In the office sector of Mexico City's Central Business District (CBD), an interesting trend in market prices has emerged. According to SiiLA Market Analytics, Class B offices are recovering more quickly from the pandemic's effects than Class A+ and A offices. Over the past four years, the average market price per square meter for Class B offices increased by 8%, while Class A+ and A offices have seen decreases of 1.4% and 10.4%, respectively. So, what factors are driving this trend? Let's dive in.

One key factor is the availability of office space. Currently, Class B offices in the CBD of Mexico City have an occupancy rate of around 84%, while Class A+ and A offices have occupancy rates of 83% and 80%, respectively. However, the situation was quite different just four years ago, as Class A properties had the lowest availability.

The shift in market dynamics can be attributed to tenant relocations and increased vacancies, especially during the challenging year of 2020. On the one hand, during confinement periods, many tenants decided to transition from Class A+ and A offices to Class B offices. This move aimed to reduce rental and maintenance costs. On the other hand, during the pandemic, there was downward pressure on prices, particularly in higher-quality office spaces. This was done to retain existing tenants and compete with the lower-quality options that emerged as a cost-saving alternative. Alongside these factors, Class B offices' strategic location and high foot traffic played a role in their growing popularity. Many of these offices were built during the development boom of CBD submarkets like Reforma, Polanco, and Lomas Palmas.

Another significant factor contributing to the trend is the tenant composition of Class B offices. In Mexico City's CBD, almost half of the Class B offices are occupied by government institutions and public services, according to SiiLA's data. In contrast, this proportion drops to 9.2% when considering the overall Class A+ and A properties. This indicates that government entities primarily opt for Class B spaces. This is significant because government institutions tend to be stable tenants with long-term contracts that are frequently renewed. For instance, the recent renewal of the ISSSTE's lease in the Paseo Reforma 122 building, a Class B property, illustrates this trend. The ISSSTE occupies over 5,500 square meters, accounting for 35% of the total gross absorption in Mexico City's CBD during the first quarter of 2023.

With nearly 3.3 million square meters of office space in the CBD, approximately 14.5% is classified as Class B. These offices currently command historically high average prices of around $20.6 per square meter. Understanding the dynamics of different property classes within this economic hub is essential for making informed real estate investments. To gain deeper insights, we encourage you to explore SiiLA's intelligent solutions for the commercial real estate market, such as SiiLA SPOT and Market Analytics. These tools provide comprehensive information on properties, tenants, and developers, empowering you to make data-driven decisions.