Electricity in Mexico. Challenges and Opportunities for the Commercial Real Estate Sector

The commercial real estate market in Mexico faces critical challenges due to the current state of the electric sector. The need to modernize the electrical infrastructure, the high dependence on fossil fuels, and regulatory uncertainty, especially concerning the lack of competition and the dominant role of the Federal Electricity Commission (CFE), directly impact the competitiveness and development of this market.

According to the Mexican Energy Secretariat (SENER), although the energy independence index has improved over the last five years, Mexico has produced, on average, 26% less energy than it consumes. This, coupled with outdated electrical infrastructure, poses risks of interruptions in the electrical supply that can affect the operability of shopping centers, offices, and industrial complexes.

The situation becomes more complicated when considering the increase in demand. SENER anticipates that between now and 2037, the net consumption of electrical energy in Mexico will increase at an average annual rate of 2.5%. This underscores the urgent need to strengthen distribution infrastructure and improve energy generation and consumption efficiency, especially considering that, in the last year, the industrial area in Mexico increased by about 7%, according to SiiLA.

Expanding Mexico's industrial and commercial footprint will increase electricity demand in a context where the industrial sector represents 62% of national electricity consumption. This puts additional pressure on the already strained electric industry, leading to higher costs and operational challenges for the commercial real estate sector if advances in energy efficiency and the integration of renewable energies into the country's energy matrix are not adequately managed.

Electricity and Nearshoring

Energy efficiency and integrating renewable energies into Mexico's energy matrix are indispensable. In this regard, SENER data indicate that, as demand increases, there are positive advancements in terms of efficiency and sustainability. On one hand, energy intensity, which measures the amount of energy required to produce one peso (or 0.06 dollars) of the Gross Domestic Product (GDP), fell by 7% in the last five years, reflecting a productivity improvement. Moreover, the generation of clean energy (wind, solar-photovoltaic, bioenergy, efficient cogeneration, geothermal, hydroelectric, and nuclear) has increased by 27%. However, much remains to be done, as less than one-third of the energy produced in Mexico comes from clean sources.

The transition towards a more sustainable and efficient energy matrix will not only benefit the environment and contribute to the competitiveness and sustainability of the commercial real estate sector in the country but also prevent the volatility of electricity prices due to fluctuations in oil and natural gas prices. This requires considerable investments in the modernization and diversification of the electrical infrastructure towards cleaner and more sustainable energy sources.

Furthermore, the need for more competition in the electric market, with CFE playing a dominant role, limits options for consumers and may result in higher prices and fewer incentives for innovation and efficiency. The constantly changing regulatory framework, especially regarding CFE's position, creates an atmosphere of uncertainty that can discourage foreign investment and hinder the development of commercial real estate projects.

Mexico must promote competition in the electric market to ensure fair prices and encourage innovation. A stable and predictable regulatory framework is fundamental to attracting investments in renewable energies, which in turn will contribute to the country's competitiveness and growth of the commercial real estate sector.

The energy transition is crucial to leverage nearshoring opportunities, a phenomenon that has gained traction in reconfiguring global supply chains. Mexico's proximity to the United States, its leading trading partner, positions the country as an attractive destination for relocating and expanding industrial and commercial operations. However, to fully capitalize on this trend, it is essential to have a reliable, sustainable, and competitively priced electricity supply.

The development of the commercial real estate market, especially in sectors such as industrial, logistics, and offices, is intrinsically linked to the availability and quality of electrical energy. Poor or insufficient electrical infrastructure can discourage foreign investment and limit economic growth. On the other hand, a well-planned and executed energy strategy, prioritizing efficiency and sustainability, can be a determining factor in attracting investments.

In this context, the government and the private sector must work together to address the challenges of the electric industry and advance towards a greener and more resilient economy. Implementing policies that encourage investment in renewable energies, the modernization of the electric grid, and the promotion of energy efficiency will be vital to ensuring the future of the commercial real estate market and further positioning Mexico as an attractive destination for nearshoring.

Considering the energy situation in the country, many companies have opted to set up properties that have electrical substations. Are you looking for a property with an electrical substation? With SiiLA SPOT, Mexico's largest and most comprehensive database of available industrial, office and coworking spaces, you can search for properties with electrical generators. It's easy and completely free! Just log in, select the advanced filters, and choose the most suitable property for your business. Click here to find the ideal property for your business! For more details, please write to us at spot@siila.com.mx.