Mexico City CBD's Resilience: Are Offices in Mixed-Use Buildings More Resilient to Market Changes Than Traditional Offices?

Offices in mixed-use office buildings have become increasingly popular in Mexico City's Central Business District (CBD). According to SiiLA, these offices account for approximately 12% of the corporate space in the CBD. While mixed-use offices were already considered an advantageous business model in terms of efficiency and space utilization by investors, they gained even more relevance during the pandemic due to their competitive advantage over traditional offices. What advantage, you may ask? Diversifying uses or functions within a single building is linked to greater adaptability and responsiveness to changing situations, such as a pandemic. However, we must ask ourselves: are mixed-use offices more resilient than the average corporate office?

Two SiiLA Market Analytics data sets can help us answer this question. On the one hand, the property occupancy rate indicates the demand for space at a given time and place. On the other hand, there is the market price. In the commercial real estate sector, a higher property value is usually associated with greater demand, lower availability, and an appropriate or dynamic level of competitiveness.

The average office occupancy rate in Mexico City's CBD was 81.7% in the first quarter (Q1) of 2023, while for mixed-use offices, it was close to 78.3%, according to SiiLA. In both cases, we can talk about stabilized properties that have had very similar levels of recovery in 2023 after two years of deceleration, with occupancy rates still below those reported at the beginning of the pandemic. However, the variation in occupancy in recent years was more pronounced for average offices compared to mixed-use corporate buildings. Between Q1 2020 and Q1 2023, the average office occupancy decreased by 9%, while in mixed-use offices, the reduction was 6%. These data suggest that average offices and mixed-use buildings in the CBD have experienced similar challenges in terms of occupancy and recovery after the pandemic. However, mixed-use offices have shown greater relative resilience to changes in market demand. Data also indicates higher competition in the office market, as its average occupancy rate is slightly higher than in mixed-use offices.

On the other hand, what do market prices tell us? During 1Q 2023, the market price for traditional offices and mixed-use properties was $26.4 and $29 per square meter, respectively. However, the difference becomes more evident when we compare only the value of Class A+ properties, which represent most mixed-use offices in the CBD. While the overall average for offices is $26.3, it is $31.3 for mixed-use offices. 

Furthermore, SiiLA Market Analytics data indicates that in the last three years, the average price for this particular property class decreased by 15.3% for traditional offices and 7% for mixed-use offices. The significant difference in market prices suggests that mixed-use offices may have higher demand. At the same time, the variations indicate that, during the analyzed period, mixed-use offices, especially Class A+ ones, may have had greater resilience to market changes. However, it is important to consider that these data represent a specific period, so relative resilience may be affected by additional factors on previous and/or subsequent moments.

To learn more about Mexico's commercial real estate market and its trends, contact us at contacto@siila.com.mx and explore Market Analytics, which provides a tool for analyzing selected data, such as that used in this text.