Opportunities
Source: CBRE, 13 main markets are: Mexico City Metro, Monterrey, Guadalajara, Tijuana, Juarez, Reynosa, Guanajuato, Queretaro, Saltillo, Toluca, San Luis Potosi, Aguascalientes and Puebla
Fundamentals (13 Main Markets)
Size: 56.8m sqm. (Mexico: 93.1m sqm.)
Vacancy: 2.1%
Average Rent: USD$5.1 / sqm / month
Currency Mix: 87.0% is USD$ & 13.0% MXN$
Sub Asset Classes
Light Manufacturing: (1) Geographical focus in border cities, Monterrey & Bajio region, (2) Export Economy / Nearshoring, (3) USD$ denominated leases
Logistics: (1) Geographical focus in Mexico City, Guadalajara & Monterrey, (2) Local consumer economy, (3) MXN$ denominated leases
Trends 2021-2022
Supply Increase: 3.6m sqm.
Total Absorption: 4.2m sqm. (52.0% manufacturing, 20.0% logistics, 18.0% auto)
Average Rent Growth: 7.0% – Focused in Tijuana, Saltillo, Monterrey & Mexico City submarkets
Under Construction: 3.8m sqm.
Investment Thesis
Nearshoring: as of 3Q 2022 additional demand adds up to 1.2m sqm. Monterrey capturing ~50.0%, Chinese companies represent ~40.0% and the auto sector ~40.0% of demand. Experts expect nearshoring to be at the early stages considering that decision-making and planning of relocating production and supply chains takes time
Relative stock in Mexico suggests room for growth: total industrial real estate size is ~10.0% larger vs Dallas, Texas and the same size vs Los Angeles, California
Logistics will generate additional demand for warehouse space as a result of the growth of the middle-class and the adoption of ecommerce
Barriers to entry in key markets like Mexico City and Tijuana result in strong investment fundamentals
Real Estate: Tourism
Tourism Fundamentals (Mexico 2019)
International Passengers: 45.0m
Economic Benefits: USD$24.5m
Tourism by Country: USA 52.2%, Canada 12.1%, Europe 12.4%, Colombia 3.2% & Brazil 2.0% of total international tourists
Main Destinations: Riviera Maya, Los Cabos & Riviera Nayarit
Hotel Occupancy: 60.3%
Transportation: Air Transportation (78.0%), Marine Transportation (10.0%)
Principal Airports: Mexico City, Los Cabos, Cancun, Cozumel, Monterrey, Guadalajara & Silao
Main Ports: Cozumel, Majahual, Ensenada, Los Cabos & Puerto Vallarta
Investment Thesis
Strategic accessibility and location in North America
Highly USD$ dollarized resort/leisure market
Sophisticated hotel supply
Tourism represents ~9.0% of GDP
2nd most visited destination in the Americas – 1st in Latin America
7th most visited destination worldwide
60% of existing hotel rooms are branded (in major markets)
Resilient sector ADRs have surpassed pre-COVID levels in the major tourism markets
Pipeline of luxury hotels in key destinations is very robust proving current interest from investors
Real Estate: Opportunistic
Investment Thesis
Mexico City office sector presents a 24.3% vacancy rate with the asking rent at USD$22.6/sqm/month which has decreased approximately ~15.0% during the past four years. Effective rents are much lower as a result of the current “tenant market”, i.e., high concessions: months of free rent, TIs, among others
Mexico City high-end condo market in contraction since December 2018 due to significant lower demand that resulted in a fall in absorption rates of ~50.0% and discounts of 25.0% vs 2017 levels
During the past expansive cycle there was excess development of retail and mixed-use projects that have been also negatively impacted by the COVID pandemic and the impacts of ecommerce to physical retail formats
Motivated sellers (e.g., PSP, Ivanhoe Cambridge) of office, residential, retail, mixed-use and land-banks to develop these asset classes in depressed geographies
Infrastructure
Mexico’s government is committed to promote the development of infrastructure, as well as to maintain and improve the existing one to encourage: 1) a balanced regional development; 2) a sustainable urban development; and, 3) the logistic integration of the country and an improvement in its interconnectivity. Through the development of quality infrastructure in the strategic sectors of the country, it is sought to turn Mexico into a global logistics platform with high added value, thereby increasing competitiveness, productivity and prosperity at the national level. This is reflected in the following actions and sectors:
The Mexico-Toluca commuter rail, the first high-speed train in Latin America, has a 87% progress as of 2021, and will transport 230,000 passengers daily.
On August 18th, 2016 the Railway Transportation Regulatory Agency (“Agencia Reguladora del Transporte Ferroviario”) was created, It’s main objective is to regulate, promote, overlook and verify construction, operation, exploitation, and maintenance of railroad infrastructure.
The sector is currently working in 25 priority projects with an investment of over MXN$74.0 billion. During the current administration, the new ports of Matamoros, Tuxpan and Seybaplaya have been concluded and the New Port of Veracruz and Ciudad del Carmen are currently underway.
Energy: Current Situation & Outlook
In the electric market, the National Energy Control Centre (CENACE) identifies the electricity that is being produced at the lowest prices, and supplies it through the national transmission grid to households and Mexican businesses. This way, it is guaranteed that the electricity the final user receives is as cheap as possible. The first two long-term electric auctions represent investments of USD 8.6 billion, a 7.0% growth in the country’s electric generation capacity as well as a 24% increase in clean energies generation capacity.
Demand for electricity set to continue to grow faster than GDP
- Market fundamentals remain strong
- Mexico’s growing population is boosting the power demand growth
- Electricity prices have risen much faster than anticipated
- Power prices Outlook remain positive for generators, driven by growing population and outdated technologies still in operation
Private sector will continue to play a crucial role within the energy space
- Comisión Federal de Electricidad (CFE) cancellation of procurement processes will strengthen private thermal generation
- Limited generation supply will position even better private generators with latest technology, capacity and availability
- Lack of capacity, power blackouts
Natural gas prices expected to remain high
- As natural gas prices will stay higher than in previous years, CFE’s operational deficit will only increase during 2023
- CFE expected to keep posting a huge deficit as it is unable to pass through the increase in natural gas prices to its tariffs (government owned company)
- Natural gas prices will be higher at year-end than today
- Prices will remain higher than the average Price of the last decade until some point in 2024
Fintech & Finance: Overview
Notable growth in Mexican financial inclusion that is being driven by the rapid penetration of mobile devices, the lagging services offered by traditional financial institutions, and the government programs that promote digitalization of financial services.
Current Issues with Financial Services in Mexico
Low bank branch coverage. Average travel time to a bank branch is 42 minutes in rural areas and 22 minutes in urban settings
Mexico’s banking system operates as an oligopoly with only four financial institutions controlling approximately 68% of the market
Traditional credit is limited and expensive — it is only accessible to those who have enough income to pay high interest rates and fees
Cultural distrust on the traditional financial services providers
Unbanked Population
