Caribbean Property & Investment Review — July 2017

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

Morning Briefing

• Caribbean summer 2017 tourism performance is tracking strongly, with June hotel occupancy across major destinations running ahead of prior year comparatives and confirming the forward booking momentum that characterised the pre-season outlook.
• The 2017 Atlantic hurricane season is producing early activity, with several named storms tracked in June; the season’s active character is consistent with the above-normal NOAA forecast and is keeping property preparedness and insurance adequacy in sharp focus.
• Jamaica’s property market is showing its strongest momentum in several years, with construction activity across residential, commercial, and resort sectors all proceeding at elevated levels.
• Dominican Republic construction accelerated through June, with several major resort openings and project milestones confirming the market’s position as the Caribbean’s investment leader.
• Guyana’s oil development programme continues its methodical advance, with Georgetown property market data reflecting the sustained growth of the international oil services community.
• Caribbean regional economic growth projections for 2017 have been revised upward by IMF and CDB economists, reflecting the strength of tourism revenues and investment flows across the region.

Caribbean Summer Tourism 2017: The Boom Continues

The Caribbean’s 2017 summer tourism season is delivering on the considerable promise of its advance booking data, with June hotel performance across the region’s major destinations running ahead of the prior year’s already impressive comparatives. This is the time of year when the Caribbean proves that it is not merely a winter destination for North American snow-escapees, but a year-round hospitality proposition with genuine depth of demand from a diverse global market. The summer of 2017 is making that case powerfully.

Jamaica’s north coast is the standout performer of the summer season, with occupancy rates in the Montego Bay and Ocho Rios resort corridors running at levels that have exceeded industry projections. The Jamaica Tourist Board’s sustained investment in North American marketing — and the growing recognition among US and Canadian travellers of Jamaica’s compelling value proposition and cultural authenticity — is translating into booking patterns that are no longer sharply seasonal but show genuine strength through the summer months. The airport infrastructure at Sangster International in Montego Bay is handling increasing summer airlift without the congestion that has sometimes affected peak winter operations, and the improvement in ground transportation and tourism product across the island is adding to the positive visitor experience that generates repeat bookings and word-of-mouth referral.

Barbados, despite its macroeconomic challenges, is delivering a solid summer tourism performance that is providing some relief to the tourism-dependent government’s revenue outlook. The island’s premium positioning — particularly on the west coast — is generating strong demand from the UK, European, and high-net-worth American markets. Villa rental rates on the platinum coast are at their peak summer levels, and the occupancy performance of the luxury hotel properties is providing important revenue support for assets whose operating economics have been challenged by rising costs in the austerity environment. For property investors in Barbados’s luxury segment, the summer performance data is a reminder that the fundamental demand for premium Caribbean island experiences remains robust even amid Barbados’s domestic fiscal difficulties.

The Dominican Republic’s massive all-inclusive resort infrastructure is running at high summer occupancy, with the Punta Cana corridor maintaining the strong performance that has characterised the destination across all seasons of 2017. The DR’s ability to simultaneously serve the North American package travel market, the European charter market, and the growing Latin American leisure market — all through different commercial channels and at different price points — gives it a demand diversification and volume capacity that no other Caribbean destination can match. The summer weeks of July and August, when the resort cluster’s air connections are at their most numerous, represent the DR’s highest-volume period of the year, and the 2017 data is tracking well ahead of the already-strong 2016 comparatives.

Hurricane Season: Active and Requiring Vigilance

The 2017 Atlantic hurricane season, which officially opened on June 1, has already demonstrated the active character that NOAA’s pre-season forecast predicted. June saw several named tropical systems form in the Atlantic, and meteorological indicators — including above-average sea surface temperatures across the main development region of the tropical Atlantic and a neutral-to-negative ENSO environment — continue to support the expectation of continued above-normal activity through the season’s peak months of August, September, and October.

The Caribbean property sector is following the season’s development with the heightened attention that a post-Matthew, above-normal-forecast year demands. Insurance renewals across the region have been completed through mid-year, and the above-normal seasonal outlook has been a factor in insurer and reinsurer assessments of Caribbean catastrophe risk pricing adequacy. Property owners who have maintained comprehensive coverage through the renewal cycle are in the best position; those who have allowed coverage to lapse or who have accepted higher deductibles in exchange for lower premiums face elevated exposure in an active season.

Haiti’s Matthew reconstruction, now nine months on from the storm’s October 2016 landfall, continues to be the region’s most sobering reminder of the long-term consequences of a major hurricane strike. Hundreds of thousands of people in Haiti’s southern peninsula remain in temporary or sub-standard shelter, and the reconstruction of permanent housing stock — let alone the agricultural and infrastructure rebuilding required — is progressing at a pace that will require sustained international support for years to come. For Caribbean property markets more broadly, Haiti’s reconstruction experience is a case study in the importance of building to resilient standards and maintaining adequate insurance coverage before a storm arrives, since post-event reconstruction without those foundations is vastly more costly and protracted.

Jamaica: Property Market Momentum Across All Segments

Jamaica’s property market in mid-2017 is presenting perhaps its most positive picture since the global financial crisis of 2008-2009 disrupted Caribbean real estate markets. The combination of sustained tourism excellence, continued fiscal reform and macroeconomic stability under the Holness government, active NHT mortgage programme delivery, and a growing commercial and industrial property sector reflects an economy that is building momentum across multiple dimensions simultaneously.

In the residential segment, the Greater Kingston area is experiencing sustained construction activity across the affordable, middle-market, and upper-market segments. NHT-financed schemes in St. Catherine and St. Andrew continue to provide first-time buyer access to homeownership in a market where private sector mortgage rates would otherwise price many aspiring buyers out of the market. In the upper-market residential segment, gated communities in Cherry Gardens, Norbrook, and the hills above Kingston are maintaining strong demand from professionals, business owners, and diaspora returnees seeking quality residential environments. The diaspora connection is a particularly important demand driver in this segment: Jamaicans who have worked in the United States, Canada, and the UK and who are approaching retirement age or seeking to invest their overseas savings in Jamaica represent a significant and growing buyer cohort that supports premiums in the upper-market residential segment.

The commercial property market in Kingston continues to show signs of transformation. The New Kingston business district’s office market has absorbed a pipeline of refurbished and newly developed space with reasonable efficiency, and occupier demand — from BPO operators, financial services firms, professional services practices, and international businesses with regional headquarters in Kingston — has kept vacancy rates manageable. The Kingston waterfront development zone is beginning to attract hospitality and entertainment operators, with several concepts in various stages of development that could transform a historically underutilised waterfront asset into a vibrant mixed-use district. These developments, if successfully executed, would strengthen the investment case for Kingston commercial property and support the capital’s repositioning as a regional hub for creative industries and international business.

Dominican Republic Construction: The Pipeline Delivers

The Dominican Republic’s construction sector is delivering on the pipeline commitments of recent years, with June seeing several significant project milestones: hotel openings, resort phase completions, and residential project launches that collectively confirm the market’s position as the most active property investment arena in the Caribbean. The scale and diversity of the DR’s construction activity — spanning luxury resorts and branded residences in Cap Cana, large all-inclusive hotel additions in Punta Cana, urban residential and commercial development in Santo Domingo, and tourism infrastructure in the north coast corridor — reflects a market with genuine depth across multiple segments and price points.

Foreign direct investment in Dominican Republic real estate continues to flow from North American, European, and Latin American sources, attracted by the country’s strong tourism fundamentals, its relative political stability, and the competitive land and construction costs that allow developers to achieve viable returns at price points accessible to a broad range of international buyers. The branded residence segment is particularly active, with several international hotel groups — including Hyatt, Four Seasons, and Fairmont — developing branded residential products in the Cap Cana and Punta Cana areas that combine the marketing power of a global hotel brand with the asset ownership economics of resort real estate investment. These products are attracting buyers from across the international market who seek the reassurance of brand recognition and professional management alongside their Caribbean property ownership.

The DR’s tourism infrastructure investment is not limited to the Punta Cana cluster. Santo Domingo’s colonial city zone — a UNESCO World Heritage Site — is seeing growing boutique hotel and cultural tourism investment. The north coast’s Puerto Plata and Cabarete areas are attracting mid-market resort investment and are positioning for growth in the independent and adventure tourism segments that complement the mass all-inclusive market. And the mountainous interior of the country is beginning to attract eco-tourism and agro-tourism investment that diversifies the DR’s tourism proposition beyond the beach resort model. This diversification of investment and tourism product across multiple DR regions suggests a market with sustainable long-term development dynamics.

Caribbean Leaders This Month

Jamaica — PM Andrew Holness: Jamaica’s property market momentum through June 2017 represents a validation of Holness’s government’s economic management strategy. The combination of fiscal discipline, active investment promotion, NHT programme delivery, and tourism sector excellence is generating a property market environment of genuine depth and confidence. Jamaica enters the second half of 2017 in the strongest position it has occupied in many years.

Dominican Republic — President Danilo Medina: Medina’s government continued to execute on the DR’s investment and tourism strategy with impressive consistency. June construction milestones, strong summer tourism occupancy, and continued FDI flows all confirm the market’s leadership position. The DR is building toward a 2017 that may be its most successful year yet by most economic measures.

Guyana — President David Granger: Georgetown’s property market reflected continued growth in the oil services community through June, with accommodation demand maintaining upward pressure on rents in quality residential neighbourhoods and office space demand generating new development interest. Granger’s government is managing the complex challenge of pre-oil economic governance with the awareness that the decisions made in this period will shape Guyana’s development trajectory for decades.

Barbados — PM Fruendel Stuart: Stuart’s government drew some relief from a solid summer tourism performance, but the underlying fiscal challenges remain acute. The combination of debt sustainability concerns, declining foreign exchange reserves, and the approaching election create a difficult political economy environment for property market participants to navigate.

Trinidad and Tobago — PM Keith Rowley: T&T’s property market maintained its subdued character through June, with the LNG sector headwinds and domestic austerity both constraining demand. Tobago’s tourism development programme provided a measure of positive activity, and some improvement in energy prices offered modest fiscal relief.

St. Lucia — PM Allen Chastanet: The newly elected Chastanet-led UWP government was pursuing an active investment promotion agenda, seeking to position St. Lucia as a compelling alternative for Caribbean hospitality investment with a focus on the luxury and boutique segments where the island’s natural beauty gives it a competitive advantage.

Cayman Islands — Premier Alden McLaughlin: Grand Cayman’s property market maintained strong activity through the summer period, with the Seven Mile Beach corridor continuing to attract premium residential investment from high-net-worth buyers. The territory’s combination of political stability, financial services sophistication, and exceptional natural environment continued to make it one of the Caribbean’s most sought-after residential addresses.

Overall Performer This Month: Jamaica earns July’s recognition for the breadth and depth of its property market performance — tourism excellence, construction momentum, commercial property development, and continued NHT programme delivery collectively creating the most vibrant Jamaica property market in a decade.

Looking Ahead

August represents the peak of both the Caribbean summer tourism season and the Atlantic hurricane season. The property market will be simultaneously enjoying the revenue benefits of maximum summer occupancy and managing the heightened uncertainty of the most active period of storm risk. Caribbean property owners and investors should have their hurricane preparedness and insurance coverage confirmed before August’s potential threats materialise. The season’s above-normal character makes this year’s preparedness imperative particularly acute.

The Dominican Republic will continue to be the most active property market in the Caribbean through the summer months, with construction programmes maintaining momentum and tourism revenue generating the operating cash flows that support ongoing investment in resort assets. The DR’s first-half 2017 performance will be summarised in industry data releases through July that will provide further evidence of the market’s trajectory.

Guyana’s oil development story will continue to generate interest from the investment community as the Liza Phase 1 programme advances toward its late 2019 first oil target. The remaining construction and procurement milestones over the second half of 2017 will maintain the development narrative that is driving Georgetown’s property market transformation. Investors tracking the Guyana opportunity will have additional data points from which to calibrate their assessments of the market’s trajectory as the year progresses.

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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