The arrival of the Tesla gigafactory to Santa Catarina in Monterrey has triggered industrial land prices to increase by up to 25 per cent.
Santa Catarina, located in Southeast Monterrey, has made world news this year as the new Tesla gigafactory is set to arrive. The initial investment reaches almost USD4,500 million and the plant’s minimum production capacity is set at 1,000 vehicles per year. Tesla has already bought more than 1,700 hectares of land.
According to Mr. Ruben Luengas, Partner, Fixed Assets Valuation and Real Estate, KPMG Mexico, prior to the announcement of the arrival of the new Tesla factory, land prices were significantly lower in Santa Catarina than they were in Escobedo and Apodaca counties, which are both renowned for their industrial tradition.
“The construction of the gigafactory in Santa Catarina is a fantastic opportunity for the county and the region, both in terms of investment and economic growth. The industrial real estate market offers plenty of attractive options for land and built-up spaces, and the railway network available in the state makes it easier to transport raw materials and finished goods. Moreover, foreign direct investment and the positive trend in cap rates in some areas herald a hopeful future for Nuevo León. The arrival of Tesla is undoubtedly a huge milestone for industry in Mexico and the outlook for real estate in the region is extremely positive,” says Mr. Ruben Luengas.
He mentions that prices in Santa Catarina have increased by up to 25 percent over a one-year period, mainly as a result of two things: the announcement of the upcoming Tesla factory and the speculation it brings with it and the foreign investment that nearshoring has brought. Despite this, prices in Santa Catarina remain competitive if compared to other counties in and around the Monterrey Metropolitan Area, particularly for multiple use land.
Mr. Luengas anticipates that demand for industrial spaces will continue to grow as a result of two things: foreign investment and lack of availability of spaces. Therefore, prices in Santa Catarina and other parts of Monterrey, even in other states, like Coahuila, will continue to go up.
“The prices in Santa Catarina have increased by up to 25 percent over a one-year period, mainly as a result of two things: the announcement of the upcoming Tesla factory and the speculation it brings with it and the foreign investment that nearshoring has brought.” Ruben Luengas, Partner, Fixed Assets Valuation and Real Estate, KPMG Mexico.
He declares that industrial land in Santa Catarina is generally offered under a built to suit scheme for surfaces over 5,000 square meters and prices range between USD 76/m2 - USD 280/m2 (MXN 1,500/m2 - MXN 5,500/m2), depending on location.
On the other hand, Ms. Elizabeth González, Manager, Fixed Assets Valuation and Real Estate, KPMG Mexico, points out there is availability of greenfield land for development in the Monterrey Metropolitan Area. “The difference between greenfield and brownfield or built to suit is that greenfield land implies slightly higher costs for the investor, managing construction independently and hiring surveillance for the property. These are the reasons why investors mostly prefer brownfield, unless they have very specific requirements in terms of land or spaces.”
She adds that availability of greenfield land is mainly relevant to very specialized industries that require larger spaces that can be adapted for the construction needs of these specific industries. “We believe the main challenges industrial real estate faces are to adapt existing spaces to new requirements such as industry 4.0 specifications and compliance with international normativity to reduce carbon footprint and other ESG (Environmental, Social and Governance) criteria. Moreover, we need to develop land that breaks the existing industrial paradigms and can be part of the urban landscape without being detrimental to it.
In terms of the possibility of running out of industrial spaces in Nuevo León, Ms. González says this will not happen. “There is always the possibility to reinvent spaces. If demand continues to grow and no further spaces are available, the market will end up regulating the prices.
“We believe the main challenges industrial real estate faces are to adapt existing spaces to new requirements such as industry 4.0 specifications and compliance with international normativity to reduce carbon footprint and other ESG (Environmental, Social and Governance) criteria.” Elizabeth González, Manager, Fixed Assets Valuation and Real Estate, KPMG Mexico.
Santa Catarina: a key location
Santa Catarina in Monterrey has approximately 25 industrial spaces available with all the necessary infrastructure businesses require, and it also has land where new industrial parks can be developed.
Mr. Ruben Luengas, Partner, Fixed Assets Valuation and Real Estate, KPMG Mexico, explains the importance of Santa Catarina based on three factors:
1.Proximity to the Monterrey Metropolitan Area. This prime location has a positive impact on transport prices as businesses are close to their suppliers. In fact, automotive plants are already based in this area, same as their suppliers and workforce.
2.Relatively low industrial density. Santa Catarina currently has a relatively low industrial density, which means prices are still negotiable as opposed to other locations such as Apodaca and Escobedo, where availability is so low prices are fixed with almost no room for bargaining. Construction of industrial parks, development management and real estate consulting all represent market opportunities for this area.
3. Mixed real estate. There is an interesting mix of real estate in the area: residential, businesses and hospitals which make Santa Catarina a self-sustainable urban area.
“It is a great opportunity for growth and urban planning, where real estate diversification triggered by investment can result in a positively heterogeneous urban and social landscape. The construction of housing, business and office spaces can result in higher economic and urban growth rates than it is currently anticipated. In other words, foreign investment in Nuevo León will bring growth opportunities for the State, the challenge is how to manage these resources to achieve the best urban development for those counties that are not currently densely built,” concludes Mr. Luengas.
