Here comes the sun: 3 positive signs for Caribbean commercial real estate
Mar 7, 2013
James V. Andrews
MAI, CRE, FRICS, ASA/BV
Senior Managing Director, Integra Realty Resources - Miami | CaribbeanThe Caribbean tends to lag six to 12 months behind the United States when on a downward cycle or during recovery or economic growth. While the U.S. is, in many aspects, headed toward recovery, the Caribbean is lagging behind by at least several quarters, if not a year or more.
However, there are some bright spots in the Caribbean that are mitigating some of the region’s economic challenges. While Caribbean real estate still has some hurdles to clear before its recovery firmly takes hold, here are three reasons to be optimistic about resort and tourism related property investments in the Caribbean.
1. Tourism is up. The Caribbean Tourism Organization is reporting a continuation of growth in tourism statistics around the region. Arrivals for the first six to nine months of 2012 of “stayover” visitors increased in nearly every reporting country, with the top 11 markets reporting a 4.42% average increase over the same period in 2011. The Dominican Republic led the number of arrivals, with more than 3.5 million stayover arrivals in the first nine months of the year, and a 7.3% growth rate. Since tourism heavily impacts the overall economies and real estate markets of the various jurisdictions, this is good news.
2. Airlift is mostly improving. One important aspect of tourism growth is airlift. Regionally, access to the smaller destinations is becoming a problem as several airlines have pulled their service from the region. However, airlift from the U.S. to larger Caribbean destinations appears to be advancing. Airport expansions are underway in Providenciales, Turks and Caicos, and San Juan, Puerto Rico. And several other airlines have expanded or introduced new service to the region. As for the European market, Virgin Holidays, a division of Virgin Airlines, reported in January 2013 that advance 2013 bookings are up 20% over 2012, including a 17% growth factor for the Caribbean.
3. Hotel occupancy continues to rise. Improvements for hotels in the Caribbean continued in 2012, according to the most recent data from Smith Travel Research (STR). In terms of occupancy, average daily rates (ADR), and revenues, 2012 was the fourth straight year of increases, with the exception of a slight decline in occupancy for 2010. Hoteliers are focusing on upper-end properties, which appear to be recovering faster than the mid-priced and all-inclusive sector in the region. In terms of segmentation, the article indicates that for the Caribbean and Mexico, the upscale segment added the most rooms in 2012 with seven hotels and 970 rooms, followed by the upper mid scale segment (four hotels and 483 rooms), and the luxury segment (three hotels with 447 rooms).
Economically speaking, the Caribbean region continues to be in a period of slow recovery. In terms of tourism, however, there are signs of gradual improvement in most markets where arrivals and occupancy are indicating modest increases, though real estate markets will take some time to follow suit. In order to be successful, developers need to have (1) a solid location with adequate access / airlift; (2) proven reputation allowing them to capitalize on customers and buyers from their other developments; (3) sufficient equity contributions as to not rely on heavy leverage from conventional debt financing (or alternative funding); and (4) a development plan to cater to the right market segmentation – which currently appears to be the upscale and luxury segments.
