Foreign Direct Investment and the Industrial Real Estate Market: A Mutually Reinforcing Relationship with Positive Outlook in 2023

Foreign Direct Investment (FDI) is an essential indicator reflecting the confidence of foreign investors in a country's economy. In the industrial real estate market, FDI is crucial in driving the development and demand for industrial spaces. Similarly, the state of the industrial real estate market can significantly influence the attraction of investments from foreign companies. These two aspects are closely intertwined, creating a scenario where FDI and the industrial real estate market mutually reinforce each other, thus enhancing the country's appeal to investors.

For example, in Mexico, FDI fluctuations have had a delayed effect on industrial warehouse occupancy, according to data from Mexico's Economy Secretariat and SiiLA. This implies that the industrial space vacancy rate exhibits an opposite behavior after FDI increases or decreases. For instance, one year after 2019 and 2021, when FDI increased by 1% and 12%, respectively, Mexico's industrial space vacancy rate decreased by around 5% and 44% in each case. Likewise, in 2021, the industrial space availability increased by 1.7% after FDI fell by 18% in 2020.

Furthermore, the delivery of new inventory has shown a parallel pattern to FDI. In 2020, while FDI decreased by 18%, the area of newly delivered industrial warehouses reduced by 13%. In contrast, during 2021 and 2022, as FDI rebounded, new deliveries increased by 8% and 42%, respectively.

These data reflect that the industrial real estate market is sensitive to foreign investors' confidence in the country's economy, highlighting the importance of maintaining a conducive environment to attract and retain investments. Thus, policies and measures that promote FDI attraction become a key tool to boost economic development and industrial sector growth, generating opportunities for the country and strengthening its allure for international investors.

What lies ahead in 2023?

According to information provided by the Economy Secretariat, it's expected that FDI in Mexico will continue to be favorable and maintain a positive trend in 2023.

During the first quarter of this year, Mexico recorded $18,636 million in FDI. This figure is 48% higher than the amount recorded in the first quarter of 2022, excluding the Televisa-Univision merger and AeroMexico's restructuring, which generated considerable variations in FDI due to their size ($6,875 million) and atypical nature. Furthermore, the FDI in the first quarter of 2023 is the highest for any first quarter in at least the last 13 years, indicating a strong interest and confidence from foreign investors in the Mexican economy.

Notably, 90% of the FDI in 2023 corresponds to reinvestments, with 5% attributed to new investments. This means that in the first three months of the year, there was a high degree of expansion among existing companies in Mexico compared to the arrival of new firms. However, over the last 13 years, on average, new investments have represented 42% of quarterly FDI, while reinvestments have averaged 36%.

If the positive influence of FDI on the Mexican industrial real estate market continues, it is expected to generate favorable economic and business conditions for the Mexican industrial market, thus strengthening the country's position as an attractive destination for investments seeking to leverage nearshoring. However, sustaining a conducive environment to attract and retain investments is essential. This involves maintaining political and economic stability, improving infrastructure and logistics, strengthening the legal and regulatory framework, and promoting skilled labor and the rule of law.

If you wish to obtain more information about this and other topics related to the commercial real estate sector, explore SiiLA REsource or contact us at contacto@siila.com.mx.