Financial Services Industry Spurs Real Estate & Construction Boom
In recent years the market for office rentals has been impacted positively by the influx of new private banks, trust companies and other financial services related business. Additionally, many long-standing international financial service companies have undertaken extensive expansion.
During the past 2 years, 8 Class A (new) office buildings were constructed, representing about 400,000 square feet of new leasable space. The vacancy rate in this new space is below 12%. Over the last 3 years, vacancy rates in both Class A and Class B (older than 10 years) buildings dropped to 4%, from a previous high of 16.4% — representing an absorption rate of approximately 150,000 square feet per annum, according to realtor David Morley, President of the Bahamas Real Estate Association. Previous years saw an absorption rate of 55,000 square feet per annum. Recent years also have seen serious improvements and renovations of the Class B buildings, increasing the rental income being generated. Commercial investment properties have been selling at a price reflective of an average of a 10% cap rate; typically, the asking price of such properties is established by capping the previous year’s net operating income at 8%.
Current estimate of vacancy on the 1.3 million square feet of combined Class A and Class B office buildings is about 10%.
The BREA President credits the investor-friendly outlook of The Bahamas Government, as evidenced by the International Persons Landholding Act, for the construction and real estate boom — “both of which have exceeded any other booms previously encountered in The Bahamas”.