The demand for office space has fallen in Trinidad and Tobago. This has been caused by larger economic factors in the country — notably the effect that the low price of oil has had on growth within the oil and gas sector — in addition to the ever-present law of supply and demand, according to a 2016 report from the research firm Oxford Business Group.
A few years ago, when a barrel of oil was still selling for more than $100 USD, there was a robust market for top office space. This prompted ambitious contractors to plan more construction.
Five projects completed in 2015 alone added up to 400,000 square feet of commercial real estate to the Port of Spain market, according to the London-based Oxford Business Group. And developments like Tamana InTech Park and Brentwood Town Center offer options outside of a traditional office building.
But now that the economy has slowed down, that growth has only added to the office space surplus. While this has created challenging conditions for real estate companies and landlords, it presents an opportunity for any company looking to set up shop in the country. More than at any point in recent history, organizations can find excellent rates and terms when they sign a lease.
The Price is Right
Last year, Oxford Business Group reported that, with more volume, on top of more adverse economic conditions overall, the typical monthly rent per square foot in 2016 was falling in between $2.75 USD to $4 USD. (This price includes maintenance costs but not the typical 12.5% tax rate.)
Things haven’t changed much this year — and the price may go lower still. Heidi Rajnauth-Elliot, director of Port of Spain-based Dynamic Real Estate Consultancy in Trinidad, says that this is definitely a renter’s market and can contest to seeing more empty offices throughout the islands. And this is leading to, if not significantly lower prices, much more favorable terms for any company moving into building.
“The list price may not be a lot lower than it was before, but people are more negotiable in terms of price,” said Rajnauth-Elliot. “The bottom line is that you can definitely get a better deal now than you would have two years ago in terms of commercial rental space.”
She says that base prices per square foot can run as low a $1.20 USD to $1.50 USD per square foot. For “high-end, A-plus” office spaces, renters can expect to pay twice that figure or perhaps a bit more.
Recent listings in Port of Spain from from Dynamic Real Estate, which was founded eight years ago, include base rates for large commercial office space rentals for around $3.20 USD per square foot in Queens Park West and $2.40 USD per square foot near Independence Square.
Jean-Paul de Meillac, director for Trinidad at real estate agency Terra Caribbean, is seeing similar numbers — and even lower. For A-class and B-class office space right now, he is coming across a range from about $1.50 to $2.40 (TT$10 to TT$16) per square foot. He says that TT$16 “is the very top — and that’s dropping every month that passes.”
Even one of the highest-end spaces on the island — an LEED-certified building in a good location — is now asking for a rent that’s about 20% lower than it was three years ago before the price of oil fell off a cliff.
Landlord Incentives & Market Factors
Jean-Paul de Meillac says that some landlords aren’t coming down in price but are instead offering other incentives. This is because they don’t want their longer-term tenants to complain that new occupants are getting a better rate.
So instead of lowering the rent, some are allowing extended initial grace periods as the tenant outfits the space. Others may even hand out an end-of-the-year credit — as if giving out a Christmas bonus.
“They do rent-free build out, and they do credit notes,” he said. “[New tenants] pay the rent that the other tenant is paying, but then they get a credit at the end of the year that is effectively a rebate on their end.”
For Terra Caribbean, which operates in Trinidad and Tobago, Barbados, and Grenada as part of the larger Terra Group of companies, the commercial side still is more upbeat than residential real estate.
That consumer market was more active a few years ago when more people were buying property as an investment. There was so much activity in the oil and gas industry back then that it was easy to rent homes or apartments to those coming to the capital during the boom time.
“Right now there aren’t any oil and gas guys around,” said De Meillac. “So nobody is buying for investment. They’re only buying to occupy. So your pool of buyers is much smaller.”
While the demand for office space nationwide is sluggish, Rajnauth-Elliot says that she is seeing more interest in real estate outside of the capital, particularly in middle-island locations like Chaguanas, compared to the past when everything was more centralized in Port of Spain.
“Central Trinidad is actually the fastest-growing portion, especially in terms of commercial activity,” she said. “You can still get better rates and deals in those ares. So I would say that that would definitely be an area for people to check out.”
The outskirts of the capital offer some promising opportunities as well. Terra Caribbean, for example, recently put a call center in a new space in El Socorro, an up-and-coming office market just outside of Port of Spain.
The office space outlook is not uniform throughout the region. Trinidad’s capacity surplus stands in contrast to the reality in Jamaica, for example.
While rent in the Jamaican capital of Kingston can run even cheaper than Port of Spain, there remains a lack of high-end space. The private sector and government have worked to add capacity in recent years, but there is still work to do on a problem that, dating back to early in the decade, minister of science Phillip Paulwell repeatedly said was holding back growth in the the technology sector.
“The major problem is space,” Paulwell told the Jamaica Gleaner in 2014. “Space has been, from my time through the last government, and now, the major obstacle, because investors don’t want to come to Jamaica to be in construction of these facilities. They want ready-made, plug-and-play facilities to start business immediately.”
Deborah Cumming, managing director and broker at Century 21 Jamaica, says that demand and interest from overseas companies is now on the rise despite the fact that not much new commercial office space has been developed in recent years.
She is currently setting to close on a large commercial deal in downtown Kingston, and her optimism is high for a turnaround. Cumming notes that this shifting sentiment for all aspects of real estate in the capital is in part due to the large drop in interest rates offered by local banks over the past two years. “Our market is definitely moving from a buyer’s market to a seller’s market,” said Cumming.
In Central America, Costa Rica has considerably higher occupancy rates than Port of Spain, albeit with great space widely available at good rates. Overall, the market in Costa Rica is much larger and more sophisticated than in Trinidad and Tobago, with around 1.6 million square meters of office space, according to Franco Moiso of commercial real estate services company Cushman & Wakefield in San José.
The absorption rate in the Costa Rican capital has been relatively constant in recent years, he says, and take up remains higher than in other Central American capitals. This is mainly due to the large presence of marquee companies that have set up shared services centers in the city in addition to the many call centers and outsourcing providers in need of top-end office space.
Moiso says that the monthly rent for prime A-class office space in San José can cost up to $22 USD per square meter before maintenance fees. The average is about $18.50 USD per square meter, highlighting the ongoing affordability in Costa Rica even amid steady demand in a services market that Port of Spain aspires to replicate.
Market Changes Ahead?
As the proverb says, nothing lasts forever. Those working within the commercial real estate business in Trinidad and Tobago don’t expect an immediate sea change around the corner. But there is a sense that an overall economic recovery isn’t that far away. “I’m a bit optimistic,” said Rajnauth-Elliot.
The offshore Juniper natural gas project by BP represents the most promising development in the oil and gas sector. This $2 billion USD investment has been in development for about three years and is one of the largest initiatives underway across the whole world by the global oil company. The rig set sail in January and will extract gas from both the Corallita and Lantana fields about 50 miles offshore, with BP’s country head Norman Christie saying in April that he expects Juniper to start producing this year.
Just this month, Spanish energy company Repsol also announced a massive find of two trillion cubic feet of natural gas off the country’s coast. “Repsol has uncovered its largest volume of gas of the last five years offshore Trinidad and Tobago, where the find is the most significant in a decade for the country,” said the company in a statement.
Although the optimism this created was immediate, this new discovery won’t lead to more revenue for a few years. According to industry publication Platts, drilling should begin next year with production, which is shared between Repsol and BPTT, the company’s arm in Trinidad and Tobago, to be seen in 2019. “This is exciting news for both BPTT and the industry, as these discoveries are the start of a rejuvenated exploration program on the Trinidad shelf,” said Christie.
Rajnauth-Elliot knows it will take time for any of this to ripple through the real estate market, particularly in the commercial side of the ledger. There is some sense, however, that there is a light at the end of the tunnel for the landlords and agents when it comes to prices.
“I don’t think they are going to really go up right now,” she said. “But there have been positive indicators concerning the whole oil and gas sector.”
From her perspective, Rajnauth-Elliot is also seeing some early changes in the residential real estate market. Though it is still certainly a buyers market, there has been some increases in activity among those looking.
“Things were pretty quiet for a while,” she said. “Prices had gone down — I would say maybe about 10% would be my guess — and prices still haven’t gone back up yet. But we’ll see more activity in the market, and that’s a good sign.”
De Meillic sees the same factors in the oil and gas industry adding optimism to the economy at large. “It doesn’t mean that we’re going to bounce right back up to how we were three years ago,” he said. “It’s not going to be going to go back to the way we were. But there’s definitely going to be a bit more liquidity in the system and dollars to the government and maybe more projects.”
There is no telling when the turnaround might occur in commercial prices. But markets fluctuate by nature, and the one thing that’s for certain is that today is a great time to be looking for office space in Trinidad and Tobago.
“We don’t know how long it’s going to be like this,” said De Meillac. “We don’t how long the prices will remain this competitive. But at the moment, it’s very much a tenant’s market.”