Steady Hands: Jamaica’s Mid-2018 Property Market Consolidates the Gains of a Remarkable Two Years

Commercial Property: New Kingston Returns to Life

For the first time since 2010, the New Kingston office market recorded net positive absorption in the second quarter — meaning that the volume of newly occupied space exceeded the volume vacated over the period. The milestone was modest in scale but significant in meaning: it confirmed that the commercial property market had completed the long journey from the oversupply conditions of the post-crisis years, when BPO tenants had occupied the upper floors of buildings whose lower floors remained vacant, to a genuine demand environment in which occupiers competed for quality space and landlords could consider rent escalation on renewals.

The drivers were the same as in the residential sector: BPO employment growth, a financial services sector benefiting from the low-rate environment, and the ancillary commercial activity of an economy growing at approaching two percent annually. The difference was scale: the commercial market’s positive absorption was measured in tens of thousands of square feet rather than hundreds of units, and it was correspondingly more sensitive to the decisions of a small number of large tenants. But the direction was right, and the pipeline of planned commercial development — mixed-use schemes in the upper New Kingston corridor, Grade-A office buildings in the secondary business districts — was being activated on the back of it.

What This Means

The second quarter of 2018 is perhaps the most representative quarter in Jamaica’s post-crisis property history: not the most dramatic, not the most statistically impressive, but the quarter in which all the structural improvements made since 2013 were operating simultaneously, at their equilibrium level, without external support or artificial stimulus. Low rates, fiscal discipline, stamp duty reform, diaspora investment, BPO employment, and tourism were all contributing to the market’s performance. No single factor was dominant. The market had become genuinely multi-pillar, and multi-pillar markets are more resilient to the failure of any single pillar than their single-driver predecessors.

The outlook for the second half of 2018 is constructive but measured. Hurricane season is the immediate seasonal risk. US Federal Reserve rate normalisation is the medium-term structural risk for diaspora demand. And the political arithmetic of the one-seat Holness majority will continue to constrain the legislative programme in ways that matter for property-related regulation, planning reform, and NHT policy. None of these risks is likely to be decisive. The market that enters the second half of 2018 is one that has demonstrated, over two consecutive years, that it can absorb disruption and continue expanding. That evidence is the strongest argument for continuing confidence in the year ahead.

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jamaica-homes.com | Market Analysis | Q2 2018

Two years after the stamp duty reform and with the IMF’s most favourable endorsement in a generation secured, Jamaica’s property market enters mid-2018 in a posture of confident consolidation. The race to the top has given way to the harder work of sustaining the gains.

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• Transaction volumes remain healthy; premium price growth settles at ten to twelve percent annually
• Construction activity at highest level since 2006; materials costs begin to reflect demand pressure
• Remittances for H1 2018 running ahead of H1 2017; diaspora demand undimmed
• New Kingston office market records first net positive absorption since 2010
• HAJ completes first phase of major affordable housing scheme in Portmore
• Jamaican dollar stable at J$130–J$133 range; import cost inflation contained

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The second quarter of 2018 offered the property market something it had not experienced in several years: an absence of drama. There was no major policy announcement, no IMF review to pass or fail, no hurricane to track and survive. There was simply the market, operating at the level it had worked its way up to over four years of structural reform and post-EFF recovery, and demonstrating in the process that the level it had reached was not a temporary equilibrium dependent on a specific political moment but a durable condition with its own internal logic.

Premium residential prices in the Kingston Metropolitan Area continued to appreciate, but at the moderated rate of ten to twelve percent annually that the first quarter had signalled — a deceleration from the eighteen to twenty-two percent of 2017, but still materially above the long-run average that prevailed before the crisis. The moderation was a function of supply responding to price, which is what supply is supposed to do: developers who had announced schemes on the back of 2017’s exuberant price trajectory were delivering units into a market that now had enough choice to negotiate on price rather than compete for allocation. The result was a healthier transactional environment, even if the appreciation rate it produced was less spectacular than the preceding year’s.

Construction activity in the residential sector was, paradoxically, at its highest level since before the crisis — not because any individual project was uniquely large, but because the pipeline of smaller and medium-scale schemes that developers had been activating since 2015 had now reached the point at which multiple projects were simultaneously under construction across the KMA and the secondary cities. The effect on the construction industry was palpable: labour availability in the skilled trades was tightening, materials prices were reflecting the demand pressure, and project timelines were extending as developers competed for the same scarce pool of experienced contractors. These were the growing pains of a sector operating above its equilibrium capacity. They were not, in themselves, negative signals.

Commercial Property: New Kingston Returns to Life

For the first time since 2010, the New Kingston office market recorded net positive absorption in the second quarter — meaning that the volume of newly occupied space exceeded the volume vacated over the period. The milestone was modest in scale but significant in meaning: it confirmed that the commercial property market had completed the long journey from the oversupply conditions of the post-crisis years, when BPO tenants had occupied the upper floors of buildings whose lower floors remained vacant, to a genuine demand environment in which occupiers competed for quality space and landlords could consider rent escalation on renewals.

The drivers were the same as in the residential sector: BPO employment growth, a financial services sector benefiting from the low-rate environment, and the ancillary commercial activity of an economy growing at approaching two percent annually. The difference was scale: the commercial market’s positive absorption was measured in tens of thousands of square feet rather than hundreds of units, and it was correspondingly more sensitive to the decisions of a small number of large tenants. But the direction was right, and the pipeline of planned commercial development — mixed-use schemes in the upper New Kingston corridor, Grade-A office buildings in the secondary business districts — was being activated on the back of it.

What This Means

The second quarter of 2018 is perhaps the most representative quarter in Jamaica’s post-crisis property history: not the most dramatic, not the most statistically impressive, but the quarter in which all the structural improvements made since 2013 were operating simultaneously, at their equilibrium level, without external support or artificial stimulus. Low rates, fiscal discipline, stamp duty reform, diaspora investment, BPO employment, and tourism were all contributing to the market’s performance. No single factor was dominant. The market had become genuinely multi-pillar, and multi-pillar markets are more resilient to the failure of any single pillar than their single-driver predecessors.

The outlook for the second half of 2018 is constructive but measured. Hurricane season is the immediate seasonal risk. US Federal Reserve rate normalisation is the medium-term structural risk for diaspora demand. And the political arithmetic of the one-seat Holness majority will continue to constrain the legislative programme in ways that matter for property-related regulation, planning reform, and NHT policy. None of these risks is likely to be decisive. The market that enters the second half of 2018 is one that has demonstrated, over two consecutive years, that it can absorb disruption and continue expanding. That evidence is the strongest argument for continuing confidence in the year ahead.

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jamaica-homes.com | Market Analysis | Q2 2018

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