Published on and written by Cyril Jarnias
At the intersection of multiple dynamics – economic recovery, tourism boom, aggressive tax reform, and post‑disaster reconstruction – commercial real estate in Puerto Rico has established itself as a unique playing field for investors. Neither fully an emerging market nor entirely comparable to U.S. states, this federally administered territory combines an American legal environment, an ultra‑competitive local tax regime, and very real risks related to hurricanes and infrastructure conditions.
Behind the postcard image, the market is fragmented and dynamic, blending pharmaceutical warehouses, luxury retail, transforming office spaces, high‑end residences, and large resorts. To invest, it is crucial to identify the strengths, blind spots, and most effective levers.
A Paradoxical Yet Favorable Macroeconomic Context
Puerto Rico is emerging from a lost decade. Following a long recession between 2006 and 2017, worsened by a public debt crisis estimated at around $70 billion and the devastation of Hurricanes Irma and Maria in 2017, the island now operates under the oversight of a federally appointed fiscal oversight board. The debt has been restructured, the government follows an austerity plan, and the economy has gradually recovered.
The local Planning Board has revised its GDP growth forecast for 2024 downward, from 2.8% to approximately 2.4%.
This apparent contradiction – rising employment, record tourism, but structurally weak growth – largely explains why commercial real estate is described as a market of “opportunity and complexity.” Activity is driven by a few solid pillars: a well‑established pharmaceutical and medical devices sector, record‑breaking tourism, and a budding aerospace cluster around Aguadilla. San Juan and its metropolitan area alone account for nearly 75% of the island’s GDP.
San Juan’s international airport recorded 6.6 million arrivals in 2024, an 8% increase from 2023 and a 41% increase from 2019. The sector’s economic impact, estimated at several billion dollars annually, significantly benefits retail, hospitality, logistics, and short‑term rentals.
In this context, the real estate market – both residential and commercial – has reacted strongly. After years of declining values, prices have rebounded dramatically: housing price indices are well above their historical average, with a jump of over 20% in the fourth quarter of 2024 and a further increase of over 11% in the first quarter of 2025. Inventory is gaining value, assets are becoming scarce in prime locations, and a significant portion of transactions are conducted in cash, especially in the high‑end segment.
A Suite of Tax Incentives Without Equivalent in the American Sphere
For an investor, Puerto Rico’s uniqueness lies primarily in its tax framework. The Incentives Code, known as Act 60, has consolidated most of the former tax exemption laws (notably the famous Acts 20 and 22) since 2019. The stated objective is clear: to attract capital, export‑oriented businesses, and wealthy residents, create skilled jobs, and diversify the economy.
Key Outlines of Act 60 for Businesses
For companies engaged in eligible activities – including export services, finance, technology, tourism, industrial production – Act 60 offers a regime that breaks from mainland U.S. taxation:
| Key Tax Advantage (Businesses) | Main Detail |
|---|---|
| Corporate Tax Rate | 4% on eligible export income |
| Dividends | 100% exempt from local tax on exempted profits |
| Property Taxes | 75% exemption on properties (real and personal) with a tax decree |
| Municipal Taxes (Patente) | Generally 50% exemption, higher in some targeted cases |
| Decree Duration | 15 years, renewable for an additional 15 years |
For SMEs with average annual revenues below $3 million, the Code even provides a super regime for the first five years: the tax rate is lowered to 2%, with almost total exemptions on property and municipal taxes. Activities located in Vieques and Culebra can enjoy similar benefits.
Certain pioneering activities may qualify for a tax rate as low as 1% depending on the case.
The Ultra‑Advantageous Regime for Individual Investors
The most publicized aspect of Act 60 is the one concerning individuals, a direct successor of the former Act 22. A non‑resident individual who becomes an “effective resident” of Puerto Rico before a deadline set by law benefits from three flagship advantages on Puerto Rican‑source income:
| Tax Advantage (Act 60 Individuals) | Condition / Detail |
|---|---|
| Tax on Dividends | 0% on Puerto Rican‑source dividends after establishing residency |
| Tax on Interest | 0% on Puerto Rican‑source interest |
| Capital Gains | 0% on latent capital gains generated after residency (through the end of 2035 under the current framework) |
For capital gains on assets held before moving to the island, a special regime provides for reduced taxation (for example, around 5% if the sale occurs ten years after establishing residency and before the set deadline). Combined with exclusion from federal taxation (Section 933 of the U.S. tax code for U.S. citizen residents of Puerto Rico), this setup makes the territory a near‑tax haven for future financial gains and certain investment income.
These benefits are not without conditions. Beneficiaries must meet certain obligations to take advantage of them.
– Reside effectively on the island (generally at least 183 days per year, with other criteria regarding center of vital interests);
– purchase a primary residence in Puerto Rico within two years of obtaining the decree;
– pay an annual minimum donation to approved local charities ($10,000, with half directed toward programs combating child poverty);
– file an annual, paid report justifying compliance with the conditions.
The government has already proposed several adjustments, including the introduction of a 4% rate on certain passive income for new beneficiaries starting from a future date, and the extension of the regime until 2055. Even with these tweaks, the combination of “near‑zero tax on future gains + light property taxation” remains extremely attractive on the American scale.
Opportunity Zones: A Second‑Stage Rocket Booster
In addition to these local incentives is the federal Qualified Opportunity Zone status, which covers roughly 95 to 98% of Puerto Rican territory. This provision, created by the 2017 U.S. tax reform, allows an investor who reinvests capital gains into an Opportunity Zone fund to:
Investing in an Opportunity Zone allows deferral of the initial capital gains tax, a step‑up in tax basis after several years, and complete exemption from tax on the gain realized after a ten‑year holding period.
Concretely, a U.S. investor can sell a taxable asset on the mainland, place the gain in a commercial or mixed‑use project in Puerto Rico via a dedicated fund, defer their tax, and, if they hold the investment for at least ten years, never pay tax on the subsequent appreciation of that local asset. Combined with Act 60 exemptions and other laws like Act 182 (tax credits up to 40% for urban center rehabilitation), this creates a rare, if not unique, incentive structure within the American sphere.
Infrastructure in Transition, Between Fragility and Modernization
Real estate opportunities can only be fully understood in light of the island’s physical and institutional constraints. Hurricane Maria in 2017, a major earthquake in 2020, and other recent extreme events have exposed the fragility of an aging power grid, old bridges and dams, undersized water networks, and saturated landfills. The American Society of Civil Engineers issued an initial infrastructure “report card” in 2019, highlighting chronic underinvestment (about 1.5% of GDP on average, when 3.5% would be needed) and an estimated annual investment deficit between $1.3 and $2.3 billion.
Over 11% of bridges are deemed to be in poor condition.
For the investor, this fragility translates into several direct consequences: more expensive insurance (wind, flood, business interruption), the need to integrate resilience features into building design from the outset (reinforced roofs, impact‑resistant glazing, drainage systems, generators, batteries, rooftop solar), and the strategic importance of location relative to key infrastructure (PR‑22, PR‑52 highways, ports, airports). In return, this wave of reconstruction – largely funded by Washington – supports demand in logistics, engineering offices, lodging, and service facilities.
Overview of Major Commercial Real Estate Segments
Behind the generic term “commercial real estate” lie several sub‑markets, each with its own dynamic: industrial, retail, office, multifamily, hospitality, self‑storage, etc. In Puerto Rico, heterogeneity is strong: some segments are over‑subscribed, others face structural difficulties. To get a clear picture, it’s useful to examine the major sectors one by one.
Industrial Real Estate: A Pillar Supported by Pharma and Nearshoring
Puerto Rico’s industrial sector represents about 14.66 million square feet, with a vacancy rate hovering around 4.8%, reflecting a tight market. Historically, the island has hosted numerous pharmaceutical and medical device plants benefiting from former U.S. tax regimes (like the old federal Section 936). Today, giants like Johnson & Johnson, Honeywell, Pfizer, Merck, or Amgen still have major production sites, complemented by smaller biotech firms and advanced logistics projects.
The leading sub‑markets – Bayamón, Cataño, Carolina – leverage their proximity to San Juan, the international airport, and the port, the busiest in the Caribbean. Demand is strengthening for modern warehouses, well‑serviced and compliant with new anti‑hurricane building codes. Investors targeting recent industrial buildings, with backup power systems and high ceilings suitable for automation, can benefit from an attractive combination of low vacancy, still‑competitive cap rates, and appreciation potential linked to the reshoring and nearshoring trend of supply chains to American territories.
On a finer scale, industrial cap rates have compressed in recent years, particularly for high‑quality single‑tenant assets. Part of the new supply built post‑pandemic was absorbed by late 2024, favoring further vacancy declines. In a still‑costly financing environment, this segment is among those many analysts anticipate as the best candidates for value appreciation in 2025‑2026, especially for logistics assets leveraging the island’s strategic position in Caribbean‑U.S. flows.
Retail: Resilience and a Premium on Tourist Locations
Unlike some major U.S. metros disrupted by e‑commerce growth, physical retail in Puerto Rico has shown surprising resilience. With about 50 million square feet of retail space and a vacancy rate of approximately 6.5%, the market relies on a mix of local consumption – supported by public transfers and economic recovery – and strongly growing tourist spending.
Average annual rent per square foot in dollars in San Juan’s most sought‑after commercial areas.
A marked trend is the strong performance of neighborhood shopping centers, often open‑air and anchored by a grocery store. This format, less vulnerable to retail shifts than enclosed malls, shows high occupancy rates. Overall, Puerto Rican retail is adapting by combining in‑store experience and omnichannel strategy: physical traffic may decrease, but sales figures rise, supporting rents.
The Office Market: A Source for Conversion
The office segment is perhaps the one that crystallizes the most uncertainty. As elsewhere, remote work and hybrid models have reduced space needs, while part of the stock is aging. In San Juan, vacancy rates hover around 12–13%, with a clear differentiation between Class A office towers in Hato Rey (the “Golden Mile” financial district) or Metro Office Park, and older buildings in secondary areas.
Class A office vacancy remains moderate, under 8%.
Nevertheless, this fragility opens opportunities. Where housing demand is strong, some buildings can be restructured into multifamily residences, coliving spaces, urban hotels, or mixed‑use projects integrating retail and services. In dynamic neighborhoods like Santurce, the rise of coworking spaces or flexible offices complements this picture: operators seek to leverage vacant space to serve a clientele of startups, independents, and international businesses attracted by tax incentives.
Multifamily: Tight Rental Market, High Valuation, and Fine Arbitrage
Even though the island’s overall population is slightly declining, certain residential micro‑markets are overheating. Dorado, the upscale neighborhoods of San Juan (Condado, Miramar, Old Town, Isla Verde, parts of Santurce), Palmas del Mar in Humacao, Río Grande (Bahía Beach), and some tourist sectors on the west coast (Rincón, Cabo Rojo) attract both Act 60 beneficiaries, multinational executives, remote workers, and high‑end tourist clientele.
In these areas, monthly rents for apartments and condos typically range from about $1,800 for a studio to over $7,500 for a four‑bedroom in a luxury building. In San Juan, one‑bedrooms often go for around $2,600 and two‑bedrooms for around $3,800, with gross yields generally between 6 and 9% depending on the property type, location, and use (long‑term versus short‑term rental).
Yet there are two parallel realities: on one side, an expanding high‑end market; on the other, a housing affordability crisis for local households, with about 40 to 50% of the population living below the poverty line and a significant portion of the supply being “informal” (incomplete property titles, self‑construction, etc.). The rise of seasonal rentals via digital platforms has contributed to a scarcity of long‑term rental supply in certain neighborhoods, fueling a political and social debate over the regulation of short‑term furnished rentals.
To adapt to the current market, an investor must adopt a differentiated approach: develop high‑end projects in highly sought‑after sectors; structure operations through public‑private partnerships or utilizing tax credits to create affordable housing in less competitive areas; and diversify into multifamily residences integrating services (like health facilities, neighborhood retail, or coworking) to meet the growing demand for complete, vibrant neighborhoods.
Hospitality and Tourism: A Trans‑Sectoral Economic Engine
It’s difficult to discuss commercial real estate in Puerto Rico without focusing on hospitality and tourist accommodations. The sector took the full brunt of the 2017 hurricanes – with about 27% of rooms closed for renovation in the following months – but later experienced a spectacular rebound. Air arrivals have recovered and surpassed pre‑pandemic levels, cruises have returned, and key indicators (occupancy rates, RevPAR) remain solid.
Global hospitality industry trends are found on the island: rise of lifestyle and boutique hotels, demand for experiential stays (eco‑lodges, adventure tourism, wellness retreats, medical tourism), and expansion of the high‑end supply with international brands. The Esencia project in Cabo Rojo – a masterplan of over 2,000 acres on the west coast, led by the Ruben brothers, featuring branded residences by Aman, Mandarin Oriental, Rosewood, golf courses, an equestrian center, and a bilingual school – illustrates this upscale trend. The total projected investment exceeds $2 billion, with a deliberately limited built footprint of about 23% of the site.
For investors, several models coexist: participation in large integrated resorts; development of boutique hotels or high‑end short‑term rental units in iconic neighborhoods; conversion of historic buildings into character‑driven accommodations, notably in Old San Juan or Ponce. Gross yields on short‑term rentals in tourist areas can reach 8 to 12%, depending on management and seasonality.
Here again, the regulatory and tax environment plays a role: tax credits for tourism development, possibility to combine Act 60 with incentives from the Tourism Act, partial exemptions on deed transfer taxes for certain hotel transfers. Financing structures can include, in addition to bank debt, mechanisms like C‑PACE financing (energy efficiency), Opportunity Zone funds, or even contributions via the EB‑5 investor visa program.
Highly Differentiated Geographies
The phrase ” investing in Puerto Rico ” actually covers a mosaic of local markets with distinct profiles. A few examples illustrate this diversity:
Overview of the main investment and real estate development zones in Puerto Rico, highlighting their economic specificities and appeal.
Economic heart concentrating offices (Golden Mile), luxury (Condado), tourism (Old Town, Isla Verde), industry (Carolina), and culture (Santurce). Largely determines the fate of the island’s commercial real estate.
Symbol of luxury with the Dorado Beach resort and gated communities. Market oriented towards asset appreciation and tax security, with rents reaching $20,000-$30,000/month.
Lifestyle focus (surf, relaxation) combined with logistics and technology projects, notably around the Ramey aerospace park in Aguadilla and the Esencia project in Cabo Rojo.
Opportunities for redevelopment of industrial and historic sites at attractive prices. The ‘Port of the Americas’ aims to energize local logistics and industrial markets.
Combines premier marinas (like Puerto del Rey), high‑end hotel complexes (St. Regis, Wyndham), and planned communities (Palmas del Mar). Appeal for yachting and nautical tourism.
For the investor, it’s not just about choosing a segment (industrial, retail, hospitality, multifamily), but also a micro‑geography coherent with their strategy: tourist flows, proximity to modern infrastructure, socio‑economic dynamics, climate risk, land reserve, etc.
More Difficult Financing, But Numerous Alternatives
The Puerto Rican banking system is integrated into the U.S. system, with the same prudential rules and FDIC deposit protection. However, local banks operate in a delicate context: legacy of the debt crisis, high exposure to the domestic economy, regulatory pressure on anti‑money laundering, and still‑convalescent credit demand.
Real estate investment is subject to stricter credit conditions than in the mainland U.S. Banks require in‑depth risk analysis, detailed technical documentation (business plans, feasibility studies, engineering reports, conservative projections), and processing times are longer. Interest rates may be slightly higher. Commercial loans typically involve conservative loan‑to‑value ratios and high interest coverage requirements.
In this context, many operations rely on alternative sources: equity from family offices, private funds, Opportunity Zone funds, co‑investments with local partners, or even seller financing. High‑end buyers from the mainland often use their own U.S. banks or buy with cash, which helps explain the high proportion of cash transactions in the luxury segment.
The trajectory of the Federal Reserve’s interest rates will be decisive. A gradual decline from the mid‑2020s could stimulate banks’ appetite and facilitate financing for projects currently considered risky. However, to secure investments, it’s prudent to build financial models with conservative financing assumptions. It’s also crucial to plan for sufficient equity cushion to absorb potential administrative delays and cost overruns.
Structural Risks and Governance Challenges
The attractions of Puerto Rico should not obscure its risks. The first category is obvious: natural hazards. The island lies in the Atlantic hurricane belt and near seismic faults. Maria in 2017, Fiona in 2022, and a marked seismic sequence in 2020 left deep scars, both in the built environment and in mindsets. These events cost tens of billions of dollars, caused the prolonged closure of thousands of small businesses, and plunged tourist activity before the rebound.
For commercial real estate, this means: properties intended for commercial activities, whether offices, stores, or warehouses. These properties are often used to generate income through the rental or sale of goods and services.
Insurance policies are becoming more comprehensive (covering wind, flood, earthquake, business interruption) but also more expensive. Lenders now require enhanced insurance coverage. Extreme vigilance is required during due diligence, particularly regarding structural condition, compliance with new building codes, roof quality, anchoring, drainage systems, and elevation relative to flood zones.
A second category of risk concerns infrastructure and bureaucracy. The power grid remains prone to outages; many hydraulic works, bridges, and roads need modernization; and the procedures for obtaining permits, zoning, or environmental approvals can be lengthy, especially for complex projects. Local developers stress the importance of planning for longer timelines than on the mainland and working with local teams (architects, engineers, lawyers, brokers) who understand the administrative machinery.
Investors must be attentive to potential social tensions and political debates: anger over rising rents and prices due to the arrival of wealthy residents benefiting from preferential tax regimes, regulation of short‑term rentals, sustainability of dependence on federal aid, as well as announced reforms of the tax system, including the revision of Act 60 and property assessments still largely based on values from the 1950s.
Where Are the Best Opportunities Really?
In light of these elements, some broad outlines emerge.
Modern logistics and industrial assets, in the Bayamón–Cataño–Carolina corridors or around airports and ports, benefit from structural demand driven by pharma, distribution, and the repositioning of supply chains. Low vacancy, very favorable taxation, additional incentives in free trade or opportunity zones, and the need for energy resilience make this a key segment for long‑term profiles capable of absorbing large ticket sizes.
Investment in retail for tourists and everyday consumption, such as open‑air centers or premium shopping streets, offers recurring cash flow and appreciation potential, but at already elevated valuations. It is crucial to manage lease risk well by diversifying tenants, favoring strong brands, and including indexation clauses. Special attention must also be paid to anticipating changes in tourist flows.
Multifamily, for its part, lies at the intersection of many challenges: rental pressure in sought‑after neighborhoods, shortage of new construction (barely 65–75 units produced per month, well below historical levels), high construction costs, and strong demand for resilient housing (solarized, hurricane‑resistant). Value‑add operations – rehabilitating existing buildings, adding elevators and amenities, bringing up to anti‑cyclone standards, repositioning towards coliving or corporate rental models – seem particularly relevant in the greater San Juan region and in Dorado.
The case of the Esencia destination illustrates the ultra‑high‑end trend in hospitality. This project combines the anchoring of prestigious international brands with low‑density development and urban planning focused on preserving natural and cultural heritage. It thus embodies innovative concepts, like eco‑lodges or energy‑positive resorts, which can benefit from tourism tax credits and sustainable development programs supporting the national promotion strategy.
Conversely, traditional office space, outside of Class A and niches like medical or biotech, remains a category to approach with caution. The best opportunities may lie in conversion projects, provided there is a clear vision for the end product (housing, student residences, hotels, mixed‑use programs) and the necessary change‑of‑use permits.
Toward a Cycle of Normalization… Puerto Rican‑Style
Ultimately, the central question for an investor is whether the strong appreciation observed since 2021 is a simple catch‑up or the beginning of a sustainable growth cycle. Several elements argue for the second hypothesis: price levels still relatively low compared to other U.S. coastal markets, under‑supply of new construction due to costs and permits, influx of wealthy residents and capital attracted by the tax regime, massive Washington‑funded reconstruction programs, tourism dynamism.
The situation is marked by a heavy dependence on federal transfers, stagnant demographics outside attractive areas, vulnerability to climate change, logistical constraints like the Jones Act (increasing material costs), and the possibility of a tightening of tax incentives in the medium term.
In this environment, opportunities do exist – and they are sometimes remarkable – but they reward the patient, selective, and well‑advised investor. It’s less about betting on a tax or speculative “play” than positioning oneself on real, solid assets, adapted to the climate and local demand, integrated into robust tax and financial structures, and managed with a professional approach.
Puerto Rico has demonstrated strong resilience in the face of crises, with a growing economy. Commercial real estate there offers a unique opportunity within the United States, combining a dollarized economy under federal law with attractive yields and a specific tax regime, despite regulatory, infrastructural, and climate challenges.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
