The space occupied per employee in major office markets in Mexico has seen a noticeable reduction over the past four years. This trend reflects the increase in space vacancy rates since mid-2020, which began to reverse in mid-2022. However, according to data from SiiLA, occupancy levels have yet to return to pre-pandemic levels.

Alejandro Delgado, Country Manager for Mexico at SiiLA, pointed out that "Before 2020, the average occupancy was about 12 square meters per employee. Today, that figure has decreased to around eight square meters per employee due to the reduced need for permanent space for each worker and a preference for larger common areas." In this new paradigm, shared workspaces and daily desk reservations have become common, adapting to a hybrid model that combines working from home with office presence only when necessary. This adaptability optimizes space usage and meets employees' demands for a better work-life balance, ensuring a smooth transition to the new way of working.

The reduction in space occupancy reflects a broader transformation in Mexico's office market, primarily driven by the effects of the COVID-19 pandemic. Unlike the industrial sector, which has shown a more robust recovery, the office market has also demonstrated resilience in the face of significant challenges. This situation is mainly due to changes in corporate space usage. Economic uncertainty, lack of social mobility, and the reconfiguration of supply chains since 2020 have forced companies to reduce office occupancy and/or change work habits to streamline processes. This includes adopting hybrid work models with flexible and shared spaces like coworking.

Reduction in Space per Employee: Consequences

The reduction in space per employee carries significant implications. On the one hand, it reflects companies' inclination to trim operating costs to invest in critical areas for their operations. On the other hand, it underscores the increased vacancy of office spaces in Mexico, which in turn drives down rental prices.

While the excess supply and limited demand have been advantageous for some companies seeking to renegotiate their contracts or move to more strategic and modern locations with better economic conditions, for property owners and developers, this trend has necessitated a shift in strategy. They now need to adapt spaces and offer additional services to attract and retain tenants. These services include flexible facilities, advanced technologies for hybrid work, and designs favoring common areas over private offices.

In this context, during a presentation to the Federation of Valuation Colleges (FECOVAL), Alejandro Delgado mentioned that the decrease in the vacancy rate has been a critical factor in understanding the transformation of the national office market since the pandemic.

"Before the crisis, the vacancy rate was 13%, but by 2022 and 2023, this figure had risen to 25%. Although there has been a slight improvement since then, vacancies remain high, around 21-23%, reflecting an oversaturated market with an oversupply of spaces. This high vacancy has prevented rental prices from recovering significantly, keeping them at pre-pandemic levels," he explained.

Regarding market prices, the business specialist with extensive experience in real estate asset valuation, investment analysis, market research, and entrepreneurship, noted a significant drop during the pandemic.

"In 2019, the average office asking rent price in Mexico was approximately $23 per square meter per month. By 2021, some markets experienced a decline of up to 9%. Since then, although there has been a slow recovery, by the second quarter of 2024, prices have barely returned to 2019 levels. This indicates that there has been no real increase in rental values, even considering inflation," he stated.

For Alejandro Delgado, one of the most exciting changes in the past four years is how companies have changed how they use office space. Currently, many opt for open spaces that encourage interaction and teamwork instead of private offices and individual cubicles. Technology and finance companies, such as Citigroup, Nubank, Pinterest, and TikTok, have led this trend, occupying spaces in high-profile buildings in areas like Mexico City, Guadalajara, and Monterrey.

Despite some signs of recovery, the office market still faces significant challenges. "The perception of risk among investors remains high, which is reflected in the volatility of the capitalization rate or cap rate. During the pandemic, the uncertainty about the future of office spaces led to a widening in cap rate ranges, reflecting market uncertainty. Although there has been some stabilization, the perception that the recovery has not been as strong as expected continues to weigh on investment decisions," concluded the SiiLA executive.

In a context where Mexico's office market is in transition, influenced by new ways of working and managing spaces, the potential for developers and property owners to adapt and innovate in the design and use of corporate spaces is vast. This innovation will be essential to ensure the competitiveness and relevance of their properties, maximize occupancy, meet the changing needs of tenants, drive property revaluation, and foster a dynamic and resilient business environment.

For more information on the industrial market's performance and development, explore SiiLA REsource or contact us at contacto@siila.com.mx.