The Barbados office market has experienced relatively stable growth in recent years. Historically, Bridgetown was the hub of corporate/commercial accommodation, however as a result of limited parking and general congestion, the corporate office market has migrated out of Bridgetown to a number of key business districts. These districts include Collymore Rock, Wildey, the South Coast business district and the burgeoning Warrens area.
In characterizing the various grades of office buildings on the island, we use a proprietary grading guide developed from the US model and modified to account for the specific nature of the Barbados market. While they may vary in relative terms throughout the Caribbean, A-Class buildings generally represent the highest quality office space available in a particular market, while B & C-Class buildings are always defined in relative terms to them. The profile of an A-Class building includes a prominent location, high quality finishes and appointments in all common areas, a minimum of 4 parking spaces per thousand sq. ft. of rentable area, sophisticated plant and equipment (energy management systems, backup power supply etc.), facility for extensive high-speed data and voice cabling, CCTV security and professional management. Whereas in larger markets green buildings are becoming increasingly common particularly in the A-Class segment, to date there are no LEED certified buildings on the island.
The total of A-Class space (excluding Government buildings) in existence today is approximately 700,000 sq. ft. Occupancy in this sector has traditionally remained steady and is presently in excess of 95%. Average rental rates are in the $45 – $55 per sq. ft. per annum range, however the ground floor in high traffic retail locations can command more. Achieved rental rates experienced marginal increases in the 2002 – 2005 period, and a more significant increase (7%) during the 2006 – 2007 period. Expectedly there has been a leveling off in 2008 – 2009 and we expect this will continue throughout 2010. To date we have not seen any signs of negative absorption within this segment, however demand is expected to remain flat for the next 18 months. Typical anchor tenants include large insurance companies, banks, accounting firms and offshore entities. A notable exception is the medical profession, who generally occupy boutique offices in the Belleville area. Traditional demand drivers include corporate tenants with expanding operations, tenants upgrading from older or lower grade properties, and new regional and global entities establishing operations in Barbados.
The majority of A-Class leases are structured on an absolute net basis, whereby tenants have responsibility for all the operational expenses of the building in the form of a variable service charge that is reconciled at year-end. Service charges are averaging from $15 – $25 per sq. ft. per annum, and run as high as $30 in some cases. Lease periods average between 36 – 60 months and typically provide for renewal options along with the usual escalation clauses. Tenant fit-out costs range from $125 – $225 per sq. ft. (inclusive of furniture) subject to the desired level of finishes. We note an increasing trend whereby tenants are negotiating separate contracts with Developers for the outfitting of their premises with an amortization over the term of the lease.
As part of an overall economic stimulus package, Government is proceeding with the construction of two significant office buildings in Warrens. When complete they will represent an additional 150,000 sq. ft. of office space added to the existing supply. When considered with a number of buildings occupied by governmental agencies, Barbados will have reached an A-Class inventory well in excess of in excess of 1,000,000 sq. ft.
Hayden Hutton – Director Brokerage, Terra Caribbean