Nearshoring in Mexico. In Three Years, Chinese Companies Multiply Their Occupancy Five-fold

As depicted in the chart above, increases in investment occurred during global financial and trade crises, particularly those affecting Asia and Europe. The increases also occurred during periods of regional economic growth in Latin America, times of crisis in the China-US relationship, and during regional economic and trade agreements in North America.

The growing investments have resulted in an increasing presence of Chinese-based companies in Mexico's industrial real estate markets, according to data from SiiLA's Market Analytics. As shown in the graph below, the number of square meters occupied by Chinese companies in industrial properties has increased fivefold between 2019 and 2023, while the number of tenants of Chinese origin has nearly tripled. This trend suggests that these companies seek strategic, high-quality locations to operate, as they occupy more than 1.8 million square meters distributed in different points across the Mexican Republic.

In March 2023, Chinese transportation and logistics conglomerate CIMIC and auto parts manufacturer Xinquan established foreign subsidiaries in Mexico. Both companies invested in expanding their production and competitiveness on a national level, taking advantage of the skilled workforce available in Queretaro and Aguascalientes. These moves reflect a growing trend of companies seeking to establish a presence in Mexico to benefit from its lower labor costs, reduced commercial real estate prices, favorable business climate, and access to the North American market. 

The concentration of Chinese investment in Northern Mexico's industrial markets has significant implications for the region's commercial real estate market. According to SiiLA's Market Analytics, a leading provider of real estate market data in Latin America, 62% of the total square meters occupied by tenants of Chinese origin are in three major industrial markets in Northern Mexico - Monterrey, Saltillo, and Tijuana. In these markets, companies of Chinese origin occupy over 1.1 million square meters of Class A and B properties. Monterrey, the top industrial market for these companies in 2023, is one of the most in-demand industrial markets today. This is partly due to the availability of state-of-the-art properties, such as the sustainable industrial park ProximityParks Monterrey. 

According to data from SiiLA Market Analytics, the Mexican states of Nuevo Leon, Tamaulipas, Coahuila, and Baja California are leading the way in terms of the growth of Chinese-origin companies in Mexico. Notably, these states are also home to the country's four busiest border crossings for exports. These four states' border crossings account for over 60% of the total value of imports, amounting to $167.2 billion in 2022.  

This trend highlights Mexico's importance as a strategic partner for Chinese companies seeking to expand their presence in the Americas, particularly given the strained trade relations between China and the United States. By setting up operations in Mexico, Chinese companies can access the North American market through a more stable and accessible alternative. As a result, the increasing concentration of Chinese investment in Northern Mexico's industrial markets will likely continue driving growth and expansion in the region's commercial real estate market for years to come. 

Besides geographic proximity to the United States, low labor costs, and well-developed transportation infrastructure for moving raw materials and finished products, there are other reasons why these companies are concentrating in Northern Mexico. The region provides local government tax incentives such as economic and non-economic benefits. The region also offers access to skilled labor, business partners and suppliers, diversification of supply chains, and a series of logistics and trade routes strengthened along the border with the United States. 

The impacts of nearshoring in Mexico

As of mid-2022, there were 1,294 companies of Chinese origin operating in Mexico, according to the Secretariat of Economy. More recently, the Mexican government reported that over 400 additional companies headquartered in China have expressed interest in expanding their production to Mexico. 

The trend of nearshoring from China to Mexico has increased and brought numerous benefits to the commercial real estate market. One such benefit is the increased demand for industrial warehouses, leading to a boom in the construction of new warehouses, storage, and distribution centers. This has created investment opportunities for real estate developers, increased job opportunities in the construction sector, and positively impacted the economy in general (learn more here). 

SiiLA data highlights that Chinese-based companies have increased their occupancy in industrial properties by 40% in the last year alone. This growth is reflected in the Hofusan Industrial Park in the Salinas Victoria submarket of Nuevo Leon, where Chinese companies are rapidly establishing themselves. In 2020, the park management announced its plans to attract Chinese companies to set up operations within five years. As of the first half of 2023, our data reveals that almost 90% of the park's gross leasable area is now occupied by Chinese firms, including big names such as  Hisense, Fawer Automotive Parts, and Hangzhou XZB. Chinese companies have substantially impacted Mexico's automotive, electronics, and capital goods sectors. The following graph illustrates the percentage of Chinese companies established in each industry.

The effects of nearshoring in Mexico attract companies of Chinese origin and from other parts of the world, including American companies. An example is that in early March, the US electric vehicle manufacturer Tesla announced the construction of its gigafactory in Santa Catarina, Nuevo Leon. The news generated excitement due to the size of the investment and the potential development for Mexico and the United States. The plant is expected to generate thousands of jobs and create a favorable environment for technological innovation and assets related to Tesla's supply chain. 

The Mexican commercial real estate market is rapidly diversifying with the surge of foreign investment, sparking competition among businesses and sectors and resulting in a more dynamic market. This competition stimulates growth and provides greater potential for stable and adaptable investment opportunities in real estate, even in uncertain economic conditions. With such promising growth and expansion, the Mexican commercial real estate market is emerging as an increasingly attractive option for investors seeking fresh opportunities.  

Foreign companies continue to flock to Mexico to expand their operations, driven by the need to reduce production and transportation costs for goods destined for the US market. However, developers face significant challenges in building and delivering spec buildings to meet the demand for industrial warehouses. 

According to the latest SiiLA data, the industrial market has reached a 98% occupancy rate across Mexico, leaving only enough available inventory to meet demand for the next three quarters. The only viable solution for many companies looking to establish operations is build-to-suit arrangements. Developers of industrial warehouses face numerous challenges in meeting the increasing demand, including the scarcity of land for construction and rising construction costs. Insecurity, particularly at the border, also presents a significant challenge, as well as the saturation of power lines and the lack of available water.

SiiLA will continue to monitor the Industrial market and the effects of nearshoring across Mexico. For more information and insights on Mexico's commercial real estate market, visit SiiLA or contact us at contacto@siila.com.mx.