The measures taken to combat COVID-19 in Mexico have been the suspension of non-essential activities, with which civil society, together with the government, organized to mitigate the effects in our country. Most companies sent their staff to work from homes, shopping malls, hotels, meeting centers and public places where there would be a conglomeration of people closed, large manufacturing companies suspended operations, thus entering the last days of the month of March, in a compulsory quarantine phase.

With these measures, multiple sectors of the economy have been affected. In the case of the real estate sector, the effects in each segment have been felt asymmetrically. The corporate, hotel and retail segments have been affected by the confinement of the population and the paralysis that this generates. Regarding the industrial real estate segment, the effect has been mixed. On the one hand, the manufacturing industry has suffered a stagnation due to the stoppage of production of all the companies that compose it with non-essential activities, thus causing decreases in demand and the construction of new industrial complexes. On the other hand, companies in the logistics and e-commerce sectors are benefiting from the increase in online shopping, thereby causing companies in these sectors to demand more industrial space.

Although it is necessary to have logistics real estate infrastructure in the country's industrial centers, most of the markets have a high manufacturing vocation, among them we can mention Guanajuato, Saltillo, San Luis Potosí, Aguascalientes, Tecate, Mexicali and Puebla , among others. There are those that have mixed infrastructure, that is, with a supply of manufacturing and logistics space such as Guadalajara, Monterrey, Tijuana and Querétaro, while there are others with a component much more focused on logistics supply, such as the City from Mexico.

The Mexican economy traveled during the last two quarters of the previous year with zero and even negative rates of economic growth. The industrial market in Mexico City had been feeling the effects of a sluggish economy, since during 1Q 2020 gross demand in this market fell by 29%, compared to the same period in 2019.

With the panorama that is currently experiencing confinement, the industrial sector with a logistics vocation has been favored, which has positively impacted the market demand rates with this type of infrastructure.

According to data provided by the Solili platform, as of April 2020 there was a gross demand in Mexico City of 83 thousand m², which represents an increase of 55% compared to the same month of 2019. The demand for the month of April was concentrated in four transactions that add up to almost 90% of the total demand for the month. The size of the industrial warehouse that was demanded in April 2020 was greater than 10 thousand m², even two of them exceed 20 thousand m². The current demand comes from logistics and e-commerce companies which are looking for strategic locations, on the one hand that the area where they are established has infrastructure for the development of the activity, and on the other hand, being close to the final consumer in order to increase The efficiency of delivery times and the reduction of transfer prices is how 95% of this demand is located in the area known as CTT, which is made up of the Cuautitlán, Tultitlán and Tepotzotlán corridors. These corridors are characterized by having the requirements requested by companies, thanks to which it is currently an area that houses large national and international e-commerce companies, retailers and logistics companies.

Graph 1: Gross demand for industrial space in Mexico City in the period January-April 2019 and 2020 (m²).

Source: Solili, May 2020.

The type of companies that occupied industrial space during this month are logistics, retailers, electronic commerce, storage and transportation. As expected, and taking the main industrial developers and marketers as a reference, there is a growing demand for storage spaces for e-commerce companies. Until April, the demand was focused on expansions by companies already established in the city, the arrival of new companies has not been identified.

In indicators of unemployment of industrial space for Mexico City, the figure reported for the month of April is almost 30 thousand m², being 32% higher than that reported in the same month of the previous year, however, the figures do not they are alarming, since it is at healthy unemployment levels. Almost 70% of this unemployment corresponds to class B spaces. Industrial unemployment, as an effect of companies that leave the country or move from the market, is not a behavior that has been reported, nor is it something that is seen in the following months.

Graph 2: Monthly industrial unemployment in Mexico City in the January-April 2020 period (m²).

Source: Solili, May 2020.

Mexico City, as the most important logistics center in the country, with competitive infrastructure and mature real estate development, is being favored with the current conditions of the economy, however, this does not happen for all markets, since those that count With an infrastructure focused on the development of manufacturing space, they are being affected by the paralysis that this industry is experiencing.

In other important industrial centers of the country such as Monterrey, Guadalajara and Tijuana, an outstanding and positive behavior of demand has also been reported during April 2020, according to Solili. In the case of Monterrey we have an increase in demand of 48%, Guadalajara of 13% and Tijuana of 11%.

For the Bajío markets, Querétaro reports a decrease in demand of approximately 71% in the comparison of April 2020 with respect to the same month of the previous year, despite this, we estimate that during the months of May and June demand will rebound of industrial space for logistics companies. The rest of the markets in this region, Guanajuato, San Luis Potosí and Aguascalientes together added up to a demand figure in April of about 45 thousand m², concentrated 70% in the Guanajuato market.

Guanajuato has an automotive manufacturing vocation, therefore, in the coming months it will be showing a decrease in demand from this type of companies, however, the recent development of logistics real estate infrastructure, coupled with the infrastructure that the state has, the strategic location and competitive prices of industrial buildings, will mitigate this fall, since we estimate an increase in demand from the logistics sector in this state.

Graph 3: Gross demand for industrial space by city in April 2019 and April 2020 (m²).

Source: Solili, May 2020.

In the short term, the country's manufacturing industrial centers are showing contractions in demand, while markets with logistics real estate infrastructure report an increase. We project that the demand from the manufacturing industry will begin the recovery phase at the end of 3Q 2020 and the beginning of 4Q 2020, since the arrival of new Asian companies in Mexico and the impact that the entry into force of the T- will be expected. MEC.

We estimate that during the 2Q 2020, the Monterrey market, where manufacturing companies traditionally form an important component of demand, will be supported by companies in the logistics, e-commerce and retail sectors. For Guadalajara and Tijuana, in the manufacturing part, having developed an important medical cluster will boost this market, coupled with the growing demand that the logistics sector will have in these cities.

The Bajío area, by concentrating its industrial real estate infrastructure for the automotive sector, will see demand specifically affected in the Aguascalientes and San Luis Potosí markets.

In April, the industrial real estate segment in Mexico, as a result of the COVID-19 pandemic, goes through scenarios with dissimilar behaviors, in manufacturing centers declines in demand are occurring, due to the paralysis of the manufacturing industry, while In markets with logistics trends, demand has been on the rise, thanks to the boost that this indicator is having from logistics companies, e-commerce and retailers.

We estimate that the construction start figures will decrease in some markets such as Guanajuato, San Luis Potosí, Aguascalientes, Querétaro, Monterrey and Guadalajara, since they have enough supply to satisfy the demand figures that each market traditionally reports. In addition to this, the developments remain expectant for the effects that the pandemic can leave in the country and will start the projects that were reportedly planned once the current situation has passed.

The prices of industrial spaces, although in the last quarter they had decreases derived from the impact generated by the depreciation of the peso against the dollar, we estimate that they will remain at the same levels with a slight downward trend, since the vacancy rates of The country's markets do not exert pressure on them.

The indicators of the industrial real estate market have not shown great changes, healthy volumes of demand, stable construction figures with a downward trend and stable prices and vacancies are reported in most markets.

Today, more than ever, access to information will be essential to make efficient and profitable investments for investors and supply providers, while on the other hand, it will be essential to democratize information, make the market more transparent and access tools that contribute to the work efficiency of the actors that participate on the demand side.