Monterrey remains Mexico's most dynamic industrial market. Its growth has been relentless for years—demand has consistently outpaced supply, rental prices have risen without resistance, and vacancy rates have remained low and stable. But something is changing. For the first time in four years, supply is expanding faster than occupancy, the influx of new companies is slowing, and while the market remains strong, signs of a potential adjustment are emerging. Is this a temporary shift or the beginning of a deeper market transformation?

Over the past four years, one in five companies entering Mexico has chosen Monterrey as its base. More than 250 domestic and international companies—primarily in the automotive, capital goods, and logistics sectors—have established operations in the city, occupying over three million square meters of industrial space. During this period, strong demand and tenant retention drove annual increases of 25% in net absorption and 17% in gross absorption, keeping occupancy levels high and pushing vacancies to a record low of 1% by the end of 2023, the lowest level recorded by SiiLA.

However, 2024 marked a turning point. Supply outpaced demand for the first time since 2020, signaling a fundamental shift in market dynamics. In previous years, nearly every newly built square meter was leased almost immediately. But the absorption rate is no longer keeping pace. Industrial space deliveries have consistently set new records, and 2024 is no exception. With an average annual growth of 30%, deliveries have accelerated, pushing vacancies higher. By 2024, the vacancy rate reached 2.6%—the highest level since late 2021. Last year alone, more than two million square meters of industrial space entered the market, representing a 31% increase from 2023 and double the volume added in 2022.

Unlike other markets—such as Ciudad Juárez, where rising vacancy was driven by slowing demand—Monterrey's vacancy increase is not a sign of weakening demand but rather a reflection of growing investor confidence. The region remains Mexico's top destination for industrial investment, making its market dynamics unique compared to other areas.

In this context, according to SiiLA Market Analytics, 85% of new industrial space delivered in Monterrey is delivered with a pre-lease agreement, while only 15% is speculative. The rise in vacancy is partly due to a shift in this balance. Between 2023 and 2024, the share of pre-leased properties fell at an annual rate of 7%.

To put this into perspective: in 2022, only 3% of newly delivered industrial space entered the market as available space. By 2024, that figure had increased fivefold, reaching a record-breaking 300,000 square meters of available space.

This shift in the market's composition could impact the balance between supply and demand. If this trend continues in the medium to long term, Monterrey's rental market could face downward pressure.

For now, confidence in Monterrey's market remains strong. In the past year, market rent has increased by 8.3%, reaching $7.69 per square meter, reinforcing Monterrey's status as a landlord market. High demand continues to give property owners the upper hand in lease negotiations, rent pricing, and even asset sales, particularly given the limited availability of industrial-zoned land for future developments.

But Monterrey's appeal extends beyond space scarcity—it is also about the industries driving demand.

This market has solidified its position in strategic sectors, including automotive, capital goods, electronics, and logistics, accounting for half of its 18.2 million square meters of industrial inventory. Last year, major players such as Bosch, Lingong Machinery Group, and Kawasaki absorbed nearly half a million square meters—representing a quarter of all occupied space in 2024.

Despite the rise in supply, demand from global corporations remains strong, reinforcing Monterrey's position as a key industrial hub. However, challenges lie ahead.

This year will be pivotal. With 1.4 million square meters projected in the development pipeline, 2025 could set yet another record for industrial deliveries. However, this expansion comes as the arrival of new companies in Mexico slows. In 2023, the number of companies establishing operations in Monterrey was only one-third of what it was in 2022—the market's peak year for new entrants.

While a drastic shift won't happen overnight, if these trends persist, the market could enter a period of adjustment. Tenants may gain leverage in negotiations, which puts pressure on rental rates and extends the time required to lease speculative space.

For now, Monterrey remains the epicenter of Mexico's industrial real estate market. But the question remains: Is this merely a temporary correction or the beginning of a more profound shift in market dynamics?

For more insights on the commercial real estate market in Mexico and Latin America, visit SiiLA REsource or contact us at contacto@siila.com.mx.