Mexico’s Main Industrial Real Estate Markets

The following report on Mexico’s main industrial real estate markets was developed solely with information sourced from Colliers International Mexico – Real Estate Consultants.

According to Colliers: “In general terms, the economic environment for 2009 was frankly unfavorable. During the first and second quarters of 2009, we experienced falls in the gross domestic product of -8.0% and-10.3% respectively, while for the third and fourth quarters, the results of the survey for economic expectations in September performed by Banco de Mexico, indicates estimations of about -6.8%and -3.7% respectively, so as of year-end we might expect an annual reduction in GDP of around 7.2%, with cuts in consumption and private investment of 6.5% and 12% respectively”.

The unfavorable economic conditions affected the industrial real estate markets across the board in Mexico. Very high vacancy rates prevail in most markets as shown in Exhibit 1 (A & B). Notice the size of markets provided in square feet (Million) and the corresponding percentage of empty space for each.


The largest markets (Mexico City, Monterrey, Juarez, Tijuana and Reynosa) have double-digit vacancy rates. And except for Puebla and Hermosillo, medium-size markets are not performing much better.

Considering that a normal vacancy rate for a healthy market is about 6%, there is a significant oversupply of industrial and distribution space throughout Mexico. As a point of comparison, back in 2005-2006, when economic conditions were favorable and industrial real estate markets were expanding, vacancy rates were very low: Monterrey had 4.5%, and Tijuana and Juarez had a space supply shortage with vacancies of only 3.5%.

Next, let’s review Exhibit #2 provided by Colliers which shows the evolution of the real estate cycle for the various markets in Mexico. This analysis positions the different stages the markets are undergoing as indicated by their demand and supply dynamics.


Bear in mind that industrial real estate markets can go through many cycles and change their positioning depending on the global and domestic economic conditions. The graph at hand illustrates the most recent picture of the markets.

In the lower left quadrant, the markets in recovery mode are shown. In Saltillo- Ramos Arizpe, Hermosillo and Puebla, there’s a tendency of positive demand, no new construction and a shrinking supply of space.

The upper left quadrant of the graph incorporates markets that are experiencing growing demand which outpaces new construction, with a decreasing supply of space and signaling a market in expansion mode. Currently, there are no markets in Mexico that qualify to be positioned in this quadrant.

In the upper right hand quadrant, demand is diminishing in conjunction with new construction. The markets in this quadrant have tuned into an oversupply mode. The locations currently in this quadrant include Mexico City, Monterrey, San Luis Potosi, Juarez, Mexicali, Reynosa and Tijuana. Notice how, within the quadrant, some markets have a higher or lower supply and demand relatively to each other.

And, at the lower end in the real estate cycle, past the oversupply stage and in a recessionary mode, the lower right hand quadrant shows the markets with decreasing demand and supply. Guadalajara, Queretaro, Torreon, Chihuahua, Nuevo Laredo and Matamoros belong in this quadrant according to Colliers.

TRANSACTIONS

Colliers’ “Knowledge Reports” in MEXICONOW noted the following industrial/distribution real estate transactions for 2009 in thousands of square feet (KSF).

Some of the main transactions in Mexico City were projects of Samsung and Magna Autotek with 237KSF and 172 KSF respectively. Samsung relocated a new “cross dock” distribution center at CPA Logistics Park while Magna Autotek leased an inventory building located at Prologis Park Izcalli.

Other important transactions in the country took place in Tijuana, where Panasonic occupied a 230 SKF Sares Regis building located at Alamar, centenario Corridor. Also Corporation GEO leased a 232 KSF built-to-suit that O’Donnell delivered in Valle de las Palmas in Tijuana. In Monterrey, Casa Chapa signed a build-to-suit agreement for a 300 KSF facility in the Kalos II Park and Liebherr initiated the construction of a 236 KSF facility. AMB leased two facilities located in Monterrey and Guadalajara and totaling 238 KSF to Arauco, a wood pulp firm from Chile.

In Queretaro, Safran and its 2 divisions landed at the Queretaro Aerospace Park with 400 KSF. In San Luis Potosi, Magna bought 60 acres of land with a 420 KSF built-to-suit facility constructed in Logistik Park. In Puebla, VW expanded their operations by 215 KSF for the assembly of the new Bora/Jetta.

In Ciudad Juarez, Wistron built a 429 KSF facility adjacent to their existing facility, Foxconn launched its 600 KSF manufacturing campus and Elcoteq leased 175 KSF from O’Donnell for electronic contract manufacturing services.

In Durango, Leoni Wiring Systems initiated operations at their new 241 KSF and in Coahuila, LA-Z-BOY opened its 690 SKF facility, these two plants built by Amistad Industrial Developers. Also in Coahuila, John Deere opened a 500 SKF manufacturing facility at Santa Maria Industrial Park.

In Reynosa, Fisher & Paykel and Corning Cable leased a 120 and 110 SKF buildings at the Colonial and Del Norte Industrial Parks, respectively. LG announced also the expansion of their manufacturing plant located in Reynosa. In Nuevo Laredo, Caterpillar is planning to open a 250 KSF new facility at the Finsa Industrial Park.

In Chihuahua City, more aerospace firms join the fast growing industrial aeronautical cluster: Nordam leased 95 KSF from American Industries and Bell Helicopter will soon occupy its 140 KSF built-to-suit facility by Intermex Industrial Parks.

MARKET PRICES

Exhibit #3 depicts the land, construction and lease price ranges for Mexico’s main industrial real estate markets. The prices are provided in US$ per square foot for land and construction and in US$ per square foot per year for leases. The land values are a representative arms-length figure for industrially zoned, fully developed sites with infrastructure, power lines, water, sanitary sewer, telecommunications service and paved roads to the property line.


The construction figures are for a turn-key, class “A”, light manufacturing facility. With all building systems in place including HVAC, power, water, sewage and hose fire protection system. These facilities also include an adequate area for offices, cafeteria, bathrooms, vehicle parking and truck loading docks.

The indicated lease ranges are for a building on a site as described above for a lease term of 5 years. The typical lease conditions included in the price ranges are for “triple-net” lease arrangements, in which the tenant pays for insurance, maintenance and property taxes.

MEXICO CITY MARKET

Colliers reports the following for this market: “As of the third quarter 2009, in the industrial real estate market of the metropolitan area of Mexico City, there was a slight increase in the supply available compared to the second quarter 2009, within the majority of this market’s corridors, mainly as a result of vacancy of class “A” premises and the incorporation of some class “B” properties”.

“Nevertheless, total volume of transactions closed registered a growth of 60% in comparison with the previous quarter, due mainly to transactions in logistics and distribution class “A” properties”.

“During 2009 the beginning of new construction has been delayed in some industrial projects, and in some cases it has been decided to stop them as a result of the economic downturn”.

“During the third quarter of 2009, 261 vacant industrial properties were monitored in the 10 main corridors of Mexico City and the Metropolitan Area, which account for a total of 1,483,970 mt² in available industrial premises and warehouses. This represents an increase of 3.1% compared to the closing of the second quarter”. This is shown in more detail in Exhibit #4.


“At the end of the third quarter 2009 a total of 503,297mt² of industrial premises and warehouses sale and lease transactions were monitored in the market of the Mexico City and its Metropolitan Area”. Please see Exhibit #5.

INFRASTRUCTURE

Colliers International Mexico is underlining the key role that infrastructure projects will provide to further industrial and distribution real estate development. Following please note three of the most important ones.

ARCO NORTE HIGHWAY

The Arco Norte highway connects the national highway system crossing the states of Mexico, Hidalgo, Tlaxcala and Puebla. It is an important road infrastructure because it is built within the area of influence of about 22% of Mexico’s total economically active population.

This highway has an overall length of 223 km. constructed in its majority with hydraulic concrete. It connects with the highways: Mexico-Queretaro, Mexico- Pachuca, Mexico-Tuxpan (via Tulancingo), and Mexico-Puebla, and soon, it will have a connection to Guadalajara.

The highway has a control center equipped with: optical fiber network of 223 km, 28 monitor chambers, 14 traffic radars, 64 telephones, 3 weather stations, 8 intelligent information stands, 10 panels of variable information and access to wireless Internet.

ANZALDUAS INTERNATIONAL BRIDGE

The new Anzalduas International Bridge will be located 3 miles up to the Rio Grande from the Hidalgo-Reynosa Bridge; it will provide cross-border commuters with two southbound and two northbound lanes, as well as a pedestrian crossing. It will be 2.7 miles long and will cross a flood plain, wooden area, canal and the Rio Grande River.

The Anzalduas International Bridge will connect the South McAllen and Mission international trade areas to the west end of Reynosa where various Industrial Parks have been developed to host maquiladoras and other cross-border businesses. The bridge will help facilitate just-in-time delivery, allowing companies to keep inventory costs down, progress trade with Monterrey, and it will be one of the most efficient ways for business traffic from northeast Mexico to the southeast and eastern coastline of the United States.

MAZATLAN-MATAMOROS LOGISTICS CORRIDOR

This important Project will connect the South East of the United States with the Mexican states of Tamaulipas, Nuevo Leon, Coahuila, Durango and Sinaloa. The highway will encourage the development of intermodal transportation throughout the corridor, especially the ports of Mazatlan, Matamoros and Brownsville.

With a length of 770 miles, the inter Ocean Axis will connect the cities of Mazatlan, Durango, Torreon, Gomez Palacio, Saltillo, Monterrey, Reynosa and Matamoros. The project will have an impact in 9 Mexican states and will shorten the distances between the northeast and the Pacific regions of Mexico with considerable time savings in transportation.

The Mazatlan-Durango highway features 56 tunnels and 135 bridges across the Mexican Rocky Mountains. The traveling time from the city of Durango to the port of Mazatlan will be reduced by more than 3 hours.