50% of Absorbed Office Spaces in Mexico Are Furnished: What Trends Are Driving This Situation?

Currently, 50% of absorbed office spaces in Mexico are furnished. Companies looking to optimize time and resources drive this situation. At the same time, competition with shell spaces is balancing the real estate market, offering more leasing options and greater price stability.

Salvador Kabbaz presides over FIBRA Danhos, the owner of Parque Toreo in Edomex, which includes furnished offices. Photo: SiiLA.

By: SiiLA News

10/21/2024

The pandemic not only changed the way we work but also transformed office demand in Mexico. Before 2020, just 30% of absorbed office inventory was furnished. However, the landscape shifted quickly. In the years following the health crisis, that percentage surged to 70%, driven by the abandonment of already fully equipped spaces. Today, although the numbers have slightly declined, furnished spaces still account for more than 50% of absorptions, solidifying themselves as one of the most attractive investment options in the corporate real estate market, according to SiiLA data.

Several factors contributed to this shift. The economic slowdown caused by the pandemic forced many companies to downsize their office footprint, leaving many fully furnished spaces vacant, which flooded the market. This pushed up vacancy rates and exerted downward pressure on rental prices.

Between 2020 and 2022, furnished offices experienced high vacancy rates, peaking in 2021 with more than 386,000 square meters vacated. While this trend slowed in the following years, in 2023 and 2024, around 90,000 square meters of annual vacancies were recorded—significantly higher than pre-pandemic levels, when vacancies were three times lower. This shows that despite the growth in demand, many companies continued to optimize their office usage, either by downsizing or relocating.

The Crisis Changed the Market

The proportion of furnished and shell office spaces in Mexico has balanced out since the pandemic.

The oversupply and massive office vacancies, especially between 2020 and 2022, had an unexpected effect: it spurred a change in demand.

In an environment of limited investments, many companies began to prefer offices that required minimal adjustments. Furnished spaces provided an efficient solution for those needing to relocate or expand without incurring additional costs. Over time, this trend normalized, and demand for these spaces grew, as they offered a faster and more convenient option.

However, despite growing demand, oversupply remained significant. Data from SiiLA Market Analytics shows that in 2019, the vacancy rate for furnished spaces was 38%, but by 2021, it had increased to 57% due to the large number of offices vacated during the pandemic. Since 2022, the vacancy rate has leveled at around 55%, reflecting that the market is balancing out, driven by greater absorption, improved tenant retention, and stricter supply control.

This adjustment in supply and demand also impacted rental prices. Between 2019 and 2020, prices dropped slightly due to oversupply, falling from $22.80 to $22.70 per square meter. However, with increased absorption and market recovery, prices began to rebound, reaching $23.50 per square meter in 2024, indicating a slow but steady recovery in the value of furnished spaces.

Balancing Flexibility and Competitiveness

The pandemic triggered a boom in vacated furnished office spaces in Mexico.

The rebound in prices reflects a deeper shift in corporate preferences. The real estate market's recovery adjusted occupancy rates in some segments and redefined the corporate landscape. Today, companies prioritize flexibility and quick adaptability. This focus on agility has been crucial to the rise of furnished offices, which offer immediate solutions for relocation or expansion without significant costs.

SiiLA data confirms this evolution. Currently, half of all absorbed corporate spaces are furnished. Demand for these spaces has grown by about 59% since 2019. However, this growth has slowed in the past year, suggesting the market is reaching a point of equilibrium, especially due to increasing competition from shell spaces, whose prices tend to be 2% to 7% lower.

The rise in competitiveness of shell spaces has become particularly evident in recent months. In the first half of 2024, 50.2% of absorbed office spaces were shell spaces, compared to 29.3% during the same period in 2023, representing a proportional increase of roughly 70%. This increase in demand has kept prices competitive with furnished spaces without causing significant nominal fluctuations. While the prices of furnished spaces have rebounded to $23.50 per square meter, the average prices for shell spaces remain at $22.90 per square meter, making them an attractive option for companies looking to optimize costs.

The price difference between furnished and shell spaces has allowed the market to reach a greater balance, adapting to businesses' new needs. The rise of furnished spaces and the growing supply of shell spaces are evidence of increasingly sophisticated office demand. Today, companies seek efficient office solutions but, above all, value flexibility and negotiation opportunities that allow them to adapt to market fluctuations.

Want to learn more about the latest commercial real estate trends? Explore SiiLA REsource or contact us at contacto@siila.com.mx.

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