Hurricane Fiona Strikes Caribbean: Energy Crisis and Construction Costs Bite — October 2022

Publication Date: 3 October 2022  |  Coverage Period: 3 September – 2 October 2022

Morning Briefing

• Hurricane Fiona devastates Puerto Rico and Dominican Republic: Hurricane Fiona made landfall in Puerto Rico on 18 September 2022, causing catastrophic flooding across the island, before striking the Dominican Republic’s southwest coast on 19 September. Initial assessments suggest billions in property and infrastructure damage across both territories.
• Global fuel prices keep Caribbean energy costs at record highs: Brent crude averaged above US$90 per barrel through September 2022, driven by OPEC supply management and continued disruption from the Russia-Ukraine war. Caribbean electricity tariffs and fuel costs remain near historic peaks, adding significantly to construction and living costs.
• Caribbean construction material costs up 40% from 2020: The latest CARICOM building materials price survey shows steel rebar, Portland cement and structural timber all priced at 35–45% above their 2020 baselines, as energy-intensive manufacturing costs and freight rates combine to drive historic cost inflation.
• US Federal Reserve raises rates to 3.0–3.25%: The Federal Reserve delivered a third consecutive 75 basis point rate increase in September 2022, taking the target rate to 3.0–3.25% and signalling further significant increases ahead as US inflation remains near 8%.
• Jamaica tourism sector records best September in decade: Despite the global economic headwinds, Jamaica’s tourism sector reported September 2022 visitor arrivals at the best level for the month since 2012, with the ongoing post-pandemic recovery continuing to outperform expectations.
• Barbados GDP growth 11% in first half 2022: The Barbados Statistical Service reported GDP growth of approximately 11% in the first half of 2022, driven almost entirely by the extraordinary rebound in tourism from the effectively closed 2021 base.

Hurricane Fiona: The Caribbean’s Most Destructive Storm Since Maria

Hurricane Fiona’s passage through the Caribbean in mid-to-late September 2022 delivered the region’s most significant storm disaster since Hurricane Maria struck Puerto Rico and Dominica in 2017. The storm’s impact was shaped not primarily by its category on the Saffir-Simpson wind scale — Fiona was Category 1 at its Puerto Rico landfall — but by the extraordinary volumes of rainfall it produced over Puerto Rico and the Dominican Republic. Rainfall totals of 20–30 inches over 24 hours in some locations triggered catastrophic flooding, landslides and river inundation that destroyed infrastructure, homes and livelihoods across communities that had never fully recovered from Maria.

Puerto Rico’s experience of Fiona has been shaped by the island’s extraordinary vulnerability following Maria. The electrical grid — privatised and partially reconstructed since 2017 but not yet fully resilient — failed island-wide as Fiona made landfall, leaving virtually all 3.3 million residents without power in the immediate aftermath. The flooding of Salinas, Guayanilla and other coastal and riverside communities in the island’s south was severe, with many homes completely submerged. Water treatment and distribution systems, already fragile, were overwhelmed by the flooding, leaving large portions of the population without safe potable water for extended periods.

The Dominican Republic’s southwestern provinces — Barahona, Independencia, Pedernales and El Seibo — absorbed Fiona’s landfall on 19 September as the storm tracked across the island. The area, among the DR’s most economically marginalised, suffered severe damage to roads, bridges and housing stock. The Pedernales coast, which the DR government had been positioning as an eco-tourism development zone with significant public and private investment planned, was affected in ways that will require reassessment of development timelines and site-specific risk. The Haitian border communities in adjacent departments also experienced significant storm impacts, adding a humanitarian dimension to the disaster that crosses national boundaries.

For Caribbean property markets, Fiona’s immediate effect is a pause in activity in directly affected areas and a heightened focus on climate risk across the region. The storm will accelerate insurance premium increases that were already underway, reinforce the case for building code compliance and resilient construction, and prompt a new wave of investor questions about the long-term viability of Caribbean coastal property in a world of intensifying Atlantic hurricane activity.

The Caribbean Energy Crisis: Fuel, Power and Property Costs

While Fiona dominates the news, the Caribbean’s ongoing energy cost crisis represents a slow-motion pressure on property markets that is arguably more consequential in cumulative terms than any single storm event. Russia’s invasion of Ukraine in February 2022 sent global energy prices to extraordinary levels: Brent crude peaked above US$120 per barrel in June 2022 and, while moderated from those extremes by late September, remains above US$90 per barrel. For Caribbean states that import essentially all of their liquid fuels, this sustained elevation in global oil prices translates directly into higher electricity tariffs, higher transportation costs, higher construction energy costs and higher costs for virtually everything that involves movement or manufacturing.

The electricity tariff situation across the English-speaking Caribbean is particularly acute. Most island electricity utilities operate oil-fired generation, meaning their fuel costs move in direct proportion to global oil prices. Several utilities have implemented emergency fuel surcharges on consumer bills, with some households and businesses seeing electricity costs double or more compared to 2020 levels. For property developers, energy-intensive construction processes — concrete mixing, steel fabrication, material transportation — have become materially more expensive as a direct result of fuel price inflation. For property owners, higher electricity bills are a direct increase in the cost of ownership that erodes the attractiveness of Caribbean property as a rental investment when not offset by higher rental rates.

Trinidad and Tobago represents a partial exception to this regional energy cost pressure. As a net exporter of natural gas and petrochemical products, T&T’s domestic energy prices are partly insulated from global oil price spikes by a system of domestic fuel subsidies that the government has maintained despite fiscal pressure. The country’s LNG exports have generated extraordinary revenues in 2022 as European buyers desperate for non-Russian gas supply have been willing to pay record prices, providing T&T’s government with fiscal resources that smaller, energy-importing Caribbean states simply do not have.

Guyana, whose oil production is now approaching 300,000 barrels per day under ExxonMobil’s Stabroek Block development, is generating oil export revenues that are transformative at the national scale. The irony that the Caribbean’s newest oil producer is achieving its greatest fiscal windfall at a moment when the rest of the region is being devastated by high oil import costs is not lost on regional policymakers. Guyana’s government has committed to using a portion of its Natural Resource Fund oil revenues to support energy infrastructure development, including potentially supplying liquefied natural gas to neighbouring Caribbean states, a proposal that has been discussed in various regional forums for years but has yet to achieve commercial implementation.

Construction Costs: The Paradox of Supply and Demand

Caribbean construction costs present a paradox in September 2022: costs have never been higher, yet construction activity has not collapsed. The CARICOM survey showing building materials at 35–45% above 2020 baselines represents an extraordinary inflationary shock to an industry that works on thin margins and long project timelines. Steel rebar, essential for reinforced concrete construction which is the standard in hurricane-zone building, has been particularly affected by the combination of global steel price increases, higher shipping costs and the energy cost inflation that makes steel manufacturing itself more expensive.

Yet across the Caribbean, construction cranes remain visible on urban skylines and development activity continues, albeit at modified pace and economics. The explanation for this resilience lies in the nature of Caribbean construction demand: much of it is driven not by speculative development but by structural needs — government housing programmes that must proceed regardless of cost, tourism infrastructure investments backed by international capital that is not sensitive to local construction cost inflation, and diaspora-driven residential construction where the funding source is US dollar or sterling-denominated remittances that have gained purchasing power relative to local currencies.

The longer-term effect of sustained cost inflation is a reduction in the pipeline of genuinely affordable housing. Projects that were financially viable at 2020 construction costs are not viable at 2022 costs without either higher sale prices (which price out the target market) or higher subsidy (which requires public expenditure that Caribbean governments are struggling to sustain). The result is a narrowing of the affordable development pipeline at exactly the moment when housing affordability pressure on Caribbean households is most acute.

Tourism Boom Continues Despite Economic Headwinds

Against the backdrop of Fiona’s destruction and energy cost pressures, Caribbean tourism has demonstrated remarkable resilience through September 2022. Jamaica’s record September visitor numbers represent the continuation of a recovery trajectory that has surprised even optimistic forecasters. The post-pandemic “revenge travel” phenomenon shows no signs of abating: North American and European consumers who prioritise vacation experiences are continuing to book Caribbean destinations despite inflation eroding their discretionary spending power in other areas.

Barbados’s 11% GDP growth in the first half of 2022 is essentially a story of tourism recovery from a very low 2021 base, but it represents a real and substantial economic rebound that is supporting property market activity across the island. The west coast’s luxury villa and hotel market is particularly strong, with occupancy rates running at levels that generate the rental income needed to justify the premium prices that Barbados luxury property now commands. The island’s strategic decision to position for higher-value, longer-stay tourism through the Welcome Stamp programme is paying dividends in exactly the way its architects intended.

The tourism boom’s direct property market implications are significant. Hotels that have been operating at high occupancy are generating the cash flows needed to finance renovation, expansion and new development. Short-term rental property owners are achieving occupancy and rate levels that justify the premium prices paid for well-located properties. And the broader circulation of tourism revenue through Caribbean economies is supporting employment and incomes that underpin demand for residential property in the middle market, partially offsetting the dampening effect of rising mortgage rates.

Caribbean Leaders This Month

Jamaica demonstrates remarkable economic resilience in September 2022, with tourism arrivals at a decade-high September level despite the extraordinary global economic pressures. The island’s property market continues to benefit from diaspora investment and tourism sector strength.

Barbados posts the region’s strongest first-half GDP growth figure at 11%, a testament to the scale of tourism recovery and the effectiveness of the Welcome Stamp programme in attracting high-value visitors and property buyers to the island.

Trinidad and Tobago benefits from record LNG export revenues as European buyers pay extraordinary prices for non-Russian natural gas supply. T&T’s fiscal position is the strongest it has been in years, providing scope for investment in housing and infrastructure.

Guyana continues to expand oil production toward the 300,000 bpd milestone, with fiscal revenues flowing into the Natural Resource Fund and beginning to support expanded public investment. Georgetown’s property market remains the Caribbean’s fastest-appreciating in 2022.

Dominican Republic faces its most significant natural disaster since the 2010 Haiti earthquake in terms of Caribbean-regional impact, with Fiona’s southwest landfall requiring massive reconstruction commitment at a moment when the country’s eastern tourism zones are operating at record performance. Managing these two simultaneous realities is the defining challenge for the Abinader government.

St Lucia has avoided direct hurricane impact and continues to benefit from its premium tourism positioning, with villa rental demand strong through the autumn season and property investment enquiries from European buyers remaining active.

Cayman Islands enters Q4 with property values holding at record levels and a pipeline of new luxury development approvals reflecting confidence in sustained high-end demand. The financial services sector — the backbone of Cayman’s economy — is performing strongly despite global equity market volatility.

Antigua and Barbuda demonstrates the value of its CBI programme as a counter-cyclical economic tool: global uncertainty and rising geopolitical risks are driving demand for Caribbean citizenship from buyers across multiple markets, providing a revenue stream that partially offsets the pressures of higher import costs.

Overall regional performer this month: Trinidad and Tobago, whose extraordinary LNG revenue windfall in 2022 positions the country with the fiscal resources to maintain and expand housing and infrastructure investment at a scale that energy-importing neighbours cannot match.

Looking Ahead

The aftermath of Hurricane Fiona will define the coming months for the Dominican Republic and Puerto Rico. The scale of reconstruction needed — in housing, roads, bridges, power infrastructure and water systems — is vast and will require sustained engagement with FEMA, the Inter-American Development Bank, the Caribbean Development Bank and bilateral donors. The speed and quality of this reconstruction will determine whether affected communities can recover their economic trajectories or face a prolonged period of displacement and reduced productive capacity.

The energy crisis is unlikely to abate quickly. Russia’s war in Ukraine shows no sign of resolution, and the OPEC+ production cuts that have helped sustain oil prices above US$90 per barrel are likely to continue. Caribbean governments and property developers must plan for an extended period of elevated energy and construction costs, which will require greater creativity in project financing and design to deliver viable affordable housing in this environment.

For investors, the Caribbean market in Q4 2022 presents a bifurcated opportunity. The luxury and tourism-linked segments are performing exceptionally well and the investment case remains strong. The affordable and middle-market segments face extraordinary headwinds from cost inflation, rising mortgage rates and energy costs. The discipline of separating these two sub-markets — rather than treating the Caribbean as a single homogeneous investment proposition — will be essential for achieving competitive returns in the months ahead.

The Caribbean Property & Investment Review is published monthly and covers developments during the preceding calendar month. All factual statements reflect information publicly available at the time of publication.