New office construction would stop before rate hikes; Complicated construction outlook is expected by 2023

Although the office real estate market has recovered ground in terms of absorptions, after the impact of the pandemic, the great challenge for this segment is the start of new buildingswhich could be complicated in 2023 in a scenario of interest rate hikes, according to perspectives from the analysis firm Datoz.

In a meeting with the media, Sergio Mireles Montaño, director of Datoz, explained that the developers who have creative financing strategies will be the ones who can avoid the impact of the rise in interest rates as much as possible, which will give way at the start of new construction, especially under the mixed-use model and in areas that seek to revalue their corporate spaces.

“The question will continue to be: When will the construction of spaces be reactivated? The rises in interest rates, and therefore in the financing of new projects, will definitely affect the start of new construction,” explained Mireles Montaño.

Since June 2021, the Bank of Mexico (Banxico) began with the upward cycle in the interest rate, for which it has raised the rate by 525 base points in 11 movements to currently place it at 9.25 percent; Given inflationary pressures, this upward trend is expected to continue.

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The founder of Datoz remarked that the beginning of the construction of new corporate spaces has been the great slope for the office real estate segment, which could be complicated, even more, by the increase in the cost of financing that developers look for to start projects.

creative strategies

For Mireles Montaño, the developers who have sought “creative” strategies, given the rise in interest rates and therefore the increase in financing, will be the ones who are in a position to reactivate the office construction by 2023.

“Several of the projects that will be detonated (in 2023) will be those that may already have secured financing and are looking for creative schemes to finance part of the construction,” said the analyst.

In this context, Mireles Montaño pointed out that, for example, some projects seek to finance part of the development with pre-sales or, where appropriate, with sales of certificates to smaller-scale investors.

Zones and models

The founder of Datoz commented that, despite the context, for the following year, the construction of some construction projects is expected. office spacesespecially in regions such as Mexico City and Monterrey, Nuevo León, where there is an appetite to revalue corporate spaces.

“We believe that in 2023 some important works will start, although they will be counted in places like Mexico City and Monterrey. These constructions that will start will bet on class A Plus spaces, which have the possibility of continuing to attract clients who are looking for a fly to quiality, an improvement of their spaces”, highlighted the analyst.

The Datoz representative specifies that there are possibilities to develop office spaces class A Plus, the highest quality, in areas where class B projects abound.

“We have spoken with developers who seek to take advantage of niches, such as the possibility of building in areas where there is not a large presence of class A Plus buildings and they seek to take advantage of this migration from lower to higher quality.”

Mireles Montaño highlighted that the new office spaces that are built, will be built under the mixed-use model, where they coexist with other real estate segments such as commercial.

“The constructions will continue to be in the area of ​​mixed uses… With the potential to start in 2023, they are mostly mixed uses, we do not know in what proportion, but the trend will continue to be on mixed use projects”, narrowed down