Rising Industrial Space Demand in Mexico Due to Nearshoring
Nearshoring has driven a surge in demand for industrial space in Mexico. Industrial developers are racing to meet this growing demand, but supply is struggling to keep pace.
Real estate fund Meor, based in Mexico City, reports that less than 2% of industrial space is vacant nationwide. In the northern region, vacancy rates are nearly 0%. Over the next few years, demand is expected to double, with 13 million square meters of industrial space needed within five years. Companies are moving their operations closer to the U.S., fueling this demand.
Morgan Stanley reports that 300 companies began operations in Mexico in 2023. In the next five years, foreign direct investment could reach $50 billion.
How Mexico’s Industrial Space Shortage Impacts Developers
Jonathan Pomerantz, Chief Investment Officer at Meor, states that industrial developers are working at unprecedented rates. In 2022, developers built a record 2 million square meters of industrial space. This year’s total could be even higher. Despite this growth, developers are not keeping up with demand fast enough.
Mexico’s Ministry of Finance (SHCP) notes a 150% increase in industrial construction in some northern cities during the second quarter of 2023. Demand and rising rents are driving this boom. Rents in Monterrey and Ciudad Juárez rose by 24.5% and 16.4% during that time.
Key Challenges in Meeting Industrial Space Demand in Mexico
Nearshoring has the strongest effect in Mexico’s northern states. These regions benefit from industrial development and proximity to the U.S. border. Monterrey, Nuevo León, leads the country in industrial leasing and construction, according to Solili, a brokerage firm. However, Mexico’s central region lags behind. Consultancy firm Datoz reports that industrial warehouse transactions fell 17.4% in the first quarter of 2023.
Future Outlook on Industrial Space Demand in Mexico
Northern Mexico faces infrastructure challenges, particularly in energy transmission. While the region generates enough energy, it lacks the infrastructure to convert and distribute it efficiently.
Despite these challenges, experts agree that global supply chain shifts—triggered by the COVID-19 pandemic, U.S.-China trade tensions, and the Russia-Ukraine war—will keep driving companies to Mexico.
In conclusion, the demand for industrial space in Mexico, especially in the north, continues to rise. Developers face challenges with supply shortages, energy infrastructure, and rising rents, but nearshoring will likely keep boosting this demand.
