Increase in Speculative Inventory in Mexico: Investments Risks and Leverage in 2024

The speculative industrial inventory in Mexico surged in the first half of 2024, increasing the vacancy rate. However, this also reflects developers’ unwavering confidence in market recovery despite global economic uncertainty, providing a reassuring outlook for the future.

Of the new industrial inventory, more than 34% was speculative. The Bajío region stood out by concentrating a substantial 44% of these warehouses gross leasable area, underscoring its significance in the market.

Mario Chapa is the CEO of VYNMSA, a significant developer of speculative warehouses in Mexico. Photo: SiiLA.

By: SiiLA News

07/30/2024

The surge in speculative inventory delivery in 2024 is a significant trend, reaching one of the highest levels for a first half in the last two years. This situation, coupled with factors such as the slowdown in space absorption and the continuous development of properties, has contributed to the increase in the vacancy rate in the Mexican industrial market.

Data from SiiLA indicates that, although it is not the only determining factor, there has been a direct proportional relationship between the percentage of new speculative inventory and the vacancy rate in most cases over the past five years. This implies a general trend where the percentage of speculative inventory and the vacancy rate move in the same direction over several periods, although not uniformly in all quarters. For example, in 2020 and the first half of 2024, both speculative inventory and the vacancy rate showed an upward trend. In contrast, in most quarters of 2021, 2022, and 2023, both indicators tended downward.

However, this proportional relationship only holds when other factors, such as the balance between supply and demand, macroeconomic conditions, monetary policy, construction costs, political and regulatory stability, and financing availability, are favorable. This is because speculative inventory can directly affect factors such as exposure times (the period during which a space remains vacant), investors’ risk perception, maintenance costs, and rental price flexibility, although it does not directly influence the vacancy rate.

Nevertheless, A high level of speculative inventory can create greater market uncertainty compared to build-to-suit inventory (which is pre-leased) and increase competition among property owners to attract tenants. This can affect rental rates, property profitability, and the planning of future developments, as developers may become more cautious or aggressive in launching new projects depending on the speed at which speculative spaces are occupied.

Speculative Inventory by Region

During the first half of this year, more than 34% of the new industrial inventory was speculative.

The regional distribution of speculative inventory and the average size of these warehouses reflect a greater willingness to take risks, with leverage to negotiate more favorable contractual conditions for developers.

According to SiiLA Market Analytics, 44% of the gross leasable area (GLA) of speculative inventory is concentrated in the Bajío region (which includes Aguascalientes, Guadalajara, Guanajuato, Querétaro, and San Luis Potosí). The rest is distributed among the northwest markets (such as Ciudad Juárez, Mexicali, and Tijuana), northeast (such as Monterrey, Reynosa, and Saltillo), and Mexico City, with 28%, 15%, and 14%, respectively. This distribution is due to the availability of land with industrial zoning and access to basic infrastructure, considering the flatter topography of the Bajío compared to northern regions, and the ability of these markets to offer favorable conditions for developers, which are more limited in central Mexico due to the limited space and market saturation.

The data also indicates that 56% of the speculative GLA belongs to industrial warehouses of over 15,000 square meters. In contrast, about 17% are less than 10,000 square meters. This reflects a preference for developing larger facilities, implying greater short-term risk, as between 10% and 20% of new industrial spaces delivered in 2024 had an average exposure time of 14 months before leased. On the other hand, the development of large speculative warehouses suggests that developers have ample land for development, giving them a competitive advantage in price negotiations due to the scarcity of space in most markets, even with the temporary slowdown in national absorptions.

Overall, the increase in speculative inventory in Mexico during the first half of 2024 reflects developers’ confidence in the market recovery and their willingness to take strategic risks to capitalize on future opportunities in the context of global economic uncertainty. This underscores a long-term vision in a highly competitive and dynamic commercial environment.

For more information about the development and performance of Mexico's industrial real estate market, explore SiiLA REsource or contact us at contacto@siila.com.mx.

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