Relocation and Adjustment: Few but Significant Tenant Departures Boost Industrial Vacancy in Mexico

Despite a decrease in the volume of industrial tenant vacancies in the first half of 2024, the average vacated area increased significantly, temporarily boosting the industrial vacancy rate in Mexico. However, this situation is expected to adjust as economic conditions, particularly the growth of nearshoring, improve and gain momentum, leading to a potential decrease in the industrial vacancy rate in the short term.

Electronics, capital goods, and pharmaceutical companies, such as Mabe, Maypo, and Resideo Technologies, played a pivotal role in the vacated space. Their decision to vacate warehouses exceeding 20,000 square meters in the suburban areas of the Valley of Mexico and Ciudad Juárez underscored the significant relocation dynamics within the Mexican industrial sector.

Luis Berrondo Ávalos is the CEO of Mabe, the company that vacated the most GLA in Q2 2024. Photo: SiiLA.

By: SiiLA News

08/08/2024

In the first half of 2024, SiiLA recorded the lowest volume of industrial tenant vacancies for a first half of the year in the last four years. However, the average vacated area was larger than in previous semesters. This situation, along with other factors such as the surge in new speculative inventory and the temporary slowdown in absorptions, has led to increased industrial vacancy rates in Mexico throughout the year. It is important to note that this increase has seasonal characteristics and is likely to adjust as the country's economic, structural, and sociopolitical conditions generate less uncertainty for investors.

SiiLA data indicates that the vacated volume during the year's first half, exceeding 720,000 square meters, was between 24% and 39% lower than in the first half of 2023, 2022, and 2021. Additionally, since 2021, the quarterly variation has shown a general downward trend, with reductions of between 4% and 10% nationwide.

At the same time, the average vacated area per tenant increased by 3% over the past four years. During the second quarter of 2024 alone, the average vacated area was 23% higher than in the year's first quarter.

The trend of decreasing vacated volume and increasing average vacated area per tenant is partly due to the inventory profile. Nationally, with exceptions like Tijuana, the inventory's size has grown over time.

Moreover, due to the boom in nearshoring and the maturity of the Mexican industrial real estate market, the arrival and occupancy of large companies, whose departures tend to be more noticeable, have been observed. These departures often correspond to strategic relocations to take advantage of logistical benefits, the expansion or contraction of operations that require different spaces, lease renegotiations, the need for more modern facilities adapted to new technologies, economic conditions that require cost reductions, structural issues with the property, mergers, and acquisitions leading to the consolidation of operations in different locations, and environmental factors, among others.

Major Departures

Mabe's new distribution center in San Luis Potosí. Photo: Google Maps Screenshot.

During the second quarter of this year, warehouses of less than 10,000 square meters were the most vacated. However, there were much larger vacancies, such as the appliance company Mabe, which vacated a warehouse of more than 76,000 square meters in the State of Mexico, in a context where the company has announced its expansion in the Bajío region, specifically in San Luis Potosí, with a 100,000-square-meter distribution center. Other notable departures included pharmaceutical company Maypo and electronics company Resideo Technologies, which vacated warehouses of more than 20,000 square meters in Mexico City and Ciudad Juárez, respectively.

The companies that vacated the most space included electronics, capital goods, and pharmaceutical companies, representing 51% of the vacated area.

It is important to note that most of the vacated warehouses are located in the suburban areas of the Valley of Mexico, followed by those in the north and Bajío regions, which concentrated 37%, 32%, and 31% of the vacated area, respectively. Additionally, SiiLA Market Analytics data indicates that, regardless of the tenants, most of the vacated spaces were Class A, consistent with the high-quality inventory offered nationwide.

Future Perspectives

High-quality facilities with flexible spaces better withstand changes in the industrial market. Photo: BigStock.

As the market adjusts, industrial sector players must adopt strategies to manage vacated space. Companies should consider the flexibility of their lease agreements and the modernization of their facilities to attract high-profile tenants. Additionally, the nearshoring boom suggests a significant opportunity for developers who can offer advanced logistical solutions and strategic locations.

In this context, collaboration between the public and private sectors will be essential to foster a favorable investment environment, reduce uncertainty, and promote sustainable growth. Support policies for infrastructure and economic stability will be vital to maintaining investor confidence and ensuring that net absorption continues its positive trend.

Although space vacancies have led to a limited increase in industrial market vacancy rates, underlying trends indicate a short-term recovery driven by increased absorptions and a gradual slowdown in tenant departures. This suggests significant retention levels in a stabilized market whose adaptability and growth potential anticipate a promising future in Mexico.

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

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