Maintenance Fees: A 12% Increase Impacts Office Markets in Mexico

According to data from SiiLA, maintenance fees increased by around 12% over the past year in Mexico's main office markets. While increases varied significantly between regions, with pronounced hikes in the north and the Bajio compared to the central part of the country, the impact of maintenance fees on leasing prices was between 1% and 2% in the markets. This implies that maintenance fees grew almost at par with leasing costs.

It's important to note that, although maintenance fees are adjusted, they typically do not increase the net operating income of companies, as any surplus not spent on maintenance is usually reimbursed to tenants at the end of the year. This underscores that an increase in fees does not necessarily translate into a higher effective cost for tenants over the long term. It's also worth mentioning that it's relatively common for both costs (maintenance and rent) to increase proportionally in Mexico, especially in contexts of inflation or when operational and service costs rise. This is because both concepts are related: maintenance fees cover the expenses for the conservation and services of the common areas of the buildings, and these expenses can influence the overall operational costs, which in turn can impact rental prices.

However, they don't always increase proportionally. There are factors that can affect one more than the other, such as significant changes in service costs (electricity, water, security), renovations or improvements in the building, or specific conditions of the real estate market in different regions.

In the current context, where the annual inflation for 2023 was 4.7%, and the increase in construction sector costs was 3.8% over the last year, according to data from INEGI, the maintenance fees and rental price increases reflect general economic trends. On the one hand, the increase in maintenance fees aligns with the rise in construction sector costs since if the costs to build, renovate, or maintain buildings are increasing, as indicated by the construction sector data, the maintenance fees, which precisely cover those aspects, also increase. On the other hand, given that maintenance fees include not only costs directly related to construction but also a set of expenses – such as services, administration, and reserve funds – linked to regional factors and the specific needs of each property, their cost is more volatile.

Fees and Regions

Over the past year, there was a disparity in the variation of maintenance fees among the leading office markets nationwide. SiiLA's data indicate that, while in northern and Bajio regions like Guadalajara, Monterrey, and Queretaro, there were variations between 14% and 16%, the variation in the Mexico Valley metropolitan area was 5%. This reflects the differences in the dynamics of the country's office markets.

The minor increase in the Mexico Valley metropolitan area, which is the most demanded market nationwide, is related to factors that limit the scope of inflation, such as the higher cost base, which limits increases in a highly competitive market, and the market maturity and stability in the demand for offices, evidenced by the 8% reduction in the vacancy rate over the last year.

In contrast, the northern and Bajio regions experienced more pronounced increases due to factors such as the rapid growth and development of emerging markets, which raises the local demand for goods and services, the greater volatility in the demand of some regions in the last year, like Guadalajara and Queretaro, where the vacancy rate decreased by 13% and 20%, respectively, and the lower operational costs, which increase as local infrastructure and services improve.

Mexico is a country of contrasts, with exemplary buildings like Torre Chapultepec (Mexico City) and Torre 57 (Queretaro) at opposite ends, with maintenance fees of six and 1.60 dollars per square meter, respectively. The variation in maintenance fees among different country regions underscores the complexity of Mexico's office real estate market. Investors, developers, and tenants must consider these regional factors when making strategic decisions, as these directly influence the profitability and viability of their projects and operations.

For more information about trends in the commercial real estate market, explore SiiLA REsource or contact us at contacto@siila.com.mx.