Jamaica
News - Real Estate - Economy (June 17, 2004)
Demand for office
space on the up
After the slump spawned by the
collapse of financial companies in the latter half of the last decade, demand
for office and other commercial space is recovering, but not enough to spur a
1990s-type office complex construction boom, real estate agents and developers
say.
"Commercial real estate is showing a fair
amount of recovery," says William Tavares-Finson, managing director of D C
Tavares & Finson Realty Ltd. "Some of what we are seeing is an
adjustment from the devaluation we had about 14-16 months ago."
Whatever the values to be found in commercial
concrete and steel, realtors agree that more space is now being rented than four
or five years ago. And tenants are having to dig deeper into their pockets to
pay their rents - especially for properties in the capital's corporate business
district of New Kingston.
These days, according to Debbie Cumming, who runs
the realty company, Century 21 Heave-Ho Properties, New Kingston, property
managers are likely to quote, at the lower end, between US$12 to US$14 per
square foot, inclusive of maintenance.
Or, depending on the kind of building, the rates,
excluding maintenance, may range between US$10 and US$15, says Stephen Facey,
the managing director of Jamaica Property Company Ltd, a subsidiary of
Pan-Jamaican Investment Trusts, which manages several New Kingston Properties.
When maintenance is added, the gross rent is
between US$20 and US$25 - between J$1,220 and $1,525 per square foot.
"In the 90s people were asking $400 per
square foot per annum for maintenance," says Cumming. "Rent was about
half of that in the mid to late 90s. It got to the point where maintenance
became higher (than the base rent).
"In some instances, owners were asking
for only maintenance. Then they were (offering) two to three months free just to
get people into the building. Some owners began reducing the rent for existing
customers."
Part of the problem, in part, had to do with the
heavy investment by banks and insurance companies, in the late 1980s and early
1990s in office complexes and other commercial properties, in some cases tying
up short-term money in long-term investment.
When the government moved in the mid-1990s to
tighten money supply and drag down inflation, many institutions found themselves
in trouble, stumbling under the weight of a liquidity crisis and the carrying
costs of assets whose values no longer benefited from spiralling inflation.
At the same time, high interest rates also
affected many of the banks' customers, driving several businesses to the wall,
leaving financial sector companies with a mountain of bad debts.
By the time the government's Financial Sector
Adjustment Company (Finsac) intervened to bail out the sector, many office
complexes were empty and the agency found itself with a large portfolio of
properties.
"There were about five to six years of
static rental," says Don Glanville, president of the firm Realtors
International Ltd. "In some instances rental fell by as high as 15 per cent
to 20 per cent. By extension, the value of commercial properties went
down."
But it was not only rates that fell; occupancy
too. Jamaica Property's Facey says that for his own company, which boasts a bevy
of long-term, blue chip tenants, occupancy slipped to 85 per cent in the second
half of the '90s.
"In the '90s new tenants were hard to
come by, but we had a stable base of tenants," says Facey.
Indeed, says Tavares-Finson, prime commercial
properties in New Kingston are now nearly fully occupied, coming from a glut of
office space not very long ago.
"Properties have gone from virtually
being unsaleable to being saleable," adds Century 21's Cumming.
Indeed, several gung-ho tycoons have been
gobbling up formerly distressed commercial properties in the capital, not least
of these being Gordon Tewani. Tewani's most recent acquisition was the Oxford
Manor apartment and business complex, which he bought from Finsac for an
estimated $170 million.
Indeed, according to Janet Farrow, the
managing director of Joslin Jamaica, the firm which acquired most of the Finsac
portfolio of real estate for disposal, demand for commercial property has been
growing recently.
"In the last four to six months, interest in
acquiring commercial real estate in Kingston has increased as opposed to MoBay
where there has been no interest for two years for certain properties,"
says Farrow.
The demand for commercial space is being
driven by other types of businesses than those that dominated before the
financial sector melt-down, realtors say.
After the shake-out and a series of mergers and
acquisitions, fewer banks and insurance companies are around, although some
familiar names like Life of Jamaica and National Commercial Bank are still
around. New ones, such as Guardian Life and RBTT have gained prominence.
But where banks and insurance companies
offices used to be, the buildings are more likely to house dealerships for
mobile telephone companies, fast-food restaurants, computer firms - and even
churches.
"Right now, a building on Half-Way-Tree Road
was bought by a church, which was unheard of in the 1990s," says Realtor
International's Glanville.
While the central New Kingston business
district remains the most sought-after area by tenants, realtors say that
increasingly businesses are spreading to the edges and into surrounding areas -
such as Worthington Avenue, Haining Road, Oxford Road, Old Hope Road, Hope Road,
Seymour Lands, Chelsea, Holborn Road, Constant Spring Road to Manor Park.
These used to be primarily residential areas but
now properties there are in demand for office space.
"It (business district) is no longer
confined to Kingston and St Andrew," says Glanville. "It has spread
even to the outskirts of Kingston such as the Portmore area."
But for all the rising cost of rental in the
uptown, New Kingston area, estate agents say that bargains go by downtown. The
reason: fear of crime.
"Downtown is cheap but people are
petrified," says David MacNulty of the firm C D Alexander Realty, which has
offices at 168 Harbour Street, downtown Kingston.
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