How Will Industrial Real Estate in Mexico Be Affected by Record Foreign Direct Investment?
The growth of Mexico’s industrial real estate market reflects the economic stability stemming from specific manufacturing sectors. Currently, 82% of the industrial real estate in Mexico is occupied by companies in manufacturing, consumer goods, and transport and logistics sectors, according to SiiLA data. Manufacturing companies lead the real estate landscape, occupying 55% of the gross leasable industrial area in Mexico. Consumer goods, as well as transportation and logistics companies, occupy 19% and 9%, respectively. Given that foreign direct investment in Mexico broke the record ($29.041 billion USD) in the first semester of 2023, the positive effects could soon be felt in industrial real estate.
Development of Other Industrial Corridors in Mexico
In 2022, 65% of the construction of industrial space in Mexico was concentrated in only four cities: Mexico City (20%), Monterrey (19%), Ciudad Juárez (16%), and Tijuana (10%), being these last three cities in close proximity to the United States. As a result of the growing demand in specific geographic areas, especially those along the border, land scarcity will soon become a challenge. However, this could also become an opportunity for expansion into new regions.
Industrial properties are mainly concentrated in a zone known as the “Triángulo Dorado”, with Monterrey to the north, Mexico City to the south, and Guadalajara to the west, representing more than 60% of the industrial space in Mexico. In this area, a large percentage of industrial properties are located in private industrial parks, most of which are members of the Asociación Mexicana de Parques Industriales Privados (AMPIP). These private industrial parks have addressed many of the market challenges for industrial land in Mexico, such as the lengthy process for ownership consolidation of fragmented land parcels, the need for extensive negotiations to provide infrastructure, and the opportunity to offer investors and tenants smart and sustainable solutions with an ESG approach.
Increase in Nearshoring
Nearshoring will continue to have a positive impact on Mexico. More than 500 companies have sought to relocate their operations to Mexico, increasing the demand for industrial real estate. Locations such as Monterrey, Tijuana, and Guadalajara have benefited greatly from this increase. In addition, the Corredor Interoceánico del Istmo de Tehuantepec project could further increase the demand in the region.
Industrial Real Estate Benefits From Increased Infrastructure
In an interview with Mexico Business News, José Carlos de Corcuera, PDS Head of Industrial Business Development at Cushman & Wakefield, explained that there are many intervening factors for a company to move its operations to Mexico. Site selection is the first step to evaluate the new location, during which space and talent availability are analyzed. Additionally, clients look for tax incentives and administrative benefits that could support the investment. The availability of a local supply chain is also a key element, as it could potentially optimize costs and operations.
De Corcuera also points out that industrial parks and manufacturing plants need a reliable, affordable, and more increasingly, clean source of energy. He explains that the lack of energy viability has been a limiting factor for new companies to relocate its operations to Mexico.
Finally, De Corcuera notes soft infrastructure as another key player in the decision-making process. Soft infrastructure includes education, health, mobility, and entertainment services that provide a sense of well-being to the people who will potentially work in the factories and industrial parks. The development of this infrastructure is fundamental to attracting industrial investment.
Also read: Defining an industrial park
Incorporating New Trends and Technologies
During the interview, José Carlos De Corcuera delved into the recent trend toward sustainable development in the industrial real estate sector. This involves looking for ways to improve efficiency, to reduce operating costs, and to create better workspaces for occupants. This is achieved through the Leadership in Energy and Environmental Design (LEED) certification, an internationally recognized system developed by the U.S. Green Building Council. De Corcuera also mentioned that sustainable properties stand out because they provide better capital gains and are more attractive to investors and users.
Improvements in the Power Supply for Industrial Parks
One challenge for industrial real estate is the availability of electricity, as most power is generated in southern and central Mexico and the northern border region is currently the most popular destination for manufacturers. The Mexican government has made limited investments in adequate infrastructure to provide the necessary energy to fuel Mexico’s current growth. The industrial REITs (Real Estate Investment Trusts) have been working with the federal, state, and local governments to address the imbalance between the expected development and the production and supply of electricity to ensure that businesses will have sufficient energy. It is also expected that, as a result of this, industrial real estate development will move to the south, to the Bajío and central regions of Mexico, as developable land in northern Mexico is almost exhausted and rental prices are almost the same as those for land across the border.
At Advance Real Estate we closely follow the foreign direct investment in Mexico, and we offer a large catalogue of industrial real estate properties that meet the operational needs of companies in different sectors.
Information Sources:
- https://www.naiop.org/research-and-publications/magazine/2023/Spring-2023/business-trends/industrial-spotlight-mexico-nearshoring-foreign-investment-create-opportunities/
- https://www.realestatemarket.com.mx/noticias/mercado-inmobiliario/42899-momento-de-creer-en-mexico-y-apostar-por-la-industria-inmobiliaria
- https://mexicobusiness.news/infrastructure/news/great-potential-industrial-real-estate-mexico
- https://www.thornburg.com/article/the-booming-mexican-industrial-real-estate-market-a-hotbed-of-opportunity/
- https://siila.com/news/prosperous-industrial-real-estate-market-mexico-key-sectors-impact-economy/6559/lang/en
- https://www.forbes.com.mx/inversion-extranjera-recibida-en-el-primer-semestre-rompe-record-historico/
