Stabilized Office Buildings in Mexico: Representing 55% of the Market and Up to 18% More Profitable

In Mexico, an office building is considered "stabilized" when less than 15% of its spaces are vacant. This term, often used in real estate, indicates high demand and strong market performance. It reflects a situation where the building is operating at near-full capacity, which is a positive sign for investors and developers. This concept of building stability has become crucial for navigating recent changes in work modalities, such as the rise of remote and hybrid work, and dealing with commercial challenges stemming from global economic uncertainty.

According to data from SiiLA Market Analytics, in the second quarter of 2024, 55% of office buildings in Mexico's major real estate markets were stabilized, a decrease from the 73% recorded before the pandemic. However, since 2022, occupancy has been rising despite the slowdown in absorption rates. This trend is due to a balance between fewer new deliveries and strong tenant retention. The latter is bolstered by the increasing popularity of flexible spaces, which can be easily adapted to changing work needs, and short-term lease agreements, which provide companies with more flexibility in uncertain times.

The office market's remarkable resilience is not just a testament to the adaptability of traditional spaces, but also to the successful integration of flexible models such as coworking. Moreover, stabilized buildings have demonstrated their ability to maintain stable occupancy levels in the medium term, providing a reassuring outlook for the future of the sector.

Of the nearly 500 stabilized buildings analyzed by SiiLA, 90% have remained stabilized for three to five years, while only 8% have been stabilized for between one and three years, and just 2% for less than a year. These figures reveal a clear trend: most stabilized properties have reached a point of equilibrium, reflecting a high degree of maturity and consistency in the office market. Nevertheless, the true challenge will be maintaining this stability amid potential economic changes and fluctuations in demand in the coming years.

Key Factors Behind Stability

The long-term stability of these buildings is no coincidence. It is directly tied to their facilities' quality and location in high-demand regions.

On the one hand, 76% of these buildings are Class A+ and A, known for their modern infrastructure. On the other hand, 66% are located in the Valley of Mexico, which houses the country's central business district. The remaining 17% are found in the Bajío region, and another 17% in the north, both strategic areas due to industrial activity and proximity to the U.S. This distribution underscores the importance of these buildings to Mexico's business development and their ability to attract high-profile tenants.

Furthermore, buildings that have maintained their stability for longer periods tend to be strategically located in key commercial areas, such as the Reforma corridor in Mexico City, with notable examples like the BBVA and HSBC towers, as well as in mixed-use developments, such as those found in Polanco, including Antara and Plaza Carso.

Sustained demand and the characteristics of these properties make them more expensive in terms of rent. In Mexico City, for instance, the average price in stabilized buildings is $25 per square meter, 8% higher than the $23 paid in non-stabilized buildings. In Guadalajara, the difference is 3%, while in Monterrey and Querétaro, the gap widens to 15% and 18%, respectively.

This trend toward higher rents not only reflects the stability and desirability of these properties but also their profitability. Stabilized buildings become magnets for companies looking to establish themselves in the most coveted strategic locations, thereby increasing competitiveness and solidifying these properties as critical assets in the country's business development.

In a market where location and adaptability matter, stabilized buildings drive investment and add value. For more on the trends shaping Mexico's office market, visit SiiLA REsource or contact us at contacto@siila.com.mx.