Starting in June 2020, the economic reactivation began in Mexico under the guidelines of the so-called “new normal”, taking as a reference the federal traffic light that will determine national transit. Based on this policy implemented by the federal government, the reopening of companies that participate in the new essential activities, such as the construction, manufacture of transportation equipment, mining and the automotive industry, will take place.

Under this scenario, the industries that have a production area or plant where office areas for administrative support coexist, must present sanitary security protocols adapted to their production processes. In addition to these requirements, industries must assess the impact of the contraction in demand, access to liquidity, and the restructuring of purchase orders in order to assess the speed with which they will be incorporated into their operations.

Construction as an essential activity of the national economy presents a new opportunity for the resumption of projects and developments. The sector is maintained with optimistic expectations, anticipating the start of new projects and a gradual recovery that will be encouraged by the attempt to integrate new production chains in nearby geographies and with the arrival of the new treaty between Mexico, the United States and Canada (T-MEC) that are estimated to generate a boost in the detonation of Industrial Hubs that will require the development of new infrastructures.

In this context, industrial demand will be the result of opposing factors such as the entry into force of the T-MEC, competitive rental prices that must weigh the contraction of local consumption and the lag of production chains, allowing sectors such as logistics, e-commerce, and the medical industry perform well.

According to data from the Solili real estate platform, during the month of May 2020 the gross demand for industrial real estate space in Mexico City reported a total of 64 thousand m², presenting an increase of 5% compared to the same month of the previous year. In the monthly comparison, the demand for May 2020 decreased approximately 20 thousand m², however, it remains at levels that are considered healthy and stable, typical of a behavior such as that of the capital market.

The net industrial demand of Mexico City is still maintained on positive grounds. During May 2020, a total of 38 thousand m² was reported, which indicates that demand has been higher than move oy.

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

Source: Solili, June 2020.

The economic conditions of zero growth through which the country passed, during the last quarter of 2019 and the first of 2020, were felt in the industrial demand of Mexico City. During the first quarter of 2020, gross industrial demand reported a 30% drop compared to 2019, however, if we make the comparison of demand in the period from January-May 2020, compared to 2019, the figure is reduced to a decrease of 10%, that is to say, that during the months of April and May 2020 the demand has been increasing. This indicates that since Mexico began with the national day of healthy distance, which was during April and May, and in which the population was confined to their homes, industrial demand showed better results than the previous three months of the year. According to Solili's figures, between January and May 2020, gross demand was 323 thousand m² in Mexico City.

Regarding the sectors that demand industrial space, the market continues with the same trend that it presented in April 2020, where those who sustain the demand in Mexico City continue to be electronic commerce, logistics and large retailers.

The corridors that remained mostly active in demand were those of the so-called CTT (Cuautitlán, Tultitlán and Tepotzotlán). Another sub-market that maintains a positive behavior in demand is the city of Toluca since during April and May 2020 just over 35 thousand m² were absorbed, which represents 25% of the total commercialization of industrial space that the market has reported.

The indicator of move outs of industrial space in Mexico City reports about 25 thousand m² in the course of May 2020. The accumulated move outs of this market in the period January-May 2020 has been 111 thousand m², representing an increase of 35 % of move outs in the same period of 2019.

Graph 2: Monthly move outs of industrial space in Mexico City in the period January - May 2019 and 2020 (m²).

Source: Solili, June 2020.

Despite the fact that move outs has been higher so far this year than the previous one, this indicator still maintains healthy figures, without representing a risk to the market. The spaces that have been vacated during this period correspond to companies that have changed location due to the need for spaces with different characteristics and dimensions, and not necessarily to companies that have left the market.

During April and May 2020, industrial demand in Mexico was concentrated in companies in the logistics, electronic commerce and warehousing sectors. On the manufacturing side, the medical sector has reported growth rates, which has translated into a greater number of industrial space demanded.

Between April and May 2020, the industrial real estate markets of Mexico City, Tijuana and Monterrey remained as the markets that reported the highest volumes of demand. The positive behavior of these markets is based on the mixed vocation of logistics and manufacturing infrastructure that allows them to capture both types of demand.

The Bajío area reported a gross demand during April and May 2020 of 90 thousand m². Despite the fact that this area is characterized by its high concentration of demand focused on the manufacturing sector, during this period an increase in the demand of warehousing and logistics companies was identified, taking as a competitive advantage the location and connectivity of the region with the rest of the country and the United States.

Graph 3: Cumulative gross industrial demand in the main cities of Mexico during the months of April and May 2020 (m²).

Source: Solili, June 2020.

The demand for logistics space in the Bajío mitigated the negative effect on the fall in automotive manufacturing demand, given that the region has positioned itself as a strategic point for the development of logistics infrastructure. Another factor in favor is the development of new trends that the industry presents in terms of real estate space requirements with infrastructure for distribution and storage.

The trend in the next six months is that manufacturing centers that have the infrastructure for logistics development will continue to report demand volumes, while centers with a strong manufacturing vocation will see their indicator figures drop. For those markets where the infrastructure is mixed, the logistics demand will mitigate the effects of the decrease in the demand of the manufacturing industry.

The recovery of the manufacturing sector will come gradually after the implementation of the T-MEC and it is estimated that the demand for this segment will show a greater increase in late 2020 and early 2021 driven by the relocation of Asian companies that could seek to settle in the country.

With the entry into force of the T-MEC and the regionalization of supply chains derived from the impact of the pandemic, Mexico is facing a new opportunity to position itself as a leading logistics center in North America. In addition to this, the favorable location of the country will allow international companies to reach the US market, however, this will depend on the coordination of the industrial reopening with other countries and that national policies emphasize work for greater trade openness.