‘Limited optimism’ among Caribbean property investors

Decent tourism numbers have somewhat bolstered investors’ confidence in Caribbean property, but overall their attitude toward the region appears to be one of caution until other sectors of the economy show signs of improvement as well, according to a recent analysis by a local property professional. 

In his “Caribbean Market Update” for the second quarter of 2013, Integra Realty Resources – Caribbean Managing Director James V. Andrews wrote, “There appears to be some, but limited optimism on the part of developers and investors in Caribbean property, as we see continued modest improvement in the sectors of tourism (hotel rates and occupancy, tourist arrivals to major destinations and spending), construction and housing prices in domestic markets. Some caution is being advised by investor services, in that government debts in many Caribbean nations continue to escalate relative to the GDP, and the offshore financial services sector continues to see intense pressure from major world governments on issues of transparency.” 

The full report is available at IRR-Caribbean’s website. 

 

Tourism 

Among 12 Caribbean jurisdictions listed in the report, the Cayman Islands experienced the most growth in stayover tourist arrivals (8.2 per cent) during the first quarter of 2013, compared to the same period in 2011. Last year, Cayman posted a 4.1 per cent increase in stayover tourist arrivals, compared to a regional average of 4.2 per cent increase. 

Mr. Andrews cites data from Smith Travel Research showing continuing improvement for Caribbean hotels in terms of occupancy, average daily rates and revenues in the first quarter. 

“STR reports 47 new hotels in the pipeline in the region, including 27 under construction [that] should open within 18 months. The Bahamas leads the region with nearly 2,300 rooms in the pipeline; 2,200 of which are part of the $3.5 billion mega resort Baha Mar (scheduled to open December, 2014). The Dominican Republic is said to have 10 projects in the pipeline with 2,600 rooms under construction. In terms of market trends, there appears to be a shift away from mid-priced all-inclusive resorts in favour of upscale projects,” he said. 

 

Selling, leasing 

While Cayman real estate sales have not been terrific, office rental rates remain strong, according to IRR’s report. 

Mr. Andrews said, “The condominium market on Grand Cayman’s Seven Mile Beach is virtually flat, with 25 sales totalling $25.6 million in the first six months (through 6/10/13) in the MLS [Multiple Listing System] system. This compares with 25 sales of $24.9 million in the same period for 2011. Prices average $560 per square foot.” 

He said, “Sales volume in the Cayman Islands for the first quarter of 2013 is consistent with the 2012 average quarterly figures, but demonstrates a continued downward trend when compared with prior year quarters.” 

Mr. Andrews said the region’s financial services industry is feeling outward pressure on companies to move assets onshore. “Barbados, with an office market inventory of about 870,000 square feet is more susceptible due to its higher reliance on the Eurozone, while the Cayman Islands (with an inventory of about 2.6 million square feet) appears to be continually able to sustain rental rates higher than anywhere in the region.” 

According to the report, the approximate vacancy rate of Grand Cayman’s Class A office space is 5 per cent, while the vacancy rate for Class A-, B and C office space is about 15 per cent. Those rates are identical to Barbados, but far better than Bahamas (with a Class A vacancy rate of 20 per cent and Class B and C vacancy rate of 30 per cent.) 

Cayman’s Class A vacancy rate is far superior to the Class A vacancy rate in British Virgin Islands (20 per cent), but Cayman’s Class A-, B and C vacancy rate is higher than BVI’s Class B and C rate (less than 10 per cent). 

Mr. Andrews said, “Sales of office buildings are infrequent in the Caribbean, presenting a problem with the derivation of cap rates; however, there have been several sales of Class B buildings in Grand Cayman recently indicating cap rates of between 9 per cent and 12 per cent.” 

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