U.S./Mexico CRE Activity Continues to Expand Into 2021

A revitalized North American free trade agreement (USMCA) has overall been well received since its implementation earlier this summer.

It’s almost hard to remember at this point, but before COVID-19, business relations between Mexico and the U.S. were beginning to improve. There was a strong trend of manufacturing requirements for U.S.-based multi-nationals looking to expand or relocate operations into Mexico. FIBRAS – the Mexican equivalent of real estate investment trusts REITs – were launched in the past decade and are enjoying record occupancy levels, serving as an attractive vehicle for real estate investors. A revitalized North American free trade agreement (USMCA) has overall been well received since its implementation earlier this summer. The overall border market activity for commercial real estate transactions has seen resilient, steady growth over the past three to four years, especially in major markets like Tijuana and Ciudad Juarez. There are no signs that this trend will abate anytime soon. While there is no denying that COVID-19 presented a major disruption to CRE activity during the second and third quarter of this year, market expansion should continue into 2021.

Business Activity in Mexico

The strength of global manufacturing needs within Mexico is a very positive sign, given the indecision faced this year related to pandemic supply chain and business interruptions from overall uncertainties related to the U.S. elections. Among the most active markets are the Northeastern corridors of Mexico, especially along the Monterrey-Saltillo area that have established-mature supply chains, and an abundant supply of qualified labor. There is also inverse impact on the U.S. in places like Southern Texas, such as the Pharr/McAllen and U.S. manufacturing locations. 

Many active projects are focused on various manufacturing sectors, among them: automotive, appliances, electronics, system controls, and energy (oil and gas). This is a very positive sign given the broad spectrum of companies that are undertaking important capital investment initiatives to expand their manufacturing platforms in Mexico.

Despite the economic headwinds presented by COVID-19, there are a lot of positive developments within the North American context and our region’s competitiveness on a global scale. While it is too early to tell what long-term impact COVID-19 and the recent U.S. elections will have on the global economy, most clients are optimistic in their current operational and corresponding facility decisions in Mexico.

NAFTA 2.0 and the Advent of Nearshoring Supply Chains

On July 1, 2020, a new trade agreement between the United States, Mexico, and Canada (USMCA) replaced the 25-year-old North American Trade Agreement (NAFTA). The sentiment in Mexico has been very well received within the international business community. It has been viewed as a victory for the North American region. 

The general consensus is that USMCA makes North American trade easier – as it was a long overdue update of past agreements. USMCA addressed recent and emerging critical issues, including compliance of regulatory systems, e-commerce and the protection of intellectual property. It also leveled the playing field in sensitive labor areas, especially in the automotive industry. The “investment trend,” also known as nearshoring, was evidence itself during the USMCA negotiations, especially by companies from China, Korea and Japan that were betting on its approval. As a result, a great deal of investment has flowed into Mexico from Asian companies looking to maintain higher integrated North American supply chains, which will continue to benefit all three North American economies and increase their global competitiveness.  

2021 Market Outlook

While we remain optimistic, there are still challenges ahead. Many of the leading manufacturing players in Mexico are collaborating with local governments and labor unions to address the interruptions caused by COVID-19. The e-commerce impact is obvious, especially in larger urban markets in Central Mexico such as Mexico City, Guadalajara and Queretaro. Nevertheless, there are significant manufacturing and engineering needs throughout Mexico and the Southern U.S. due to supply chain disruption, best-cost talent and the recent implementation of USMCA. We continue to see upward pressure on industrial pricing, especially along the northeastern and border markets. 

Despite some of the challenges presented by 2020, this has been a year filled with silver linings. There has been significant manufacturing deal velocity, especially in the northeastern/central industrial markets, and predict sustained growth within select regional industrial clusters beyond 2021.  

Felix G. Tejada, SIOR
Principal, Co-Founder      
Equus 335 – Av. Ricardo Margain 335
Torre1, Piso 6 Pte, Col. Valle del Campestre, San Pedro Garza Garcia
NL, MX 66265 

M +1 (512) 497-1229

T +52 81 8368 2000

www.citiusag.com

 

Ryan Bertin, SIOR

Principal, Co-Founder

39555 Orchard Hill Place, Suite 115

Novi, MI 48375 USA

M +1 (312) 590-4138

T +1 (248) 550-0963

www.axiom-ag.com