Mexico’s Industrial Market Overview 2011-2012

Due its strategic geographical location, trade liberalization, operating costs, labor force quality, experience, and high competitiveness and production capacity in strategic sectors, among other factors, Mexico has become one of the most important “Manufacturing and Logistics Hubs” in the world. As a result, the Industrial Real Estate sector is now one of the most successful in the country.

Today, nearly three years after the 2008 economic crisis, this sector has a promising growth outlook. According to figures provided by the Mexican federal government, during the first quarter of 2011, Mexico received 11 billion dollars in foreign direct investment (FDI), compared to 19 billion 600 million dollars in all of 2010. The manufacturing sector attracted the majority of foreign investment in 2010 and the first quarter of 2011.

Even after this year’s growth, figures for Mexico were lowered from 3.9% to 3.6%, mainly as a result of the United States economic downturn, the dynamism present in the manufacturing sector over the last 12 months is expected to continue progressing at a steady rate, mainly based on the growth and consolidation of strategic sectors such as automotive, aerospace, medical, pharmaceutical, consumer goods, and logistics.

During 2011, industrial market conditions in various states with manufacturing and logistics vocation in Mexico have considerably improved. Main market indicators (vacancy rates, demand, absorption, prices, and the development of new construction) have been positive.

Vacancy rates have decreased in the main central Mexican cities, while demand and absorption for class A industrial buildings has increased considerably in the Bajio region. In turn, rent prices have shown a measured increase. This trend is expected to be present throughout 2012, although at a lower rate of growth.

During this year, the most active industrial markets in Mexico have been:

Central Mexico: State of Mexico (Toluca, Lerma, Cuautitlán, Tepoztlán, and Tultitlán), Guanajuato, Querétaro, and San Luis Potosí, as well as Guadalajara and Puebla, to a lesser extent. The Bajío area (Querétaro, Guanajuato, and San Luis Potosí), which has experienced sustained growth in recent years due to significant investment by predominantly automotive and aerospace companies such as Bombardier, Safran, Eurocopter, Volkswagen, GM, Pirelli, Magna, and others.

The region’s growth and its competitive advantages have attracted the attention of companies like Honda and Mazda, which have chosen the cities of Celaya and Salamanca, respectively, to establish their new assembly plants.

Northern Mexico: Monterrey, Saltillo-Ramos Arizpe, Tijuana, Mexicali, and Chihuahua; even though security has been an important decision-making factor for companies with an interest in investing in the region, absorption and demand levels in these cities have been positive.

Primarily automotive companies have found Monterrey and Saltillo-Ramos Arizpe to be ideal locations for establishing and expanding their production plants. Aerospace companies have contributed significantly to the absorption of vacant space in Chihuahua City. For 2012, the trend toward reduced vacancy rates and increased demand and absorption for industrial spaces in industrial markets is expected to continue.

Industrial developers in some zones, such as the State of Mexico and the Mexico City Metropolitan Area (Cuautitlán, Tepoztlán, and Tultitlán), are expected to soon begin constructing class A speculative buildings in order to satisfy the demand for this type of construction due to a drastic decrease in vacancy in recent months.