Between 2015 and 2019, nearly three million square meters of office space were delivered in Mexico. However, from 2020 through early 2024, just over one million square meters have been delivered nationwide. This difference indicates a slowdown in the delivery of new office spaces, as only a third of what was offered in the five years before the pandemic has been provided in the last five years.

Insights from SiiLA Market Analytics also reveal a decline in office demand, a trend influenced by a trifecta of factors: changes in work habits, investor caution stemming from recent economic uncertainty, and the ongoing election period in the country. This is evident in the occupancy rates of offices delivered between 2015 and 2019, which currently stand at a healthy 76%. In contrast, offices delivered between 2019 and 2023 have struggled to stabilize, with an average occupancy of just 46%. The impact is even more pronounced in offices delivered this year, which entered the market with a low 26% occupancy rate, the lowest during the period under analysis.

It is important to note that the transformation of the office sector is generating significant changes in the real estate market. In a context of increasing competition, with flexible business models, decentralization, and diversification of operations, new inventories are increasingly struggling to attract tenants and stabilize (with occupancy levels above 85%). However, office space absorption has significantly outpaced vacancies over the last decade, with some exceptions occurring in specific periods and markets. This suggests that, despite the challenges, the office market continues to attract enough tenants to maintain positive net growth.

Trends from 2024 Onward

Since 2015, the office market has shown a trend towards smaller spaces, evidenced by an average absorption size smaller than the vacancy size. This reflects, among other issues like reducing operational costs, a process of companies optimizing space usage, especially in recent years.

Property class is a key factor in the absorption and vacancy of corporate spaces. Companies' turnover has been more noticeable in Class A properties than in Class A+ and B. Furthermore, the most significant movements—regarding the volume of space occupied and vacated—usually occurred in Class A+ offices and then in Class A and B spaces. An example of this is the absorption of about 19,400 A+ class square meters by the Universidad del Valle de México (UVM) in Tower A of Torre Cuarzo at the end of last year, and the vacancy of approximately 18,700 A+ class square meters by the Mexican Communications and Transportation Secretariat (SCT) in Tower A of Parque Toreo during the third quarter of 2020.

The data analyzed is consistent with other trends observed in Mexico's office market over the years. The fact that the highest quality corporate spaces have tended to have higher company turnover and more significant movements is related to their dominance (in terms of GLA) in the country's leading office markets and to the fact that, in many cases and with some exceptions, transactions are often subject to economic conditions, where it is not unusual to see movements between different classes of offices due to budget adjustments.

In this context, it is essential to mention that, over the last decade, one-third of all entries and exits from the office market in Mexico consisted of companies that made a single transaction instead of multiple moves by the same tenants. This particularity implies that a significant part of the market is driven by companies that, possibly due to specific strategic decisions or needs, opt for decisive changes rather than gradual adjustments in their office spaces. Moreover, this behavior may respond to factors such as changes in corporate direction, significant restructurings, or adaptations to market conditions.

The foregoing highlights the importance of a versatile and responsive office market capable of accommodating tenants who need rapid and substantial changes in their physical structure and those seeking long-term stability. Ultimately, this underscores the need for real estate management strategies that can adapt to a wide range of tenant demands, thus ensuring the sustainability of the office market in Mexico.

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