Industrial Market Rents in Mexico Rise 38.8% in 5 Years, Outpacing Inflation

Between 2019 and 2024, industrial market rent in Mexico significantly increased. According to SiiLA data, the average market rent per square meter rose from $4.36 in 2019 to $6.05 in 2024, representing a 38.8% jump. In contrast, if we only account for inflation, rents would have been expected to reach $5.35, reflecting a more moderate 22.7% rise during that same period.

What does this mean? When rent prices rise faster than inflation, as has been the case for several years, demand exceeds supply in the market. In simple terms, many companies are looking for industrial spaces, but there aren’t enough available. This allows landlords to raise prices, as tenants are willing to pay more due to competition. In Mexico, this has primarily been driven by the relocation of supply chains, a trend known as "nearshoring". Nearshoring, which involves moving production closer to the end market, has significantly boosted demand for industrial spaces across the country.

On the other hand, when rent prices grow slower than inflation, it suggests that supply outpaces demand or that tenants’ ability to absorb space is limited compared to market growth. In this scenario, landlords have less flexibility to increase rents, as tenants are less willing to pay higher prices due to decreased competition. Economic slowdowns, which can lead to reduced business activity and lower demand for industrial spaces, can cause rents to fall below inflation, as seen during the most challenging years of the pandemic.

The effects of the relationship between supply, demand, and inflation have been clearly reflected in recent years. In 2020, 2023, and 2024, average industrial market rents exceeded inflation-adjusted prices, with differences ranging from 1.5% to 13.1%. However, during the most brutal pandemic years, 2021 and 2022, rents fell below inflation-adjusted prices, with declines of 3.4% and 8.1%, respectively. This illustrates how the pandemic temporarily impacted the market, but also how it has since regained strength, showcasing the resilience of the industrial market in Mexico.

Notably, the rise in rents above inflation from 2019 to 2024 is due to consistently positive net absorption. Net absorption, which is the balance of tenants moving in and out, has consistently been in favor of new tenants moving in, outpacing the delivery of new inventory. This imbalance has created demand that exceeds the supply of new spaces, lowering the vacancy rate from 4.3% in 2019 to 2.6% in the second quarter of 2024, driving up prices.