Reflections on Refraction

Much has been written about the trials and tribulations of the British Virgin Islands’ residential property market over the past few years, but little comment is made on the commercial property market. This is an equally important arena with a number of transactions taking place each year, whether property sales or office rentals.

Unlike the residential market, the commercial property market is dominated by local investors. From small resorts, inns, marinas to office buildings and warehouse developments, local investment is the prime driver of this market with foreign investment generally concentrated in the larger resorts and marinas.

For this reason, the commercial property market has remained active during the economic downturn, while the residential market has seen a fall in sales and pricing, paralleling reduction in foreign investment.

Owing to the high level of local investment, the sale of commercial property is generally restricted as few local investors choose to sell their properties. Of course, the economic downturn will have led to some properties coming to the market through foreclosure, but this has not been as prevalent in the BVI as in some other countries in the Caribbean.

The majority of local development is in investment property, such as offices, warehouses and marinas while restaurants, hotels, resorts and retail outlets tend to be in owner occupied accommodation.

The growth of the financial sector and the equally impressive expansion of Government departments, has led to a transformation of the Road Town landscape. From a low rise town in the 1970s and early 1980s, there is now a plethora of multi-storey buildings dotted around the townscape. While both the financial sector and Government were growing, new buildings would be erected with little to no vacancy in office space in the BVI property market.

Now, with Government departments no longer expanding at the same rate and the financial sector under pressure from external forces, the take up of office space has slowed with a higher level of office vacancy now than at any time over the past thirty years. Tenants are seeking smaller spaces and are now less inclined to invest in an expensive fit-out often preferable to new build.

Despite this, we are still seeing new firms arriving in the Territory and existing firms seeking to develop. With the expansion of Road Town, traffic congestion and the availability of parking have emerged as critical factors in tenants’ choice of location.

During the economic downturn, it has been encouraging to see the construction and expansion of two retail warehouse developments – one at Fish Bay and the other at Pockwood Pond. Both are developed by experienced local developers, who have been aware that there is a need for cheaper space; many tenants whose location is driven by availability of parking and lower operating costs as opposed to being centrally located in Road Town, are the ideal occupants in this vein.

As these developments have leased up, further expansion of this market is planned, both for investment and owner occupation. Marinas remain at the forefront of commercial development in the BVI, being the gateway for many tourists to the outer islands. Marinas provide the base for a charter fleet or overnight berthing, which in turn drives demand for land-based development, primarily retail outlets and—where there are associated boatyards—businesses supporting the maintenance of vessels.

The larger marina developments provide thriving communities, mixing tourists with local residents and being the hub for small business operations. The expansion possibilities for marinas are somewhat limited due to coastal conditions with fewer locations remaining suitable for marina construction. Again, the majority of marinas are held in local ownership and are seldom available on the market. The demand for sailing in the BVI has remained strong through the economic downturn with most marinas remaining full.

The tourism industry has experienced a slow expansion of land based facilities in the BVI, certainly compared to the marine trade, as development in this sector is generally a riskier endeavour. Small inns, guest houses and resorts are generally owner-run businesses, which means the investment is more subject to the vagaries of the market. Based on estimated figures provided by the Development Planning Unit, the overnight tourism numbers for land based accommodations have remained relatively stable.

The outlook for commercial property in the BVI remains positive due to the concentration of ownership with local investors, whose tendency is to retain ownership which leads to a scarcity of supply. The future of the financial sector is evolving, with external influences dictating the direction of this sector, which in turn has changed the dynamics of the office market.

The tourism industry remains a key component of the local economy and one which should continue to expand.