Mexico's Industrial Real Estate Market Soars with Potential for Doubling Inventory

The industrial real estate market in Mexico is snowballing. It has the potential to double its inventory in the next decade, especially with the boost from nearshoring and the e-commerce boom at the national level. According to data from SiiLA Market Analytics, the existing industrial area in the country has increased at an average annual rate of 30% over the past three years. In round numbers, Mexico has an industrial inventory of nearly 81 million square meters, more than 15 times smaller than the United States. However, around 80 industrial buildings are delivered every quarter, compared to 30 in 2019.

As per Alejandro Delgado, Country Manager Mexico at SiiLA, "We are experiencing a historic moment in the industrial real estate market, with the increasing number of deliveries, historically low availability rates, and historically high average market prices for industrial buildings, indicating an expanding market." Delgado also indicated that the challenge would be to develop new industrial regions in the country, such as in the case of the Mexican southeast, where infrastructure and skilled labor will be required. Currently, over 80% of the existing industrial space is in the northern and Bajio regions of Mexico, where space is over-demand, with markets like Ciudad Juarez and Tijuana having virtually no availability, according to SiiLA data.

The industrial boom in Mexico is due to the number of companies arriving in the country and those expanding their operations nationwide. For Delgado, the issue is that new deliveries are insufficient to meet the demand in a context where many developers expect the new inventory to enter the market with a 70% occupancy rate. Although the supply of new stock has been gaining momentum in recent years, it will be essential for Mexico to increase the number of new deliveries to take advantage of this historic opportunity. For example, Mexico delivered 5.5 million square meters last year, a significantly higher amount than the 3.6 million square meters delivered in 2019, before the pandemic. And just in the first quarter of 2023, the new inventory exceeded one million square meters, the highest level in a first quarter since 2021, indicating that Mexico could potentially close the year with a new record of deliveries, according to Market Analytics.

In this situation, it is necessary to ask, what lies ahead for the industrial sector in Mexico? The expectation is that supply and demand will stabilize over time. This process will depend mainly on the logistics chain of construction inputs.

According to Alejandro Delgado, the situation is complicated on the construction side but promising in terms of investment. The Country Manager Mexico at SiiLA explained that the construction sector faces supply problems, as was the case at the end of 2020 with the boom in logistics routes for moving online sales merchandise, leading to price increases in inputs such as steel, land, and constructions. However, this situation will improve as investments impact the sector, considering the current availability of capital from all over the world to Mexico, particularly for equity and debt investments.

As long as the nearshoring trend continues in Mexico, the number of companies arriving and seeking expansion will continue to increase. To stay informed and learn more about the trends and prospects of the industrial market, visit SiiLA or contact us at contacto@siila.com.mx.