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Monterrey Office

104 David Alfaro Siqueiros
VAO 2, Floor 15, Suite 1503  
Valle Oriente, Nuevo Leon,
Mexico 66269

Tel: +52 81 8363 5330
sergio.resendez@colliers.com

Real Estate Business Impact in Mexico

In the last 20 years, Mexico has become the 11th world's largest economy and 3rd in the Americas, behind only the United States and Brazil. Due to its geographical location, the agreements on free trade, competitive labor and infrastructure work, the world has set his sights on Mexico as one of the main destinations for foreign investment.

Strategic location of Mexico

Located in North America and having the US as north border of the country; Mexico is the largest market in the northern hemisphere. The strategic and geographic location of Mexico leaves it with many benefits. With the Gulf of Mexico as its main entrance on the east, Mexico has a natural access to and from the Atlantic Ocean, where the major ports of Veracruz and Tampico are used for international trade, mainly to Europe. To the west, the Pacific Ocean represents some of the most important ports of entry into Mexico. The ports of Manzanillo and Lazaro Cardenas are used for international operations, mainly with Asia. This prime location has caused international trade with South America and the world.

Because of its location, labor costs and infrastructure in seaports, railroads and highways, Mexico reduce logistics costs for both the export of Mexican products and international import of goods to or from Mexican soil. For example, a container coming from the center of Mexico, and taking an average of three days to get to Chicago would take 34 days to travel from Shanghai to Chicago. Delivery time is reduced to a fraction having Mexico as their home base. As wages in China will continue to increase, the availability of skilled labor in Mexico becomes a great advantage to reduce overall costs, basically any type of operation.

Free Trade Agreements in Mexico

Mexico is the country with the most free trade agreements in the world. These trade agreements has benefited Mexico and its investors, as a strategic target for the new manufacturing plant. The great flexibility allows unlimited import of goods and export of parts and finishes to many markets around the world.

The automotive industry has taken advantage of Mexico free trade agreements, resulting in a considerable increase in vehicle production of 1.8 million units in 2002 to 3 million in 2013. This makes Mexico the 8th largest producer of automobiles in the world. If it keeps growing at this rate, it will be producing 4.4 million vehicles in 2020.

The automotive industry has exploded since 2010. Automobile assemblers such as General Motors, Chrysler, Daimler, Volkswagen, Nissan, Mazda, Honda and Audi have invested in infrastructure and manufacturing capacity, and also have large investments in ads advertising to increase production capacity or the installation of new assembly plants. BMW has just announced a new assembly plant in San Luis Potosi, where 150,000 vehicles will be produced; Similarly, Kia has officially announced its new assembly plant in Monterrey, in the municipality of Pesqueria, where 300,000 cars will be produced per year. Providers of Tier 1 and Tier 2 are following their customers, opening numerous plants throughout Mexico to supply their needs. Companies such as Pirelli, Bridgestone, Continental Johnson Controls, Magna, Faurecia, Katztin, Mahle, Boesh, Delphi, Yazaki and many others have grown their brand and have opened new plants, with the result that Mexico has the fifth place worldwide as a supplier of auto parts, only behind China, Japan, US, and Germany.

Work and infrastructure

In the past, the Mexican labor has been referred to as cheap and low quality. Recently this has changed; the qualified Mexican labor is now one of the key elements in providing productivity for investors (seen as labor quality), delivering a high quality production at reasonable low cost. Ford in Hermosillo, Nissan in Aguascalientes, and VW in Puebla are some of the success stories because of productivity in the assembly of high quality vehicles.

With an estimated 120 million people in 2013, Mexico is the second most populous country in Latin America after Brazil. 40% of the population consists of an age range between 25-54 and 18.1% aged 15-24, that is, Mexico has considerable workforce. The average education is equivalent to secondary level. Also in Mexico approximately about 90 thousand engineers and technicians graduate per year, even compared with countries like Germany, Canada and Brazil.

In terms of connectivity, Mexico has an extensive rail system and a large network of roads. The railway system connects to almost any city in the United States and is mainly operated by two companies: Ferromex and Kansas City Southern; local carriers serving in the road network.

Seaports play a key role in international trade in Mexico. The ports in the Gulf of Mexico and the Pacific Ocean, are used by many international companies as an alternative to congested ports in the United States, mainly the West Coast. The time needed to unload a container at a Mexican port is a fraction of the time required in the US.

There are more than 350 industrial parks in the 32 states of Mexico. Most of these parks meet international standards in the development and construction facilities. Many international players are present in the industrial real estate in Mexico: Prologis, Prudential, Macquarie and Ridge compete with local developers in extending its brand and attracting new investments.

Mexico is a developing country, therefore, most of its Class A and B have only eight years old, on average. Most of the demand is for new buildings or buildings to measure. The average unemployment rate is 4% in the secondary markets and 8% in the primary markets. Lease rates have remained constant in recent years because of the availability of capital in the market, creating FIBRAS and the flow of foreign investment in these.

The greatest activity in the last 12 months has been in the markets of Mexico City, Toluca, the Bajio (Queretaro, Celaya, León, Aguascalientes and San Luis Potosi) and Saltillo; some other markets such as Tijuana, Cd. Juarez, and Monterrey have been gaining speed since the beginning of 2014.

Conclusions

Mexico has been running at a very steady pace in recent years and is expected to continue growing at an even faster pace, at least for the next 10 years due to its recent energy reform and tax reforms. Business opportunities exist in Mexico and is expected to increase significantly in the coming years.

In real estate we will continue to see exponential growth in industrial parks, office buildings and commercial, to meet growing demand. Expansion and transfer operations of foreign companies for manufacturing operations in Mexico will be more frequent - most of them from the United States and Canada.

Baltazar Cantú, SIOR, CCIM

Monterrey