The current global paralysis, derived from the COVID-19 pandemic, has significantly impacted the real estate industry. Mexico has not been the exception, the multiple branches of industry in our country have been affected as a consequence of the confinement that is currently being experienced.

Despite the fact that the beginning of the quarantine in our country occurred in the month of March, the real effects began to be felt during the month of April, the month in which the activities stopped completely.

Based on this, the country's leading real estate information and marketing platform, Solili, has analyzed the demand figures that were reported in similar periods of the previous year to know the impact on volumes of square meters that the pandemic has generated in the corporate market. From Mexico City. The country's capital concentrates approximately 90% of corporate inventory nationwide, and therefore is the one that suffers the effects to a greater extent.

In the last quarter of 2019 and the first of 2020, the Mexican economy reported contractions in its Gross Domestic Product (GDP), but despite this, this effect was not perceived in the demand for corporate space in Mexico City, since the demand kept its positive course.

If we compare the results of the first quarter of 2020 with the same period of 2019, we will have that the gross corporate demand of Mexico City grew by 16%, going from 167 thousand m² that were reported in the first quarter of 2019 to almost 200 thousand m² in the same period of 2020. The demand for corporate space was still present in this market, coworking companies, insurance, services, etc. They rented corporate space during 1Q 2020.

According to Solili, the demand amounts that were reported month by month in 1Q 2019 had an increasing behavior, a similar trend that was occurring in 1Q 2020. If we specifically analyze the month of March 2020, the date that companies and Civil society began to take measures for COVID-19, we observed a contraction compared to the previous month, although despite this the results for the quarter were positive.

As of April 2020, the country was already paralyzed, companies sent their employees to work remotely from home, shopping centers and public places closed, large manufacturing companies of all lines suspended operations, and the country began a quarantine phase. compulsory sponsored by the government. All this caused the economy to practically stop and only establishments with essential activities such as supermarkets and banks were functioning.

Adjustment in trading strategies were swift in companies of all types. With regard to the large developers of corporate space in Mexico City, they chose to paralyze any work that was about to begin, so that in April the construction of any new office building was not reported, even Solili identified projects already started that stopped construction.

The generalized paralysis of economic activity in the country and much of the world, as an effect of COVID-19, caused the corporate market in Mexico City, as of April, to report an annual contraction of 57%. During this month only 25 thousand m² were commercialized, compared to the almost 60 thousand m² reported in the same month of 2019. If the comparison is made monthly, that is, the behavior that April 2020 had with respect to March 2020, we see a decrease 55%. The Santa Fe, Norte and Periferico Sur corridors together accounted for 60% of this month's demand, so corridors such as Polanco, Reforma and Insurgentes, that is, those that traditionally concentrate demand, do not appear as plaintiffs main, so it has been these that have felt the negative impact on the decrease of this indicator to a greater extent.

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


Source: Solili, May 2020.

During the month of April, this market reported an unemployment of approximately 31 thousand m², this figure being higher than demand. Considering this, the net demand for the month of April would report a negative figure of 5,603 m². The corridors that vacated the largest corporate space were Santa Fe, Insurgentes, Periférico Sur and Norte, which together account for 75% of total unemployment.

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


Source: Solili, May 2020.

Unemployment is a phenomenon that is considered normal in any corporate market, however, the volumes reported in Mexico City in April are to be taken into account, since they exceed demand. It is important to mention that the unemployment in April corresponds mostly to the expiration of contracts, not necessarily to companies that are leaving this market to move to another in the country, reducing space or leaving the country.

The adverse scenario through which Mexico City's corporate market transits was felt in the exit prices of the properties. With the depreciation that the peso has had, with respect to the dollar, as a collateral effect of COVID-19, it has caused corporate developers in Mexico City to decrease exit prices, specifically those that are trading in dollars. Approximately 15% of the properties that have exit prices in dollars have decreased their price, projecting that this percentage will increase in the coming months. Prices in these spaces have reported a decrease in ranges ranging from 8% to 10%. On the other hand, the spaces that are selling in national currency, for now, have remained stable, this in order to make them more competitive with respect to those that are sold in dollars.

The corporate market in Mexico City in April, as a result of COVID-19, showed a contraction in demand, high volumes of unemployment, prices with a downward trend, projected vacancy rates on the rise and construction activity practically paralyzed . The corridors most affected are Polanco, Reforma and Insurgentes, which traditionally concentrate the highest volumes of demand in the city.

The scenario through which the global and national economy travels allows us to infer that the corporate real estate market will tend to narrow more sharply, at least in the next three months.