Caribbean Property & Investment Review — July 2019

Publication Date: 3 July 2019  |  Coverage Period: 3 June – 2 July 2019

Morning Briefing

• The Dominican Republic’s tourism sector is navigating its most serious reputational crisis in years following the deaths of several American tourists at DR hotels in May-June 2019, with the US State Department issuing elevated travel advisories, major airlines under pressure to relax change and cancellation policies, and the DR government launching emergency hotel safety inspection and certification programmes across all resort zones.
• Caribbean tourism industry collectively mobilises to reassure source markets that the Dominican Republic’s situation is isolated, with CTO, CHTA, and individual Caribbean tourism authorities issuing communications emphasising the safety records of other destinations and the rigour of international brand hotel safety standards across the region.
• Caribbean hotel investment pipeline remains intact across Jamaica, St Lucia, Grenada, and Barbados, with developers and operators emphasising that brand-standard safety protocols and international-flag hotel operations provide assurances that independent hotel operations may lack.
• Guyana’s Liza Phase 1 pre-production progress continues apace, with the Destiny FPSO completing further commissioning stages and Georgetown’s commercial real estate market maintaining the elevated activity level that has characterised it since the scale of the Stabroek Block discoveries became clear.
• Jamaica reports another month of year-on-year tourism arrivals growth in June, insulated from any DR contagion effect, with the island’s all-inclusive resort brand strength and safety reputation providing a confident platform for continued tourism investment.
• Short-term rental market across the Caribbean continues to grow strongly, with platforms reporting increased booking inquiry from travellers reassessing their accommodation choices in the wake of the DR hotel controversy — a silver lining that is benefiting villa and private residence operators across the region.

The Dominican Republic Hotel Safety Crisis: What Happened and What It Means

The Caribbean tourism and property investment community has spent the past month absorbing the implications of an unprecedented sequence of events centred on the Dominican Republic’s hotel sector. Beginning in May 2019 and continuing through June, a number of American tourists died while staying at hotels in the Dominican Republic, with the circumstances of several of the deaths — previously healthy individuals suffering sudden medical emergencies — attracting sustained and intense attention from US media outlets, the families of the deceased, and the US State Department.

The immediate US government response was to issue a Level 2 advisory for the Dominican Republic, urging travellers to exercise increased caution, and to announce investigations into the circumstances of the deaths. Major US airlines faced significant public pressure to waive change and cancellation fees for DR bookings, and several complied. Tour operators began receiving elevated volumes of booking modification requests from travellers who had Dominican Republic holidays planned for the summer months. The social media amplification of the story — with several families of the deceased giving extensive media interviews — created a narrative that spread far beyond the traditional travel trade media into mainstream news coverage.

The Dominican Republic government’s response, under President Danilo Medina and Tourism Minister Francisco Javier Garcia, has been rapid and substantive. Emergency inspections of hotels across the Punta Cana, Puerto Plata, La Romana, and other resort zones began within weeks of the first deaths becoming public. The focus of the inspections included bar stock — a concern raised by some of the families regarding illegally produced or improperly sourced alcohol being served in hotel bars — food service supply chains, minibar procedures, and the general health and safety management practices of resort properties. Hotels that failed inspections were required to close until remediation was complete.

For the Dominican Republic’s property market, the crisis creates a period of uncertainty that investors must manage carefully rather than react to precipitately. The Dominican Republic has been one of the Caribbean’s most active hotel development and resort property investment markets over the past decade, with the Punta Cana region in particular attracting substantial flows of Spanish, North American, and Caribbean capital into both branded resort operations and residential resort communities. The fundamental case for DR property investment — competitive pricing, excellent airlift, a government historically supportive of tourism investment, and a large and professionally managed resort sector — has not been structurally undermined by the current crisis.

What the crisis does demand is a more granular assessment of the risk differentiation within the DR market. International brand-operated properties — Marriott, Hyatt, Hilton, RIU, and others — operate under corporate safety standards and inspection regimes that provide a materially different risk profile from independent or domestically branded operations. Investors in brand-affiliated properties have the reassurance of those corporate standards; investors in independent operations need to apply more rigorous due diligence to the specific safety management practices of the property in question.

Caribbean-Wide Tourism Reassurance: The Industry Responds

The Caribbean tourism industry’s collective response to the DR crisis has been notable for its speed and coordination. The Caribbean Tourism Organisation and the Caribbean Hotel and Tourism Association have both issued communications emphasising the distinction between the specific circumstances in the Dominican Republic and the safety standards that apply across the broader Caribbean region. Individual island tourism authorities — Jamaica, Barbados, St Lucia, Antigua, and others — have used the moment to reinforce messaging about their destinations’ safety records and the standards that govern their hotel industries.

The industry’s concern is that the DR situation will create a perception spillover effect — that travellers and investors who become anxious about Caribbean hotel safety generally, rather than confining their reassessment to the specific Dominican Republic context, will defer bookings or investment decisions across the region as a whole. The evidence from June arrivals data suggests that this spillover effect has been limited. Jamaica’s June arrivals were up year-on-year; Barbados and several Eastern Caribbean destinations reported normal or above-normal inquiry and booking activity through the month. The DR crisis appears, at least for now, to be understood by most travellers as a Dominican Republic-specific issue rather than a Caribbean-wide concern.

For property investors, the distinction between branded and independent hotel operations has been given fresh relevance by the DR events. The track record of international hotel brands in maintaining safety standards, managing supply chains, and responding to incidents in ways that protect both guest welfare and brand reputation is a real and quantifiable asset. Investors evaluating hotel property investments across the Caribbean would be well advised to weight this factor appropriately — not as a reason to avoid independent hotel investments entirely, but as a factor that affects the risk premium appropriate to different operational models.

Caribbean Hotel Investment Pipeline: Fundamentally Sound

Against the backdrop of the DR situation, it is important to record that the Caribbean’s hotel investment pipeline outside the Dominican Republic is proceeding robustly. The region’s hotel development activity — which has been one of the strongest sustained investment themes of the past five years — shows no sign of fundamental disruption, and developers and operators in Jamaica, Barbados, St Lucia, Grenada, and the Eastern Caribbean CBI destinations are maintaining their programmes with confidence.

In Jamaica, the north coast hotel pipeline is the most active in a generation. Sandals Resorts is advancing multiple expansion projects, including new room inventory at several of its existing north coast properties. RIU Hotels has confirmed its commitment to further Jamaica capacity. A growing cohort of boutique hotel developers is advancing projects in destinations including Port Antonio and the Blue Mountains, targeting the experiential and wellness tourism segments that are among the fastest-growing globally. The Jamaica Hotel and Tourist Association reports that the pipeline of rooms under development or in planning is the largest in the organisation’s history.

Grenada continues to attract hotel investment through its CBI programme, which requires applicants investing in real estate to place their capital in government-approved projects — of which hotels and resort developments form the largest category. The recently completed Silversands Grenada luxury resort, and several other approved developments in various stages of advancement, represent a meaningful injection of international capital into Grenada’s hospitality sector. The island’s governance reputation and natural assets make it one of the Caribbean’s most credible small-island hotel investment destinations.

St Lucia’s hotel development activity is focused primarily on the northern end of the island, in the Cap Estate area and adjacent to the Rodney Bay marina complex. Several significant projects are in advanced planning or early construction stages, targeting the upscale and luxury segments that align with St Lucia’s brand positioning as a premium Caribbean destination. The island’s Citizenship by Investment programme — launched in 2016 and steadily building application volume — is providing an additional source of approved investment capital for qualifying hotel development projects.

Short-Term Rentals: Crisis Beneficiary

One unintended consequence of the DR hotel safety crisis has been an uptick in inquiry for private villa and short-term rental accommodation across the Caribbean. Travellers who have become anxious about hotel safety standards — even in destinations unaffected by the DR situation — are increasingly considering private villa accommodation as an alternative that avoids the supply chain and management complexity of large hotel operations. Airbnb, VRBO, and other platforms have reported increased Caribbean inquiry volumes through June, with private residence and villa categories seeing stronger than expected booking activity for the summer period.

For property investors in the villa and condominium segment across the Caribbean, this represents a modest but real tailwind. The short-term rental market across the region had already been performing well through 2019, with occupancy rates and average daily rates both tracking ahead of 2018 in most major markets. The additional demand impulse from travellers seeking alternatives to hotel accommodation adds further support to a market that was already demonstrating its investment credentials.

The professionalisation of the Caribbean short-term rental market has accelerated significantly over the past two to three years, with a growing cohort of dedicated property management companies offering vacation rental management services to villa and condominium owners. These operations — providing everything from booking management and pricing optimisation to housekeeping and guest experience delivery — have raised the quality and reliability of the private rental product significantly, broadening its appeal to a wider range of travellers including those who might previously have defaulted to hotel accommodation.

Caribbean Leaders This Month

Jamaica (Tourism Resilience): The island’s continued year-on-year arrivals growth through the DR crisis period demonstrates the strength of its brand and the confidence of its airlift partners. The north coast hotel investment pipeline is the most robust in the region.

Grenada (CBI and Hotel Development): Consistent CBI application volumes are funding a meaningful hotel development pipeline, and the island’s safety and governance reputation is an asset of heightened value in the current environment.

St Lucia (Luxury Positioning): The island’s premium brand positioning and improving airlift make it well placed to capture demand from travellers reassessing their Caribbean destination choices in the wake of the DR situation.

Guyana (Georgetown Commercial): The Liza Phase 1 pre-production environment continues to drive extraordinary commercial real estate demand in Georgetown, maintaining the market’s position as the Caribbean’s most dynamic property story.

Barbados (Stability): The BERT programme’s progress, combined with the island’s impeccable international reputation and its strong performance in the British tourism market, positions Barbados as a reassuring choice for investors seeking Caribbean property exposure with lower volatility.

Dominican Republic (Response Quality): The government’s rapid and substantive response to the hotel safety crisis is a credit to the administration. Whether this response translates into restored market confidence by the critical August booking period will be the key indicator to watch.

Turks and Caicos (Luxury Consistency): The Providenciales luxury market continues to deliver consistent performance, with capital values and rental yields both tracking positively and the development pipeline advancing steadily.

Overall Regional Performer — July 2019: Jamaica. In a month dominated by concerns about the Dominican Republic, Jamaica’s demonstrated resilience, continued tourism growth, and robust investment pipeline make it the Caribbean’s most unambiguously positive property market story.

Looking Ahead

The Dominican Republic situation will dominate the Caribbean tourism narrative through July and into August. The critical test will be whether the government and hotel sector’s safety reform programme has done enough to restore North American traveller confidence ahead of the peak summer booking season. The data from August arrivals — which we will report in our September edition — will provide the definitive early answer to that question.

For the broader Caribbean hotel and property investment community, the lessons of the DR episode will take time to fully absorb. The importance of brand-standard safety protocols, the value of international hotel brand affiliation as a risk management tool, and the due diligence questions that should accompany any hotel property investment — these are themes that will feature more prominently in professional discussions over the coming months. The crisis is, in this respect, a prompt for an industry-wide conversation that was overdue.

On a broader canvas, the Caribbean investment outlook for 2019 remains genuinely positive. The Guyana first oil milestone — still expected before year-end — will provide a major economic confidence boost to the region when it arrives. The tourism year is on track for a record despite the DR turbulence. Interest rates in the US are signalling a shift toward accommodation that will support financing conditions across the region. The property professional community would do well to maintain perspective: the DR crisis is a serious and specific problem requiring a serious and specific response, not a reason to revise downward the region’s fundamentally strong investment case.

The Caribbean Property & Investment Review is published monthly. Edition 85 covers the period 3 June – 2 July 2019. All market data represents conditions during the coverage period. This publication does not constitute investment advice.

Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com