It is estimated that thanks to nearshoring, demand for industrial land in northern Mexico will increase by 2.5 million square meters between 2023 and 2024.
It is estimated that nearshoring will demand an additional 2.5 million square meters of industrial land to the already existing industrial parks that are part of the Mexican Association of Private Industrial Parks (AMPIP). This is equivalent to having around 400 additional manufacturing and logistics companies which will create two million jobs, says Mr. Sergio Argüelles, president, FINSA.
“We have 450 industrial parks registered at AMPIP. The remaining facilities in the market might be industrial zones or corridors, but they do not qualify as industrial parks. In fact, we have recently updated the Industrial Parks Standard and it is soon to be published. The Regulation for Industrial Parks specifies the criteria to assess industrial parks such as infrastructure, environment, social responsibility, administration and safety,” adds Mr. Argüelles, president, AMPIP.
He also mentions that the highest demand for industrial land is in the north of the country: Baja California, Chihuahua, Coahuila and Nuevo León. “These four states received 82 per cent of nearshoring absorption during the first six months of 2023. We have a pipeline of companies that come directly to AMPIP in search of industrial buildings and industrial parks, between January 22nd and August 23rd 2023, the absorption added to three million square meters.”
According to AMPIP, there are currently 50 industrial parks under construction in primary markets (Northern Mexico, Central Mexico and Bajío), which amount to almost 1,964 hectares between 2022 and 2023. “We are expecting to reach a similar figure in 2025, at least 3,800 additional hectares between 2023 and 2025. If we convert this to square meters, we are talking about almost eight million additional square meters of industrial buildings. Developing a new industrial park takes approximately 18 to 24 months,” declares Mr. Sergio Argüelles.
In terms of the type of industrial buildings that are being demanded, Mr. Argüelles says these are mostly large spaces, from 20,000 square meters for light industry all the way up to the huge surfaces required for warehousing, which can reach 100,000 square meters under the same roof.
“Construction for industrial spaces in Mexico must now, more than ever, attain the highest quality standards. The new generation of industrial parks must be able to offer any sector in any region the possibility of starting their operation quickly, sustainably and successfully. It is key to be able to offer first class infrastructure to propel the operations of light and logistics industries. We must offer access to water, electricity, roads and security,“ emphasizes Mr. Argüelles.
Mr. Sergio Reséndez, managing director Northern Mexico of Colliers, indicates that nearshoring has accelerated demand for industrial spaces. “We are experiencing record level absorption rates for industrial space and this reflects in the number of transactions for developers, investors and realtors, like Colliers. This kind of demand allows us to be selective in terms of the clients and sectors we wish to serve and also helps us to plan better. Construction takes time, we are currently experiencing a positive gap, which means we have clients on a waiting list.”
“The highest demand for industrial land is in the north of the country: Baja California, Chihuahua, Coahuila and Nuevo León. “These four states received 82 per cent of nearshoring absorption during the first six months of 2023.” Sergio Argüelles, president, AMPIP.
He believes industrial real estate is going through a very positive phase and it is helping other sectors like retail, restaurants, tourism, showbiz offices and housing, to name a few. “Incoming companies require offices, and this was one of the sectors that was most affected during the pandemic. There is also over-demand for housing, we need to build housing for all the people that are migrating to Monterrey in search of jobs. These people are eligible for mortgages and also have access to the Institute of the National Fund for Workers’ Housing (INFONAVIT) and other financial schemes.”
Likewise, Mr. Reséndez highlights that states in the north of Mexico have greatly benefitted from nearshoring, from Baja California to Tamaulipas. “Cities such as Torreón, Saltillo, Reynosa, Nuevo Laredo, Matamoros, Tampico, Durango, San Luis Potosí, Chihuahua, Ciudad Juárez, Hermosillo, Nogales, Tijuana and Mexicali are presenting high absorption rates. We do not have more than two per cent availability in the north, which is extremely low and there are even places close to zero-percent availability. The occupancy rate is so high, that new developments do not have time to catch up with the demand. There is a significant investment in industrial real estate, but construction takes time, between eight and 10 months, therefore the few spaces available rent out really quickly, so we inform our clients about this situation so they can make decisions.”
The absorption rate in Mexico during the first six months of 2023 was 82 per cent, and the second semester has recorded an even higher rate. Inventories increased by 2.86 per cent during the first semester, which is similar to the average historic growth. Availability rates were up by 10 per cent and dollar rental prices went up by 12 per cent nationally which, to a certain extent, was encouraged by the current exchange rate, according to the report Mexico Industrial Outlook Mid 2023 by JLL.
“We are experiencing record level absorption rates for industrial space and this reflects in the number of transactions for developers, investors and realtors, like Colliers. This kind of demand allows us to be selective in terms of the clients and sectors we wish to serve and also helps us to plan better.” Sergio Reséndez, managing director Northern Mexico of Colliers.
Attractive states for nearshoring
The president, FINSA, mentions that in the light of the oversaturation of the border states, there are other states in Mexico that are suitable to develop industrial parks, like the Bajío region and some states in central Mexico. These are areas that already have well-integrated supply chains, particularly in the automotive industry, which is the sector that leads the nearshoring demand.
“There is also an appetite to invest in the south of Mexico, particularly to develop the logistics industry. Thinking a bit more long-term, it is possible to consider developing the advanced manufacturing industry and setting up design and research centers. Industrial parks are an ecosystem that require infrastructure, labor, education, connectivity, etc. These are the basic conditions that an area must have for investors to show an interest. We believe that to achieve a more equitable industrial development across Mexico, we need to have private/public synergies to create the ideal conditions for industrial parks,” says Mr. Argüelles.
According to Financial Group Banco Base, Mexico has a unique opportunity to set up the bases to make the most of the nearshoring trend, which could result in up to 60 billion dollars of annual foreign direct investment over the next three to five years. This would open up the possibility to double up non-oil exports in only eight years, propelling GDP growth by 3.5 per cent and reducing informal employment by 50 per cent.
However, the JLL report points out that changes in government regulation to encourage availability for industrial space are not happening as swiftly as they need to to make the most of the nearshoring opportunity. “The lack of flexibility for zoning, and restrictions in water and electricity supply are slowing down the industrial space availability in many important markets where there is a lot of demand.”
Nuevo León made world news
Nuevo León made the headlines when Tesla announced the launch of a new plant in Santa Catarina.
“Any investment from Tesla or Elon Musk is going to make news. Why did Tesla choose Nuevo León to launch a manufacturing plant, when they could have chosen anywhere else? This evidently stands out and becomes a magnet for other investments,” says Sergio Reséndez, managing director Northern Mexico of Colliers.
He indicates that there are many Tesla suppliers already in Mexico, all located in the industrial corridor Monterrey–Saltillo. “There are other Chinese suppliers that are already working with Tesla and seeking to rellocate their operation to Mexico. This would be advantageous for them because they would not only supply Tesla, they would also work with other assemblers in the area like Daimler, General Motors, Kia and Mercedes Benz. Monterrey is quite diversified, we needed an assembler and we got Kia, which recently announced an expansion which includes new facilities in the area with a significant short-term investment to manufacture electric vehicles. It has also been announced that some Hyundai models will be manufactured in the region, which will attract new suppliers.”
Mr. Reséndez explains that industrial real estate in Nuevo León offers reliability to those companies that have chosen to come or are considering it. “The industrial sector in Mexico is very well established, there is plenty of foreign investment as there is transparency and a clear execution path. I can assure new investors that they will find world-class industrial developments. The international companies that currently operate in Monterrey are extremely satisfied.”
Colliers current portfolio includes around 30 projects that they are working on simultaneously and should be on track by the end of 2023. These projects are not only in manufacturing, but also in other sectors such as electronics, software, electromobility, aerospace, medical devices, plastics and biotechnology.
In terms of the types of industrial buildings clients are requesting, Mr. Reséndez mentions that they are mostly tech-based: “Clients now tend to request taller buildings as they are using more robots to operate, and this requires more height.
They also require more platforms; they need more room for storage and they are also moving higher volumes of product.”
Mr. Reséndez highlights clients are demanding more electricity. “In the past, the average power substation in an industrial building used to be between 300 and 500 kVA, but this has gone up dramatically and today the requirement is between 1,500 and 2,000 kVA thanks to automation and the use of robotics and NC machines. New technologies are making processes faster and with better quality, and this is changing the kind of industrial buildings that are required.
