Recently I was called upon by The Wall Street Journal to discuss the changing dynamics and real estate investment trends in the Caribbean market. For the special issue that ran in print on February 28, I shared insights on everything from real estate tax abatement to the value-add of certain amenities for local residential properties. As the reporter noted in the story, IRR’s Fourth Quarter 2013 Caribbean Market Update finds that the second-home market in the region was affected by the recession, and still has some work to do for prices to return to their highs of seven to 10 years ago. But today, I wanted to take a deeper dive for our clients and partners to explain the areas of growth in this region and provide a more comprehensive outlook on what’s ahead in the commercial sector.
After years of a slowdown, the Caribbean real estate market’s finally heating up. In my last post, I explained the economic standings of the Caribbean nations after the second quarter of 2013, and highlighted modest improvement in the sectors of tourism, construction, and housing prices.
Those improvements added up to 2.6% growth in GDP per capita for the Caribbean in 2013, with larger countries, such as Haiti and Jamaica, leading the charge. While improvements today are still modest, increases in American tourism, commercial real estate sales and development, and medical tourism point to continued growth throughout the region.
Here are three areas of positive growth in the Caribbean:
Reignited American tourism
While Caribbean visitor arrivals were basically flat in the second quarter of 2013, so far 2014 tells a different story. According to Smith Travel Research (STR), occupancy was up 2.8% to 72.6% throughout the region in January, with average daily rate (ADR) up 5.6% to $245.46. Stay overs were also up by 3.6%, a trend the Caribbean Tourism Association expects to continue in 2014.
The rise in tourism comes as no surprise. As the United States economy continues to bounce back after the Great Recession, the Caribbean is expected to follow suit at a 12- to 24-month delay. With more Americans regaining disposable income, many are returning to the Caribbean and spending that money on tropical vacations.
Many Caribbean developers have also slowed their number of current construction projects, since the region continues to feel the aftershocks of the American recession. This slowing in construction has limited the number of available rooms throughout the region, and has boosted ADR.
Commercial real estate pickup
Real estate sales are rebounding, especially in the larger commercial property markets of Trinidad, Jamaica and the Cayman Islands. Offshore jurisdictions such as the Cayman Islands’ which have significant financial sectors were able to keep their economies afloat during the recession, allowing the commercial real estate market to continue to thrive. The office and commercial property market in Puerto Rico is also sizable, but stagnant in terms of improvement relative to rents and occupancies. Trinidad’s economy remains strong largely due to the nation’s rich oil and gas reserves.
Some of the Caribbean countries renowned for luxury resort-residential developments, such as the British Virgin Islands, Anguilla, Barbados, St. Vincent and the Grenadines, and St. Barth, are seeing slow recovery in regard to real estate sales, which more significantly affect these smaller economies that are heavily dependent upon new developments to spur job growth. Real estate sales in Turks and Caicos, another destination known for luxury vacation homes, are rebounding following a major slump in the years 2008-2011.
While hotel and resort developers are struggling to acquire financing through traditional U.S. institutions, lending from regional banks have kept construction ongoing, albeit slowly. Developers have moved away from mid-price chain scale hotels in favor of luxury brands which are perceived to have higher profit margins and are more recession proof.
The all-inclusive sector also appears to be shifting toward a more luxury element based on recent acquisitions and expansions in this genre. For example, Sandals recently purchased and rebranded the upscale La Source Hotel in Grenada to a Sandals and purchased the Veranda Resorts and Residences in Turks and Caicos which has been rebranded to Key West Village – the fifth village within their Beaches Hotel on Providenciales. Sandals is on an expansion trend, having also recently purchased both the Couples Resort and the Almond Village hotel in Barbados, which is considered a more upscale destination than Jamaica where many of the Sandals properties are located.
Healthy medical tourism
Medical tourism is a $100 billion global industry forecasted to grow 35% each year. As Americans continue to go abroad for medical care, an increasing number are choosing the Caribbean as their optimal treatment location. Medical tourism is a new source of income for many Caribbean countries, and is spurring the development of high-end medical facilities throughout the region. For example, the Cayman Islands recently completed construction of Health City, a “center of excellence” for cardiac surgery, cardiology, and orthopedics. This center houses 105 beds, all reserved for tourists seeking luxury medical care; but with future expansion plans up to 2,000 beds within 10 years.
The Caribbean’s marked economic improvement and recovery is expected to continue at a slow but steady pace. An influx of American tourism, through traditional and medical means, will lead the growth, with slight boosts stemming from the offshore financial services sector. Panama, Costa Rica, and the Dominican Republic are expected to see significant GDP growth in the coming year.
Check out more updates on the Caribbean economy, and what these trends might mean for developers and investors