Offices Continue Their Recovery in Mexico. Large-Scale Transactions Return to the Market

Mexico City wrapped up 2023 with a landmark in national office space transactions, finalizing the two most significant lease agreements in recent years. In the last quarter of the past year, Grupo Elektra, a leading financial and commercial services firm, and the University of the Valley of Mexico (UVM) leased approximately 41,000 square meters of office space. This absorption volume is unprecedented. Each tenant occupied more than 19,000 square meters, a figure significantly higher than the average absorption rate observed since 2020, which hovered around 1,200 square meters.

On the one hand, Grupo Elektra leased the entire Periferico 5010 building, a class A+ property of about 21,600 square meters with LEED Gold certification located in the Insurgentes submarket. This property had been vacant since the first quarter of 2021, following the departure of the Secretariat of Agriculture and Rural Development (previously SAGARPA).

On the other hand, the University of the Valley of Mexico leased almost 19,400 square meters in Tower A of Torre Cuarzo, equivalent to 31.5% of the building's gross leasable area (GLA). The class A+ property is in the Reforma submarket and boasts LEED Gold certification. With UVM's absorption, this building recorded its highest occupancy level since 2018, with an occupancy rate exceeding 77%.

Another relevant aspect is the sector of these two institutions. Grupo Elektra and UVM represent the consumer goods and education sectors, respectively. Together, these sectors occupy just 3% of the GLA of offices in Mexico's major cities. However, they were among the five industries with the highest growth over the last three years. While the corporate space occupied by consumer goods companies increased by 49% between 2020 and 2023, the corporate space occupied by educational companies surged by 10%. This growth highlights the dynamic evolution of these sectors, reflecting their growing importance and impact on Mexico's office market. Despite representing a relatively small percentage of the total GLA, their expansion is a testament to emerging trends and diversification in office space demands in the country.

It's important to note that, over the last three years, office absorptions in Mexico have been led by institutions from four sectors: finance, real estate, technology, and business products and services, which account for 44% of the gross absorption volume (or tenant arrivals) between 2020 and 2023.

Mexico's Office Market Is Changing

The transactions conducted by Grupo Elektra and the University of the Valley of Mexico reflect significant changes in Mexico's office market, where sector diversification is starting to mirror shifts in the economy and corporate priorities. The prominent entry of companies from traditionally less represented sectors in the office market underscores adaptability and the evolution of business needs in response to global and local changes. The COVID-19 pandemic, for example, accelerated digital transformation and altered space expectations and requirements for many companies, influencing the type of office space in demand.

In this light, the significance of these large leasing deals goes beyond their contractual terms and impact on occupancy rates. They symbolize the resilience and adaptability of the office real estate market to economic and social changes. Moreover, these movements could catalyze more investments in quality infrastructure.

As we move into 2024, we'll likely see more companies from diverse sectors seeking spaces that meet their operational needs, potentially leading to increased competition for high-quality spaces and a push for the development and renovation of properties to meet these emerging standards.

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