Caribbean Property & Investment Review — July 2015

Publication Date: 3 July 2015  |  Coverage Period: 3 June – 2 July 2015

Morning Briefing

• ExxonMobil’s appraisal programme on the Guyana Stabroek Block is advancing, with the company confirming plans for additional drilling to refine resource estimates at the Liza field following the landmark May discovery announcement.
• US–Cuba diplomatic normalisation continues to advance, with the two governments engaged in detailed talks on the restoration of full diplomatic relations; the process announced in December 2014 is progressing toward the reopening of formal embassies.
• The 2015 Atlantic hurricane season remains active in the background, with Tropical Storm Bill making landfall on the Texas coast in late June — a reminder of the season’s latent energy even before the statistical peak period of August and September.
• Jamaica’s tourism sector posted record H1 2015 visitor arrivals, with total stopover visitors up 7.4 percent year-on-year, driven by strong performance across Montego Bay, Kingston, and Ocho Rios.
• The Dominican Republic’s Central Bank reported GDP growth of 7.1 percent for Q1 2015 — the highest quarterly rate in a decade — with construction and tourism the primary engines, reinforcing the island’s position as the Caribbean’s largest and fastest-growing economy.
• Barbados’s fiscal consolidation programme remained on track through June, with the government reporting progress on public sector wage bill reduction and state enterprise reform, improving the outlook for eventual credit rating stabilisation.

Guyana Liza: From Discovery to Development — What Comes Next

The six weeks since ExxonMobil’s landmark Liza discovery announcement on 20 May have been a period of rapid recalibration for investors, policymakers, and property market participants across the Caribbean. The initial euphoria of the discovery has given way to a more measured assessment of the timelines, the conditions, and the structural requirements that will determine how — and how quickly — Guyana’s oil wealth translates into the economic transformation that the discovery promises.

ExxonMobil’s immediate priority following the Liza-1 confirmation is appraisal drilling — additional wells designed to delineate the extent of the field, confirm reservoir quality across different parts of the accumulation, and provide the data required for a field development plan. The company has confirmed its intention to drill further appraisal wells on the Stabroek Block, and the industry is watching the results of this programme with close attention. The resource estimate will be progressively refined as appraisal data accumulates, and each upward revision — which industry observers widely expect — will amplify the investment community’s interest in Guyanese assets.

For Georgetown’s property market, the six weeks since the discovery have already produced tangible changes. Several regional real estate agencies with offices in Georgetown report that enquiry volumes from external investors have doubled or more compared to the pre-discovery period, and that the profile of enquiries has shifted from primarily diaspora-related to a broader mix including energy sector investors, regional developers, and institutional-grade commercial property buyers. The shortage of quality residential accommodation capable of meeting expatriate housing standards — a chronic structural issue in Georgetown — has become acute in the perception of the international investor community, and the pipeline of proposed premium residential development projects is growing rapidly.

Commercial property — particularly office accommodation — is the market segment under most immediate pressure. ExxonMobil, Hess, and CNOOC will need to expand their Georgetown office footprints substantially as the appraisal and pre-development phases progress. Engineering, legal, financial advisory, and logistics companies supporting the Stabroek operation will add further demand. The Grade-A office market in Georgetown currently comprises a handful of buildings that do not approach the specifications that international energy companies require, and the development pipeline for new commercial space will need to accelerate markedly to meet anticipated demand.

US–Cuba Diplomatic Normalisation: Caribbean Tourism Reconfiguration

The process of diplomatic normalisation between the United States and Cuba, set in motion by the historic December 2014 announcements by Presidents Obama and Castro, has continued to advance through June 2015. While the formal restoration of full diplomatic relations — including the reopening of embassies — has not yet been concluded, the pace of progress suggests that this milestone is approaching. For the Caribbean tourism and property investment markets, the evolving US–Cuba relationship is generating a debate that is likely to shape regional investment strategy for years to come.

The central question for Caribbean hotel developers and property investors is whether Cuba’s gradual opening represents a competitive threat to established destinations or an opportunity to capture overflow demand from a region that will grow significantly in aggregate appeal. The arguments for the complement rather than competition thesis are compelling: Cuba’s tourism infrastructure is grossly underdeveloped relative to its natural attractions, meaning that any meaningful increase in US visitor flows to Cuba will require decades of investment in hotels, resort facilities, and supporting services. In the interim, the heightened profile of the Caribbean as a destination that the Cuba opening generates — through media coverage, travel industry attention, and US consumer interest — is likely to benefit the region broadly.

For property investors in established Caribbean destinations, the US–Cuba normalisation story is best approached as a long-term structural opportunity rather than an immediate competitive threat. Jamaica, the Dominican Republic, and Puerto Rico — the three largest Caribbean tourism markets — all have sufficient product depth and brand recognition to retain their market positions regardless of how quickly Cuba develops its tourism capacity. Smaller island destinations that compete primarily on the basis of proximity to the North American market, without distinctive natural or experiential advantages, face a more complex medium-term environment.

Hurricane Season Monitoring: Mid-Year Assessment

The 2015 Atlantic hurricane season through June has been relatively quiet in terms of Caribbean-threatening activity, but meteorologists are warning against complacency as the peak August–October period approaches. El Niño conditions in the Pacific have been moderating Atlantic hurricane activity — a pattern that has historically correlated with below-normal seasons — but the same El Niño that suppresses Atlantic storm formation is contributing to elevated sea surface temperatures in the Caribbean Sea itself, creating potential for rapid storm intensification if systems do develop.

For Caribbean property investors and owners, the mid-season point is an appropriate moment to verify that insurance policies are current and provide adequate coverage, that any structural vulnerabilities identified in pre-season property assessments have been addressed, and that business continuity plans for rental properties are in place. The financial consequences of a Category 3 or above hurricane strike on a major Caribbean tourism market are not hypothetical — the region has experienced them multiple times in living memory — and prudent risk management requires that property portfolios are protected against this tail risk regardless of seasonal forecasts.

Dominican Republic: The Caribbean’s Growth Engine

The Dominican Republic’s Q1 2015 GDP growth figure of 7.1 percent — the highest quarterly expansion in a decade — is a striking data point that reinforces the island’s status as the Caribbean’s fastest-growing major economy. The growth drivers are well established: a booming tourism sector, a construction industry operating at near-full capacity, remittances from the large diaspora community, and growing foreign direct investment in manufacturing and tourism infrastructure. Together, these drivers are creating an economic environment that is generating strong returns for property investors across the market spectrum.

The resort-residential market in the Punta Cana and Cap Cana corridors continues to be the most active segment for international investors, with branded residence projects from established hotel operators maintaining strong pre-sales. The domestic market is also expanding, with Santiago and Santo Domingo’s middle-class residential sector growing rapidly as improving incomes translate into rising homeownership aspirations. Developers who can serve both the international resort and the domestic urban segments are finding themselves in an enviable strategic position.

Caribbean Leaders This Month

Guyana — Post-Discovery Momentum: Georgetown’s property market continued to build momentum following the Liza discovery, with commercial property enquiries doubling and a growing pipeline of premium residential development proposals emerging in response to anticipated expatriate workforce demand.

Dominican Republic — GDP Growth Champion: Q1 2015 GDP growth of 7.1 percent — the highest in a decade — confirmed the DR as the Caribbean’s economic growth leader, with construction and tourism driving momentum that flows directly into property market dynamism.

Jamaica — Record H1 Tourism: A 7.4 percent year-on-year increase in H1 2015 stopover arrivals placed Jamaica among the region’s tourism growth leaders, with the strong performance directly supporting short-term rental yields and hotel operator confidence in the market.

Cayman Islands — Premium Market Leadership: The Cayman premium residential market maintained its position as the region’s most liquid ultra-high-net-worth property market through June, with Seven Mile Beach transactions continuing to set benchmark pricing for the Caribbean luxury segment.

Trinidad & Tobago — Guyana Services Positioning: T&T’s energy services sector moved decisively to position for Guyana-related contracts in June, with industry bodies and individual companies initiating commercial discussions with ExxonMobil’s supply chain team and the Guyanese government’s procurement framework.

Barbados — Fiscal Progress: Continued progress on public sector wage bill reduction and state enterprise reform kept Barbados’s fiscal consolidation programme on track, supporting the case for eventual credit rating stabilisation and improved investor confidence.

Antigua & Barbuda — Marina Development: Antigua’s world-class marina infrastructure at Falmouth and English Harbour continued to attract superyacht traffic and the associated premium residential demand that follows high-end marine tourism, with several waterfront property enquiries from European buyers recorded in June.

Overall Performer — Dominican Republic: The DR’s combination of 7.1 percent Q1 GDP growth, record tourist arrivals, and an accelerating resort-residential development pipeline made it the most comprehensively dynamic Caribbean property market story of June 2015. Its scale and growth trajectory distinguish it clearly from all other markets in the region.

Looking Ahead

The Caribbean’s attention over the coming months will be divided between the continuing unfolding of the Guyana oil story — with additional appraisal well results expected in the second half of the year — and the evolution of US–Cuba diplomatic relations. The anticipated formal reopening of US and Cuban embassies in both capitals is expected within weeks, and this milestone will generate renewed media and policy attention on the Caribbean region that investors would do well to monitor. The signal that US–Cuba normalisation sends to the broader global investment community — that the Caribbean is a region of dynamic change and opportunity — is intrinsically positive for the wider archipelago.

The hurricane season peak is approaching, and the Caribbean property market should not be lulled into complacency by the relatively quiet June. August and September are historically the months of greatest storm activity, and the current El Niño — while moderating Atlantic activity on a statistical basis — does not eliminate the risk of individual powerful storms developing and tracking through the Caribbean. Investors are reminded that adequate insurance coverage is a non-negotiable element of Caribbean property portfolio management.

Jamaica’s summer tourism season will provide the next major data point on the island’s property market trajectory. August is traditionally the busiest month for family tourism to Jamaica from North America, and accommodation providers are reporting strong advance bookings. If the season delivers results consistent with the H1 data, the full-year tourism picture will be the strongest Jamaica has seen in at least a decade — a foundation for continued property market confidence heading into 2016.

The Caribbean Property & Investment Review is published monthly and provides analysis of real estate, economic, and investment developments across the Caribbean region. This edition covers the period 3 June to 2 July 2015. All market data reflects conditions prevailing during the stated coverage period.

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