New Industrial Inventory 2023: Expansion in the North, Contraction in Central and Bajio Regions of Mexico

Compared to the existing industrial warehouses before 2023 in Mexico, the inventory added last year was 16% larger in the North, showcasing the growth of manufacturing intended for export. Conversely, in the Bajio and Central regions, the size of the new warehouses was reduced by 19% and 33%, respectively, reflecting the demand for increasingly efficient logistic facilities in areas where land is scarce.

Bruno Cattori is the President of Stellantis (Fiat-Chrysler) Mexico. Photo: SiiLA.

By: SiiLA News

03/25/2024

The average size of industrial warehouses delivered in Mexico throughout 2023 was slightly smaller (-2%) compared to the average size of existing industrial warehouses in the country. According to data from SiiLA, the properties incorporated last year had an average size close to 14,000 square meters. Despite the general trend, the behavior of the industrial warehouse supply was heterogeneous at the national level. While properties in the Northern markets tended to increase in size, in the Central and Bajio regions, there was a tendency for a decrease. This contrast responds to a combination of economic, logistical, commercial, and productive factors in each region, which have influenced the development and configuration of the industrial real estate sector.

Firstly, the average decrease in the size of industrial warehouses in the Central and Bajio regions can be attributed to the diversification of demand. With the expansion of the digital economy and e-commerce, as well as the growth of just-in-time (JIT) supply chains, there has been an increased need for smaller and more flexible facilities strategically located near urban centers to facilitate rapid distribution. This is particularly relevant in Mexico City's metropolitan area and Guadalajara, where proximity to large consumption centers has encouraged the development of more compact industrial warehouses aimed at meeting the demand for spaces for logistics and last-mile distribution. In this regard, SiiLA's data indicate that compared to existing warehouses before 2023, the warehouses incorporated last year were 19% smaller in the Bajio -especially in Guadalajara, where the difference was 26%- and 33% smaller in the Center. On average, the warehouses delivered in the Bajio had a gross leasable area (GLA) of 11,000 square meters, and in the Center, the average was 14,500 square meters.

On the other hand, the increase in industrial properties in the Northern markets can be explained by the strength of manufacturing and export, especially towards the United States. The border region benefits from its location to house large industrial complexes dedicated to manufacturing and assembly, taking advantage of trade agreements such as the USMCA. These operations often require larger-scale facilities adapted to extensive productive processes. An example is the Chrysler Derramadero Plant in Saltillo, which, with more than 250,000 square meters of GLA, is among the largest industrial properties in the country. Regarding the new inventory of 2023, the data indicate that the warehouses delivered in the northwest averaged 11,500 square meters, 32% larger than the average of the existing warehouses before that year. In contrast, the average size of the new inventory in the northeast was 2% larger, with an average close to 15,000 square meters.

Market Logic

In Mexico, there are huge industrial warehouses, like those making up Liverpool's PLAN, in the country's central region. Photo: ADI.

The sectoral composition of companies in Mexico's Northern, Bajio, and Central markets also influences the size and distribution of industrial warehouses. On the one hand, SiiLA Market Analytics data indicates that although the predominance of vehicle & parts, capital goods, electronics, and transportation & logistics companies in the North and Bajio is very similar, their market logic is quite different.

In the North, these industries occupy 67% of the GLA, reflecting the importance of export manufacturing through cross-border trade. In this context, productive and commercial activities demand more extensive facilities to accommodate complex production lines, storage of parts and finished products, and large-scale logistics operations. This trend has been more evident in significant markets such as Monterrey, Ciudad Juarez, and Tijuana, where the warehouses delivered in 2023 were between 11% and 76% larger than the average warehouse.

In the Bajio, these industries represent 56% of the occupied GLA. However, in this region, there is a notable need for facilities focused on transportation & logistics, especially for capital goods and electronics companies, for which innovation and agility are critical. The evolution towards more compact industrial warehouses in this region aligns with the need for spaces with more efficient distribution, especially for high-turnover products and immediate consumption goods. This is essential in a market increasingly oriented towards satisfying demands for instant delivery. However, an exception has been Queretaro, where the new deliveries exceeded the average size in the market by 6%. Beyond that, there were decreases between 11% and 55%, more marked in Aguascalientes, Guadalajara, and Guanajuato.

Additionally, there's the Central area. In this zone, companies specializing in transportation & logistics, consumer products, food, and vehicles & parts represent 53% of the industrial GLA. These companies demand spaces suitable for last-mile distribution and logistics in markets with minimal land availability, close to areas of high urban concentration. This market configuration is consistent with the trend towards smaller industrial warehouses, mainly due to the proximity to consumption centers, which is crucial for operational efficiency and reducing delivery times.

This implies that the availability of land and associated costs have also influenced the difference in regional behavior. In areas with high demand and limited land availability, as is common in the Central and Bajio regions, the price of land tends to be higher, which can limit the viability of developing large-scale industrial properties, with clear exceptions, such as the Liverpool PLAN in the metropolitan area of the Valley of Mexico, which has facilities with a GLA of 230,000 square meters. In contrast, in the northern part of the country, the availability of land at relatively more accessible prices has allowed the construction of larger industrial warehouses.

The direct influence of the sectoral composition on the configuration of the industrial real estate market reveals the importance of regional economic dynamics in the design and planning of industrial infrastructures. Companies must adapt their investment and development strategies to the characteristics of each region, considering current needs, future market trends, and the emerging demands of the predominant industrial sectors. This adaptability ensures the relevance and competitiveness of industrial facilities and increases the potential to maximize their long-term value in an ever-evolving market.

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

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