Why 67 Industrial Properties in Mexico Remain Vacant After More Than Three Years on the Market

Mexico has at least 67 industrial properties with “structural vacancy.” These properties, which have remained unoccupied for three years or more, highlight the importance of adapting the real estate supply to avoid obsolescence and commercial challenges, thereby improving profitability in the industrial sector.

These properties, which cover nearly 350,000 square meters of gross leasable area in Mexico’s Bajío and northern regions, are concentrated in Guanajuato, Querétaro, and Monterrey, where factors like location and size have contributed to their prolonged vacancy.

Francisco Rosete is the CEO of Grupo Amistad, the developer behind the Amistad Celaya Sur Industrial Park in Guanajuato, where some warehouses have been structurally vacant. Photo: SiiLA.

By: SiiLA News

08/28/2024

In Mexico’s major real estate markets, SiiLA has identified 67 industrial warehouses with “structural vacancy,” meaning they have been unoccupied for three years or more. Of these properties, 52 have been partially occupied, while 15 remain entirely vacant.

Structural vacancy cases are not just empty spaces, they are valuable insights into demand dynamics in the industrial sector. Understanding why these spaces have remained vacant for so long, whether it's due to obsolescence, property characteristics, location, regional preferences, commercial and legal issues, or uncompetitive pricing, is crucial. This information is essential for anticipating trends and making informed decisions in the real estate market.

Moreover, the key market indicators, such as the average vacancy rate, rental prices, and exposure time, are significantly adjusted by excluding industrial spaces with structural vacancy. For instance, the average vacancy rate over the past three years decreased by 9%, dropping below 2.5%; rental prices show a slight increase of 2%, reaching $6.30 per square meter; and the exposure time, which is the period a vacant property remains unoccupied before being leased, is reduced by 21%, from 1.3 years to one year on average.

These adjustments reveal how structural vacancy can distort the perception of the industrial market. Understanding and excluding these cases gives a more accurate picture of the sector’s dynamism.

Properties with Structural Vacancy

Performance indicators in the industrial real estate market improve significantly when structural vacancy is excluded.

On average, the spaces with structural vacancy identified by SiiLA have remained vacant for four years, which has led to their rental prices being lower than the national average, resulting in reduced profit margins. These spaces cover nearly 350,000 square meters of gross leasable area (GLA) in Mexico’s Bajío and northern regions, distributed across 67 properties within 44 industrial complexes, including industrial parks, industrial regions, and pocket parks.

The geographic distribution shows a significant concentration of GLA in the Bajío region, where Guanajuato and Querétaro lead with 40% and 19% of the total, respectively. In the north, Monterrey stands out, concentrating 23% of the GLA. However, it is noteworthy that there are no Class A and B properties with a structural vacancy in central Mexico, where demand is high, and space for new developments is limited. This is due to marketing dynamics characterized by rapid absorption, the profile of last-mile-focused projects, and the efficient utilization of outdated properties through conversion processes and brownfield projects, which prevent prolonged vacancies.

In contrast, in the north and Bajío regions, where many emerging markets are growing, prolonged exposure times are due to a lack of response to current market demands.

On the one hand, the average size of spaces with structural vacancy, which is 4,600 square meters of GLA, is small compared to current demand, focusing on properties ranging from 10,000 to 20,000 square meters, primarily of high quality. On the other hand, although 58% of the GLA with structural vacancy in these regions corresponds to Class A properties and the rest to Class B, the lack of updates in advanced technology, services, and strategic infrastructure causes some of these properties to lag behind, illustrating how the misalignment between property characteristics and current market demands can lead to prolonged vacancies.

In a highly competitive and constantly evolving industrial environment, the real advantage lies in understanding the market’s nuances: it’s not just about following trends but anticipating and shaping them. The ability to reimagine spaces and adjust supply based on demands that have yet to materialize sets developers and investors who survive and thrive apart.

To learn more about the performance and development of Mexico’s industrial market, explore SiiLA REsource or contact us at contacto@siila.com.mx.

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