Rodolfo Balmaceda President Mexican Association of Industrial Parks
President Mexican Association of Industrial Parks
MEXICONOW Staff Interview
As the new President of the Mexican Association of Industrial Parks (AMPIP), what are the main points in your agenda for the next two years?
AMPIP is an organization that has importantly grown in the last years. A national infrastructure program cannot be understood without considering the industrial parks, which constitute a catalyst for the development of a wide variety of industries nationwide.
The main objectives for the next two years will be: 1) to modernize the Association´s operating bodies, in order to better respond to our membership; 2) to strengthen the positioning of AMPIP with authorities at the federal and state governments, Congress and private sector organizations; 3) to increase our membership; 4) to reinforce the management of tasks with the public sector; 5) to provide information on the latest global trends in the industry; and, 6) to foster sustainability and social responsibility within our industrial real estate community.
What will be the effect of Mexico’s new tax reform on its ability to attract foreign investment? What do you expect in this regard in the short and mid terms?
We have been talking about structural reforms in Mexico for decades. These reforms are finally being approved. The impact of the tax reform will depend on the implementation of the set of reforms which will be in place by 2014. There will certainly be a short-term negative impact on the economy, as companies pay more taxes and adjust to the new reality, but the increase in governmental spending and the potential national and foreign investment in the energy sector could be two important catalysts for the economy.
AMPIP strongly supported the lobbying efforts carried out by Index (The National Council for the Maquiladora Industry). More than 60% of our tenants are registered under the IMMEX Program, so the impact for this industry would have been devastating should the reform had passed as originally presented. What Index achieved was very reasonable and will allow them to continue improving their performance.
For a country to be successful in investment attraction, it needs to be competitive and provide certainty. If we continue to change the rules every year, we are pushing multinational companies to invest elsewhere.
What are the main issues industrial parks will face in the near future?
Industrial parks heavily depend on state and local regulations, as well as on the access to good quality infrastructure. Additionally, access to financing is still complicated, particularly in the first stage of the development process.
On the other hand, our success is intrinsically linked to the competitiveness of our country. Industrial parks obtain their returns from the quality of its tenants and its leasing agreements. Companies that set up new operations in our country have to incorporate a series of costs to each unit produced. If these costs are high, such as logistics, energy or security, there is a disincentive to invest.
Structural reforms such as labor and energy, along with the National Infrastructure Program, which will foster investment in highways, ports, railways and airports, will eventually have a positive impact in the cost structure of the companies.
How do you see the role of energy developing in industrial parks within the next ten years?
This is one of the most important elements of the equation. Energy costs in Mexico are higher than in other emerging countries, a fact that significantly reduces our competitiveness to increase the volumes of inward Foreign Direct Investment (FDI). Not only is electrical power more costly than in the US and other countries we compete with, but also natural gas. Industrial parks are already incorporating new technologies like renewable energy sources, but this will not be enough to fulfill our clients´ needs. Fossil fuels will continue to be very relevant in the generation of electrical power in the next ten years.
Mexico needs to develop an energy market whereby consumers can access cheaper energy sources through a wider range of suppliers. The secondary laws have to consider total freedom for the import, export and domestic marketing of all energy products, from crude oil and natural gas to basic petrochemicals, gasoline and others, in order to achieve an expansion of the industrial sector.
Do you expect the process of consolidation of real estate portfolios to continue in the realm of Mexico’s new real estate financial tools?
Yes, most definitely. The excess liquidity which has prevailed in the global markets has encouraged many companies to make public offerings, particularly in countries such as Mexico, where this activity had been stagnant for many years. In spite of a positive perspective for global growth, central banks will be reducing the excess of liquidity in the markets. However, this process will be slow, which means that there will still be an incentive for companies to make public offerings.
The real estate sector in Mexico is no exception. There will be more Fibras (Mexican Real Estate Trusts) in the market and the need to find portfolios to acquire will still exist. Today, Fibras include real estate properties concentrated in industrial, retail, offices and hotels, but eventually, when the market grows and matures, they will expand to other kind of sectors, such as hospitals.
What sectors will be leading industrial real estate development in the next few years?
There are sectors in which Mexico has successfully attracted FDI, due to its clear location advantage and competitive labor force: Automotive, aerospace, electronics and appliances, for example. These sectors are an important part of the portfolio of clients of AMPIP members, and they will continue to grow, given the large supply chains that already exist in the country, particularly in the Bajio and Central regions in Mexico.
There are other sectors with great potential, like medical devices, pharmaceutical products and logistics; not only for exporting purposes but also to supply the domestic market as it continues to grow.
The energy reform will also create new opportunities in the oil, petrochemical and electrical industries, attracting new companies from manufacturing to services.
Do you expect the border areas to continue to lag interior locations in Mexico in terms of growth of their industrial real estate total inventory and vacancy rates?
I foresee a very positive outcome for the border region in the near future. Its weak performance in the last few years has three major components: economic crisis, over construction and insecurity.
The world is starting to grow again and particularly the US economy, vacancy rates have decreased and security has improved. We now see more activity in this region, even though it is still lagging behind some other areas of the country, particularly the Bajio and Central regions.
However, the energy revolution that is taking place in the US and the positive effect on its manufacturing sector, without a doubt will benefit the border States. Over the years, these States have built a great production base and plenty of talent that is difficult to replicate.
What will be the price trends in the near future for industrial and distribution facilities?
This analysis has to be done by differentiating the regions. Prices along the border have been slowly recovering, as the market demand is picking up. We are seeing that net absorption is increasing, so I expect that prices will rise.
The Bajio region has experienced higher rent and land prices, because of the increasing demand, generated mainly by the automotive industry. This trend will remain, as regional supply chains continue to expand.
Low vacancy levels and growing rents have defined the market in the Central Region, particularly the Mexico City North Corridor. This is an area characterized by large distribution centers occupied by logistic companies, focused on supplying the Metropolitan area.
Developers in general have been cautious in regard to the amount of spec buildings built in each region. Today, they pay more attention to absorption and vacancy rates.
Has the development of LEED (Leadership in Energy & Environmental Design) buildings finally caught up in Mexico?
As larger real estate players come to the market, environmental issues become more relevant. Several companies, some of which are already our tenants, have also expressed their need to have “greener” buildings. Nevertheless, for LEED industrial buildings to become part of our culture, it will take some time.
As part of our objectives, AMPIP fosters environmental practices and through its quarterly meetings, providing to its membership (individuals and/or institutions) with tools to improve their projects. That is why at AMPIP we have implemented an internal recognition named “Green Industrial Parks”. This will be given to those parks that prove the implementation of good practices on environmental protection. Besides, we have promoted the certification of parks under the Mexican Standard, as an evidence of certainty on legal issues, as well as on the availability of services, utilities, security and the compliance of environmental regulations.
What is your general economic outlook for 2014-2015?
I believe that the economy outlook in the following years is encouraging. There are various elements which support this argument. The US economy is showing a recovery that will positively impact our export sector; the Mexican Government will resume spending through the National Infrastructure Program; the home building sector which was badly hit in the last two years, has bottomed out and will soon start developing; and lastly, if the structural reforms are well implemented, we should see a very positive environment for investment.
The combination of an increase in domestic and foreign investment, GDP growth and macroeconomic stability, should help the country to improve employment and well-being for our citizens. Also, the growth of the middle class, which translates in more consumption. This effect should undoubtedly benefit the industrial real estate sector.