Puerto Rico Lost Its Factories Once. They're Coming Back.

The last time the factories left

To understand why this revival matters, start with how the last one ended.

Beginning in the late 1940s, Puerto Rico used tax breaks under a program called Operation Bootstrap to pull its economy from agriculture into manufacturing. It worked for a generation: per capita output grew nearly tenfold between 1950 and 1980 (CNBC). In 1976, Section 936 of the federal tax code extended the model, letting U.S. companies largely avoid federal tax on profits earned on the island. Pharmaceutical companies became the program's biggest users.

Congress began phasing Section 936 out in 1996 and ended it in 2006 (NBER). Manufacturing employment fell from roughly 158,000 jobs in 1996 to about 71,400 by 2019 (UCLA). Pharmaceutical and medical-device establishments declined by about a third between 1995 and 2017, and researchers attribute roughly half of that drop directly to the repeal (NBER). Economists still debate how much of the broader downturn the repeal caused, since other forces were also at work (Puerto Rico Report).

The damage spread well beyond the plants. The population peaked near 3.8 million in 2004 and began a long decline (CNBC). By 2016, the government could not service roughly $72 billion in debt, and Congress placed the island under a federal fiscal oversight board (NBER). Hurricane Maria followed in 2017.

One thing survived all of it: the pharmaceutical base itself. The plants that stayed kept their FDA approvals, their supplier networks and an experienced workforce. That residue is what today's revival is built on.

Why they're coming back

Three forces are converging at once, and together they make this revival look more durable than a single policy cycle.

Tariffs changed the math. On April 2, 2026, the administration used Section 232 national-security authority to impose a default 100% tariff on imported patented drugs and their active ingredients. It is the first time that authority has been applied to pharmaceuticals. The duties took effect July 31 for an initial list of large companies and September 29 for everyone else, with steep relief for companies that commit to U.S. production. Generics are exempt for now (Polsinelli; Mayer Brown, April 2026). The White House says the tariffs have already drawn about $400 billion in pharmaceutical investment commitments nationwide.

Puerto Rico can absorb the work quickly. A new regulated drug plant on the mainland takes years to permit, staff and validate. Puerto Rico already has more than 50 FDA-approved pharmaceutical plants, makes 6 of the world's top 10 biologics and employs over 80,000 bioscience workers (PR Department of Economic Development and Commerce). For a manufacturer facing a tariff deadline, an FDA-experienced labor pool on U.S. soil is a decisive advantage.

Policy is pulling the same way. The governor created a reshoring task force by executive order in 2025, and the island's incentives code offers qualifying manufacturers a 4% corporate income tax rate (Chambers and Partners). In March 2026, Act 38-2026 extended the resident-investor program through 2055, giving long-term capital three decades of visibility (PRFAA).

The commitment math

Companies have committed more than $2.2 billion to Puerto Rico manufacturing since 2025 (BioSpectrum). The announcements range from global leaders to first-time entrants:

Company	Municipality	Commitment	Purpose
Eli Lilly	Carolina	$1.2B	Plant modernization for next-generation oral obesity medicines
Amgen	Juncos	Nearly $1B in total	Biologics expansion, including a $300M addition this year
PharmaEssentia	Toa Baja	$46M	New biopharma plant, about 100 jobs, production targeted for 2027
ABB	Arecibo	$30.5M	Electrification equipment expansion, 90 specialized jobs

Sources: Bloomberg Law; News is my Business; Reshoring Initiative / Fierce Pharma.

The quality of the jobs matters as much as the count. In fiscal 2025, Invest Puerto Rico reported 504 new businesses and 3,186 committed jobs paying an average of $65,000 a year (San Juan Daily Star).

BY THE NUMBERS $65,000: the average salary of newly committed jobs, nearly double Puerto Rico's average wage. Every one of those paychecks gets spent somewhere close to home.

The broader labor market reflects the momentum. Unemployment fell to 5.6%, its lowest sustained level on record, and private-sector employment hit a new high of 767,400 (Chambers and Partners). Manufacturing now accounts for 44% of GDP, and labor force participation reached 44.8%, the highest in several years (Puerto Rico Planning Board via News is my Business). Pharmaceutical exports alone totaled $48.4 billion (Chambers and Partners).

Follow the paycheck

A plant is a single building. Its payroll is spent across an entire region. Every well-paid job in Carolina or Arecibo becomes a household that buys groceries, fills prescriptions, sees a dentist and needs a place to live nearby. That spending lands in the neighborhood centers, medical offices and apartments around the plant, and it keeps landing for as long as the plant runs.

The early signals are already showing up in the property data.

Retail is tightening. Island-wide retail vacancy fell to 5.7% from 6.5% a year earlier. Value and service tenants are leading: Ross added roughly 120,000 square feet across six new locations, Burlington opened 75,000 square feet, and Planet Fitness keeps expanding. Several international brands are studying market entry, and rents are approaching levels that could justify new ground-up development (JLL, March 2026).

Consumers are still spending. Retail sales rose 2.6% in early fiscal 2026 readings, alongside a 6% increase in tourism and 4.7% growth in manufacturing exports (Puerto Rico Planning Board via News is my Business). Cement sales, a common gauge of building activity, rose 6.6% in 2025 (Cushman & Wakefield).

Housing is short. Inflation-adjusted home prices rose nearly 13% year over year at the end of 2025, and the fourth quarter posted the strongest quarterly gain in eleven years (Global Property Guide). Local reporting describes young professionals priced out of first homes as prices outpace incomes and new construction lags (El Nuevo Día, May 2026).

THE OTIMA VIEW The factories make the headlines. The grocery-anchored center, the clinic and the apartment building down the road collect the rent, every month, for as long as the plant runs.

The risks, without the sales pitch

An honest case for Puerto Rico includes the parts that don't help.

Energy is the biggest operating risk. On October 1, a record electricity rate of 33.86 cents per kWh took effect, against a mainland residential average of about 18.3 cents. A typical 800 kWh household bill rose about 18%, from $229 to $271. Days earlier, a substation fire cut power to more than 200,000 customers. Petroleum still supplied 63% of the island's energy in 2024, and the government's effort to cancel the grid operator's contract is tied up in court (Associated Press, October 2026).

WATCH THIS NUMBER 33.86¢ per kWh: Puerto Rico's new electricity rate, nearly double the mainland average. Backup power and common-area costs belong in the underwriting from day one.

 

The population is still shrinking. The island lost about 0.6% of its population over the past year (Cushman & Wakefield). Reshoring creates growth pockets, not island-wide growth, which makes location selection decisive.

Baseline growth is modest. The Planning Board projects real GDP growth of 0.4% for fiscal 2026 and 0.3% for 2027. Its optimistic scenario, driven by reshoring, reconstruction and tourism, reaches 2.3%. Its pessimistic scenario, triggered by oil above $100 a barrel, shows a contraction of up to 1.6% (Puerto Rico Planning Board via News is my Business).

Policy can shift. Tariff regimes change with administrations, and the federal fiscal oversight board remains in place (Chambers and Partners). The plants being built today are long-lived capital commitments, which reduces this risk but does not remove it.

What this is, and what it isn't

This is not an island-wide boom. Puerto Rico's last manufacturing era ended with a tax change in Washington, and its economy is still growing slowly. A buyer who treats the whole island as a recovery trade will be disappointed.

What it is: a set of growth pockets inside a slow-growth economy. Hiring expectations for early 2026 were strongest in the north and metropolitan regions, at 27% and 22%, against 8% in the south (ManpowerGroup via Metro Puerto Rico). The plants are concentrated, the new payrolls are concentrated, and the real estate opportunity is concentrated with them.

That is why this revival looks more durable than the last one. It rests on trade policy, supply-chain security and an existing pharmaceutical workforce, not on a single tax provision. None of that is guaranteed. But for an income investor, the case does not depend on Puerto Rico's GDP. It depends on whether a few thousand well-paid workers in specific towns keep buying groceries, seeing doctors and paying rent. That is a far easier case to underwrite.

How we'd approach it

Four rules if you're looking at Puerto Rico.

Follow the payroll, not the press release. Map plant locations against commuting patterns and find the municipalities where new wages will actually be spent. The announcement is in one town; the spending may land in the next one over.

Buy what the workforce can't skip. Grocery-anchored centers, pharmacies and medical tenants carry income that depends far less on the economic cycle than discretionary retail does. In a slow-growth economy, that distinction does most of the work.

Price the grid before the cap rate. Underwrite backup generation, higher common-area charges and whether tenants can absorb them. Assume power costs stay high rather than hoping they fall.

Look for rent that can roll. Centers with in-place rents below today's market let an owner capture rising demand as leases renew, without betting on a lower cap rate at exit.

OTIMA invests in income-producing real estate across the U.S. mainland and Puerto Rico — necessity retail, medical and select multifamily — and puts its own capital in every deal. If you'd like to talk through how Puerto Rico fits an income portfolio, a principal will take the call.

Sources

1.        CNBC, Here's how an obscure tax change sank Puerto Rico's economy, September 26, 2017 — Operation Bootstrap, per capita growth 1950–1980, population peak of 3.8 million in 2004. https://www.cnbc.com/2017/09/26/heres-how-an-obscure-tax-change-sank-puerto-ricos-economy.html

2.        NBER Working Paper 23681, Feliciano and Green, US Multinationals in Puerto Rico and the Repeal of Section 936 — phase-out timeline, $72 billion debt, oversight board. https://www.nber.org/papers/w23681

3.        NBER Working Paper 29107, Intangible Assets, Corporate Taxes, and the Relocation of Pharmaceutical Establishments — 34% decline in pharma and medical-device establishments, 1995–2017. https://nber.org/papers/w29107

4.        UCLA, Ayala, Puerto Rico's Natural and Man-Made Disasters — manufacturing employment, 158,000 (1996) to 71,400 (2019). https://www.sscnet.ucla.edu/soc/faculty/ayala/prdiaspora/prmanmadeandnatural.htm

5.        Puerto Rico Report, Questionable Conclusions on Section 936 — dissenting view on the repeal's impact. https://puertoricoreport.com/questionable-conclusions-section-936/

6.        Polsinelli, Trump Administration Expands Section 232 Tariffs to Patented Pharmaceuticals and APIs, April 2026 — 100% default duty, effective dates, ~$400 billion in commitments. https://www.polsinelli.com/publications/trump-administration-expands-section-232-tariffs-to-patented-pharmaceuticals-and-apis

7.        Mayer Brown, Tariffs on Imported Patented Medication and Pharmaceutical Ingredients under Section 232, April 6, 2026 — onshoring relief, generic exemption. https://www.mayerbrown.com/de/insights/publications/2026/04/trump-administration-implements-tariffs-on-imported-patented-medication-and-pharmaceutical-ingredients-under-section-232-of-the-trade-expansion-act-of-1962

8.        Puerto Rico Department of Economic Development and Commerce, Secretary's statement — 50+ FDA-approved plants, 6 of the top 10 biologics, 80,000+ bioscience workers. https://www.desarrollo.pr.gov/en/noticias/statement-from-the-secretary-of-the-department-of-economic-development-and-commerce-sebastian-negron-reichard

9.        PRFAA, Puerto Rico highlights long-term investment strategy at the New York Stock Exchange — Act 60 extension through 2055. https://www.prfaa.pr.gov/recent-press-releases/puerto-rico-highlights-long-term-investment-strategy-at-new-york-stock-exchange

10.     Chambers and Partners, Puerto Rico: An Overview, 2026 — reshoring task force, 4% corporate rate, 5.6% unemployment, 767,400 private jobs, $48.4 billion pharma exports, oversight board. https://chambers.com/content/item/7504

11.     Bloomberg Law, Eli Lilly Vows $1.2 Billion for Puerto Rico in Reshoring Boom, October 29, 2025. https://news.bgov.com/health-law-and-business/eli-lilly-vows-1-2-billion-for-puerto-rico-in-reshoring-boom

12.     News is my Business, Amgen adds $300M in Puerto Rico, nearing $1B total, 2026. https://newsismybusiness.com/amgen-adds-300m-in-puerto-rico-nearing-1b-total/

13.     Reshoring Initiative / Fierce Pharma, PharmaEssentia to build $46M manufacturing plant in Puerto Rico, February 10, 2026. https://reshorenow.org/library/16003/Taiwan-s-PharmaEssentia-to-build-46M-manufacturing-plant-in-Puerto-Rico

14.     News is my Business, ABB to invest $30.5M to expand Arecibo operations, add 90 jobs. https://newsismybusiness.com/abb-to-invest-30-5m-to-expand-arecibo-operations-add-90-jobs

15.     BioSpectrum Asia, Puerto Rico biomanufacturing interview — $2.2 billion+ committed since 2025. https://www.biospectrumasia.com/article/pdf/27903

16.     San Juan Daily Star, Invest PR welcomes 504 new businesses, $476 million in capital investment, December 11, 2025 — 3,186 jobs, $65,000 average salary. https://www.sanjuandailystar.com/post/invest-pr-welcomes-504-new-businesses-476-million-in-capital-investment

17.     News is my Business, Puerto Rico economy grows 0.4%, reshoring drives outlook, May 5, 2026 — Planning Board forecasts and scenarios, 44% manufacturing share, early FY2026 indicators. https://newsismybusiness.com/puerto-rico-economy-grows-0-4-reshoring-drives-outlook/

18.     Metro Puerto Rico, ManpowerGroup Employment Outlook Survey, Q1 2026 — regional hiring expectations. https://www.metro.pr/noticias/2025/12/10/mas-del-80-de-las-empresas-en-la-isla-buscaran-mantener-o-retener-personal-en-primer-trimestre-del-2026/

19.     JLL, Puerto Rico Retail Report, March 2026 — 5.7% vacancy, Ross, Burlington and Planet Fitness expansion. https://www.jll.com/en-us/insights/market-dynamics/puerto-rico-retail-report

20.     Cushman & Wakefield, San Juan Office Market Q1 2026 — population, cement sales. https://content.cushmanwakefield.com/api/public/content/abba675a815d4047a7dcbd1c7e128df4

21.     Global Property Guide, Puerto Rico's Residential Real Estate Market Analysis 2026 — home price growth. https://www.globalpropertyguide.com/Caribbean/Puerto-Rico/Price-History

22.     El Nuevo Día, Puerto Rico's housing shortage puts homeownership out of reach for many young buyers, May 15, 2026. https://www.elnuevodia.com/english/business/story/puerto-ricos-housing-shortage-puts-homeownership-out-of-reach-for-many-young-buyers/

23.     Associated Press via La Nación, Puerto Rico faces record electric rate as demand and costs increase, October 1, 2026 — 33.86¢/kWh, outages, fuel mix, grid operator litigation. https://www.lanacion.com.ar/usa/puerto-rico-faces-record-electric-rate-as-demand-and-costs-increase-nid01102026/

Figures as of the dates cited. This material is for informational purposes only and is not an offer to sell or a solicitation of an offer to buy any security. All investments involve risk, including possible loss of principal. Past performance does not predict future returns.