What are the challenges for the industrial real estate market to take advantage of the full potential of nearshoring?

The nearshoring effect has put Mexico in a unique position to land foreign investment, especially in the markets most connected to the outside world, which in turn is a boost for the industrial real estate sector; however, there are challenges that could hinder this perspective.

During 2022, markets on the northern border, the Bajío and the center of the country, saw an exponential demand for industrial spacesdue to the arrival of companies that see Mexico as a strategic position to approach the United States market, which caused different regions to register a vacancy close to 0 at the end of the year, with high profitability and good prospects for 2023.

However, in view of this registered demand, the short-term challenges for the industrial real estate sectoramong which stand out.

• Energy.
• Legal certainty.
• Skilled labor.
• Construction of new spaces.

“What we clearly see is that technology is coming back. High technology will be seen in the automotive industry, the aerospace industry and they will need engineers. What Mexico has to do is adapt more and get more engineers, since there aren’t enough of them,” explained Mike Wilson, executive vice president for Latin America at DSV, a firm that offers transportation and logistics services globally.

Wilson stressed that the firm he represents is a clear example of how the nearshoring It has been strengthened in the country, for example, currently the DSV has closed about 300,000 square meters and in the coming years that number will have to double.

“Our clients are putting pressure on us all the time and the market is incredibly concerned right now; We trust our real estate advisors to help us find the right space for our clients,” Wilson explained to representatives of the Real Estate Investment Trust.

For his part, Sergio Pérez, executive director of Strategic Business Intelligence of the real estate firm Newmark, commented that the automotive industry, due to its situation in Canada and the United States, sees in Mexico a territory that is adapted to the needs of this activity.

“We have seen great potential for European manufacturers to come here to take advantage of the fact that Mexico is one of the most open countries in the world, with 45 free trade agreements, to manufacture in Mexico, sell parts in North America and export to all the world,” Pérez said.

Fight low vacancy

The last months of 2022 was a period where vacancy in large markets decreased considerably and although this can be seen as positive since there is a greater occupation of spaces, it could also generate negative effects in the medium term, specifically on the subject of an increase considerable in the income of this type of property.

According to the real estate analysis firm Solili, only in the last part of the year the Monterrey market went from a vacancy of industrial spaces from 6.1%, from February 2021 to 1.3% in November 2022, which meant a historical record in said region.

Likewise, Mexico City presented a reduction in its vacancy from 5.6% in January 2021 to 1.8% in the penultimate month of the year.

For the firm, it is important that the markets have a healthy vacancy, between 3 and 5%, to maintain a balance, since currently rental prices can generate distortions, where although developers could have startup benefits, in the long run term both supply and demand would be hurt.

“By building a greater proportion of speculative projects that become available, the pressure exerted by demand decreases and the cycle of vacancy reduction can be reversed, as is evident in the Tijuana and Ciudad Juárez markets mainly,” Solili said.