Our neighbor south of the border is investing in U.S. markets at a healthy pace, all while Mexico's own economy continues to grow. The Mexican economy is the 15th largest in the world in nominal terms and the 11th largest by purchasing power parity, according to the International Monetary Fund. With the potential help of the United States-Mexico-Canada Agreement, this growth will continue.
This offers opportunity to commercial real estate professionals both in Mexico and the U.S., says Guadalupe Garcia, CCIM, PIC, occupier services director for Colliers International in Mexico City. Garcia serves on CCIM's International Activities Committee and has more than 20 years of experience in commercial real estate in development, leasing, lease negotiation, financial analysis, operations, and marketing.
CIRE: What is the state of the commercial real estate market in Mexico?
Garcia: Business opportunities in Mexico have never been more prevalent. The current stable economy and the upcoming signing of the USMCA will open new opportunities for American and Canadian companies to start, or continue, doing business in Mexico.
Mexico serves as a gateway for American companies looking to expand their businesses in Central and South America.
CIRE: What are the strongest markets in Mexico?
Garcia: Total class A office building inventory in Mexico City is 68.8 million square feet (100 million sf if all classes are considered). Foreign reserves are over $200 billion, making the peso a stable currency. Total construction of new Class A buildings is about 20 million sf, average annual absorption is over 5 million sf, and the annual vacancy rate for 2018 was 17.7 percent.
Annual inflation in 2018 was 4.6 percent, the lowest rate in recent years. For 2019, it is estimated to drop further, to roughly 4 percent.
The current exchange rate is about 19.20 pesos to the U.S. dollar. It reached a peak of over 21 pesos per dollar in early 2017.
CIRE: In Mexico, are you seeing growth in existing versus new construction?
Garcia: The answer is divided by region. In the central region of Mexico, the construction sector grew significantly in the past five years. Having said that, we will see more growth in the existing inventory in the coming years; however, construction will not stop. In the south and southeast of Mexico, it's a different story. We believe construction will grow in these regions.
CIRE: What markets and market segments are most challenged? Do you see those changing?
Garcia: In regions where economic activities are centered -Mexico City, Monterrey, and Guadalajara - there has been a lot of office development, so now we have available space. The industrial sector will grow in the following years.
CIRE: Do you see investment in Mexico from foreign investors? Which countries are strongest?
Garcia: We do see foreign investment in Mexico; however, it may slow due to political uncertainty. Historically, the U.S. has always been the strongest investor. There has been an increase in European and Asian investments. We believe that in the short term, the U.S. will still be the main country of origin for local investments.
CIRE: Are you seeing an increase in Mexican investment in the U.S.?
Garcia: Now more than ever, Mexican companies are looking to bolster their multinational presence by establishing roots in the U.S.
Recent expansions into the U.S. include Grupo Elektra, Mexico's largest electronics retailer owned by Ricardo Salinas Pliego; Grupo Bimbo, Mexico's largest baking company and distributor of U.S. brands like Sara Lee, Arnold, and Entenmann's, owned by the Servitje family; Gruma, the world's largest tortilla maker, founded by Roberto Gonzalez Barrera; and America Movil, a telecommunications company owned by Mexican mogul Carlos Slim, the largest Mexican investor in the U.S.
CIRE: What U.S. markets are of most interest to Mexican investors?
Garcia: Wealthy Mexican individuals and family offices have been investing in large multifamily projects. Thousands of units across Texas, California, and Florida have been purchased as income-producing properties, as owners hedge their investments against currency fluctuations in Mexico. In Florida, Mexican developers have invested hundreds of millions of dollars in mixed-use projects, and they are now looking at hospitality and health markets.
Coinciding with Mexico's rapid and recent economic growth, investors have begun to focus their investments north of the border, particularly in cities like Miami, New York, Houston, Los Angeles, Dallas, Phoenix, and Denver. Mexican capital is pouring into U.S. real estate investments like never before, and this trend is only expected to grow.
For more on this topic, check out CCIM Institute's “Global Commercial Real Estate Bootcamp” course.