Future Cities
2022 North America Industrial Big Box Review & Outlook: Mexico City
March 11, 2022 5 Minute Read
Mexico City is one of the most densely populated metro areas in the world and is the largest big-box market in Mexico. Robust leasing activity has lowered the overall industrial vacancy rate to just 1.3%. Developers have been acquiring land in the northern part of the metro area and this activity is expected to expand all along the Mexico-Querétaro Highway.
Demographics
Mexico City is the fourth-largest city in the world, with a total population of 25.6 million within a 50-mile radius of the city’s core, by far the most of any market in this report. Within 250 miles, a warehouse occupier can reach nearly 53 million people, including those in the major cities of Guadalajara, Veracruz and Puebla.
Figure 1: Mexico City Population Analysis
Source: CBRE Location Intelligence.
Location Incentives
According to CBRE’s Location Incentives Group, among the top incentives offered in Mexico City are discretionary cash incentives and tax abatements. The state government can also provide support in the following areas:
- Linkage with institutions such as the Institute of Ecology and Federal Electricity Commission
- Assistance from the State Employment Office in the process of recruitment and selection of the labor force
- Assistance with a provisional office for up to three months, subject to availability in each city
- A single point of contact for advice on federal, state and municipal procedures.
Figure 2: Mexico City Top Incentive Programs
Source: CBRE Location Incentives Group.
Note: The extent, if any, of state and local incentive offerings depends on location and scope of the operation.
Logistics Driver
Mexico City is the start of the “NAFTA Highway” running from Central Mexico to Ciudad Juarez along the Mexico-U.S. border. In Q2 2022, the metro area expects to open the first phase of its second airport: the Felipe Angeles, which will accommodate mostly domestic operations. Mexico City is well connected to the major ports of Veracruz, Manzanillo and Tampico, with estimated driving times ranging from four to seven hours.
Mexico City is the start of the “NAFTA Highway” running from Central Mexico to Ciudad Juarez along the Mexico-U.S. border.
Capital Markets
Mexico City is one of Mexico’s most desirable markets but has few investment opportunities since landlords who are benefiting from record-high rental rates are holding on to their properties. Many domestic and international institutional investors are looking to increase overall allocation to the logistics asset class in Mexico City, so landlords may be enticed to sell for inflated prices.
Figure 3: Cap Rate Comparison
Source: CBRE National Partners.
Supply & Demand
With 58 million sq. ft. of total inventory, Mexico City is the largest big-box market in Mexico. Robust demand lowered the direct vacancy rate to 1.3% in 2021 from 2.8% in 2020. Leasing activity totaled 7.3 million sq. ft. in 2021, up by 38% from 2020. Food & beverage companies looking to service the large population base leased 40% of the total, followed by 3PLs at 19%. The average taking rent increased by 6.3% year-over-year to US$8.46 per sq. ft.
Despite a low vacancy rate, only 1.7 million sq. ft. of new construction was completed last year. Another 1.4 million sq. ft. is currently under construction, 20% of which is preleased. Like most markets near large population centers in North America, there is exceptional demand but a lack of available space. This will lead to an increase in taking rents in 2022.
Figure 4:Share of 2021 Leasing Activity by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 5: Leasing Activity
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 6: 2021 Construction Completions vs. Overall Net Absorption
Source: CBRE Research.
Figure 7: Direct Vacancy Rate by Size Range
Source: CBRE Research.
Figure 8: Under Construction & Percentage Preleased
Source: CBRE Research.
Figure 9: Historical First Year Taking Rents (psf/yr)
Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research.
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