To bolster the national economy and harness the benefits of nearshoring, the Mexican government has implemented measures to promote investment, competitiveness, and innovation in key sectors of its economy. To attract foreign direct investment and solidify the country's position on the international stage, fiscal incentives have been established for 20 crucial sectors of the Mexican economy and the commercial real estate market.

In broad strokes, the latest fiscal stimulus law, applicable for the fiscal years 2023 and 2024, includes the immediate deduction of investments in fixed assets and provides access to incentives exceeding those stipulated in the Income Tax Law. These incentives pertain to research and development, employee training, as well as the production and export of goods.

According to SiiLA, the 20 sectors directly benefiting from this law represent 93% of the national industrial sector's gross leasable area (GLA). These sub-industries will be able to deduct between 50% and 89% of their new investments.

These sectors encompass aerospace, agro-industrial, food, capital goods, electronics, packaging, electric power, entertainment, pharmaceuticals, manufacturing, mining, metallurgy and steel, paper and cellulose, oil and gas, consumer products, business products and services, chemicals and petrochemicals, healthcare, technology, transportation and logistics, as well as vehicles and parts.

Between the third quarter of 2020 and 2023, the GLA of these sub-industries has grown in Mexico by anywhere from 11% to over 200%, depending on the specific sector. According to SiiLA, the agro-industrial, manufacturing, and entertainment sectors experienced the most significant growth, doubling or even tripling their GLA during this period. In contrast, sectors such as paper and cellulose, electric power, and pharmaceuticals saw the least growth, with their GLA varying between 11% and 17% over the last three years.

Despite the boost given to various sectors, investment in technology, infrastructure improvement, and the promotion of goods and services production and export have become strategic priorities for the Mexican government. These factors are deemed essential to capitalize on opportunities related to the arrival and expansion of companies due to nearshoring.

In this regard, the most recent fiscal stimulus decree could significantly impact the commercial real estate market in Mexico. It can stimulate supply and demand for industrial, corporate, and retail spaces.

First and foremost, the possibility of immediately deducting investments in fixed assets may encourage companies to expand and acquire new commercial facilities. Reducing tax costs associated with investments in commercial real estate could make it more appealing for companies to invest in properties, whether for internal use or leasing. This could result in increased construction of new real estate projects and more significant investment in commercial real estate.

Furthermore, promoting sectors that have experienced consistent growth, such as agro-industrial, manufacturing, and entertainment, can generate a greater demand for commercial spaces, such as shopping centers, industrial parks, and mixed-use properties. The same could apply to sectors with lower growth, as their development could lead to a more diversified business landscape, thereby enhancing competition in the market.

Additionally, the focus on employee training and innovation in the fiscal stimulus law may attract technology and high-innovation companies seeking strategic locations for their operations. This could boost the demand for high-quality spaces in key locations, especially in the Mexican Bajio region, where the expansion of technology companies has been quite noticeable in recent years.

While the new fiscal stimulus law in Mexico has the potential to generate a positive impact on the commercial real estate market by promoting investment and demand in strategic sectors of the economy, the scope and magnitude of the impact will depend on how companies and investors leverage the fiscal benefits and how the benefiting sectors develop. In any case, as long as the Mexican government maintains a sustainable balance between fiscal incentives and fiscal space, this legislation represents a significant opportunity for the growth and expansion of Mexico's economy and commercial real estate market.

For more information on this and other topics, explore SiiLA REsource or contact us at contacto@siila.com.mx.