Negative Net Absorption Impacts Offices: Over 80 Companies Vacate Spaces in Mexico City and Monterrey, Q1 2024

Negative net absorption has not been observed in the national office market since the first quarter of 2022. However, during the first quarter of 2024, this trend, which indicates that more square meters were vacated than occupied, resurfaced in the country's leading corporate regions, Mexico City and Monterrey, due to increased vacancy spaces.

The most pronounced tenant departures occurred in Mexico City, where, despite the absorption of more than 43,000 square meters by companies like Condumex and Citibank, vacancies occurred across all submarkets, particularly in Polanco and Santa Fe, which accounted for 44% of the 116,000 square meters vacated during the first quarter of this year. The buildings with the most space vacated were Corporativo Chrysler in Santa Fe, where FIAT Chrysler left nearly 16,000 square meters, and Distrito Polanco, where the financial solutions platform Konfio vacated around 8,500 square meters.

In Monterrey, the negative net absorption was less significant. During the first three months of 2024, companies from the legal, electric power, transport, and logistics sectors absorbed about 2,300 square meters. However, companies like Astrech and Johnson Controls moved out during the same period, freeing up about 4,000 square meters in the Santa Maria, San Jeronimo-Obispado, and Valle Oriente submarkets. The most significant departure occurred at Torre Koi in Valle Oriente, where Johnson Controls vacated nearly 1,600 square meters.

Despite this situation, data from SiiLA Market Analytics show that Mexico City and Monterrey are highly competitive and sought-after markets undergoing an adjustment period. This adjustment includes changes in work dynamics, more flexible contracts, and trends reflecting the national economy, oscillating between a post-pandemic period and the anticipation of possible economic recessions in the coming years, causing investors to act cautiously.

On the one hand, the data indicate that neither market has yet fully recovered from the adverse effects of the pandemic. However, there is a gradual recovery process for some indicators. Such is the case with the vacancy rate, which has decreased since mid-2022 in Mexico City (from 23% to 22%) and Monterrey (from 23% to 19%). However, stabilizing these markets and reaching pre-2020 levels, around 13% to 14% on average, will not be seen in the short or medium term.

On the other hand, market prices in Mexico City and Monterrey have increased over the last four years, remaining above $23 and $22 per square meter, respectively. This is due to an increase in property quality since 2020, with the gross leasable area of A+ and A class properties rising by 9% and 18%, respectively, and factors such as the growing demand for spaces and the adaptation and reconfiguration of properties to new market trends, in an environment with broad diversification of tenants.

This scenario reflects the complexity and dynamism of the office market in Mexico's major cities, where today's challenges could lay the groundwork for tomorrow's opportunities.

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