Many institutional players in the real estate market have sought refuge for their investment in the industrial asset. It is no secret that the main logistics and manufacturing markets are experiencing one of the best periods in their fundamentals, resulting in an appreciation in property value, particularly in recent quarters, where we have seen the highest returns in years.

According to SiiLA Indices, the first property valuation index calculated from two approaches (capital return + income return), the industrial asset in the country has had an average quarterly appreciation of 5.23% in the periods after 3Q 2020, which is 267 basis points higher than the quarterly average recorded from 3Q 2016 to 2Q 2020.

From our perspective, based on the information collected and analyzed by SiiLA, these are some of the factors that have contributed to the good performance of the asset.

Increase in construction input costs: In recent days, we explained how construction costs, particularly steel, reached historical highs, impacting the rental price of the main industrial markets in the country. This phenomenon also affected one of the main valuation approaches: replacement cost, which estimates the value of a property by estimating the cost of rebuilding it.

Deficit of new inventory vs space demand: According to information provided by our Market Analytics solution, net absorption in 2021 was 38% higher than in 2020, and the trend suggests further increase in this indicator in 2022. In addition to this, the inventory delivered in 2021 was lower than the demanded inventory, as measured by net absorption, resulting in an overall availability rate of 3.62% at the end of 2021. In the current year of 2022, similar market conditions persist: Higher space demand than the supply of new inventory and a decrease in the overall availability rate.

This deficit between the supply and demand of industrial spaces has led to higher occupancy rates and higher income per square meter, impacting another commonly used valuation method: the income approach, which estimates the value of a property through capitalization of the flows obtained from the net operating income of the properties.

Excess capital: As mentioned earlier in this article, some investment funds have sought refuge for their investments in the industrial asset. According to the information gathered by SiiLA, around $800 million has been invested in industrial asset acquisitions during 2021 and the current year of 2022, making it the favorite asset class for funds, REITs or FIBRAs, and other institutional players to deploy capital.

Looking at the current trends of the industrial asset, we see a real estate market in Mexico that will continue its expansion, especially in the northeast and northwest regions, where various macroeconomic factors continue to favor that area. The level of detail and depth of the research we conduct at SiiLA, along with the variety of solutions we offer, are crucial for making intelligent decisions in such a dynamic market as the one we are experiencing.

SiiLA is the leading real estate company based in the United States, providing a cloud-based set of information, analysis, and intelligence solutions for the commercial real estate market in Latin America, with offices in Mexico, Brazil, and Colombia.