s property market. The tourism infrastructure of Tobago — where the Rowley government has maintained its commitment to hospitality development as a diversification priority — continues to attract some investment. The residential market in established east-west corridor communities maintains transactional activity at reduced but not negligible volumes. And the industrial property sector — serving the petrochemical and manufacturing industries that remain active in T&T despite energy sector difficulties — continues to generate some demand. The market is not in free fall, but it is significantly below the exuberant levels of the energy revenue boom years, and recovery depends substantially on global energy market developments outside the government’s control.

Caribbean Leaders This Month

Jamaica — PM Andrew Holness: Holness’s government managed a strong May tourism performance and continued progress on the hotel development pipeline. The government’s active engagement with international hotel investors through multiple institutional channels reflects a sophisticated investment promotion strategy that is generating measurable results.

Dominican Republic — President Danilo Medina: Medina’s government maintained the DR’s position as the regional hotel development leader, with the largest pipeline of hotel projects under construction and the most active resort development programme in the Caribbean. The DR’s investment attraction capacity remains unmatched in the region.

Guyana — President David Granger: Georgetown’s oil-driven property market continued its development, with new residential and commercial projects advancing in response to the growing international community’s accommodation needs. Granger’s government faces the challenge of maintaining public services and infrastructure investment while managing the public finances through the pre-oil period.

Trinidad and Tobago — PM Keith Rowley: Rowley’s government navigated the LNG sector headwinds while maintaining Tobago’s tourism development programme and managing the fiscal consolidation programme that the energy revenue decline has required. The property market’s subdued condition reflects structural economic challenges that will require sustained policy attention.

Barbados — PM Fruendel Stuart: Stuart’s government continued its difficult fiscal navigation, with the approaching election adding political complexity to an already challenging economic management environment. The summer tourism season would be critical to Barbados’s revenue outlook for 2017.

St. Kitts and Nevis — PM Timothy Harris: Harris’s government maintained its successful CBI programme, providing an important fiscal buffer and continuing to fund hotel development through the real estate investment route. Park Hyatt St. Kitts and other premium developments advanced through their development programmes.

Cayman Islands — Premier Alden McLaughlin: The Cayman Islands’ property market maintained activity across its residential and commercial segments, with the territory’s political and regulatory stability continuing to attract high-net-worth residential investment and financial services-related commercial property demand.

Overall Performer This Month: Dominican Republic once again demonstrates consistent execution across all property market dimensions — tourism performance, hotel development pipeline, FDI attraction, and macroeconomic stability — that justifies its recognition as the Caribbean’s standout investment destination for mid-2017.

Looking Ahead

The summer tourism season builds through June toward the July-August peak. Industry data on actual summer arrivals and revenue performance — relative to the advance booking momentum that has characterised the pre-season outlook — will be the critical market signal for Caribbean property investors through the next two months. A summer that delivers on the forward booking promise would significantly strengthen the case for continued resort and hospitality property investment confidence heading into the autumn planning season.

The 2017 hurricane season is now active and will be closely monitored through the peak months ahead. The above-normal NOAA forecast creates a statistical environment in which a significant Caribbean hurricane strike is more probable than in a normal or below-normal year. Property owners, insurers, and investors cannot know in advance where or when a storm will strike, but they can ensure that their risk management frameworks — construction standards, insurance coverage, emergency preparedness plans — are in the best possible condition before the season’s most active period arrives.

Guyana’s oil development programme will continue to generate growing commercial property and residential market effects in Georgetown through the remainder of 2017. As construction milestones are achieved and the development programme’s scale becomes increasingly visible in the Guyanese economy, the anticipatory real estate activity in Georgetown is likely to intensify. Investors who have positioned early in Guyana’s property market will be increasingly well placed as the countdown to first oil continues.

The Caribbean Property & Investment Review is published monthly for property professionals, investors, and development practitioners across the Caribbean region. All market assessments reflect conditions as of the coverage period end date. This publication does not constitute investment advice.

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