With the quarantine implemented in early April by the government and supported by civil society, non-essential industries stopped operating, causing paralysis in most branches of the economy.

For the construction sector, when it was declared a non-essential activity, the activity stopped and with them all the projects of the real estate industry that were being developed stopped.

In Mexico City, this sector had previously been hit, due to the fact that in the last year a significant volume of building permits and licenses had been revoked. With the new government of Mexico City, which began in late 2018, a significant number of works were suspended, strongly affecting the construction industry, one of the most important pillars of the Mexican economy, due to its high impact on the hiring of labor.

Graph1: Amounts of construction of offices in Mexico City (m²).

Source: Solili, May 2020.

The new policies implemented by the new government of Mexico City for the granting of permits caused the construction activity to report a contraction in its volumes and that many investment projects in this area stopped. Thus, as in the last year, the number of construction of corporate spaces reflected a decrease.

In addition to the problem that developers had been presenting with regard to building permits, from April onwards the issue of the pandemic was added, which ended up causing a more pronounced problem that brought about the decrease in the activity of construction in the city.

Graph 2: Volumes of new offer of offices in Mexico City in the period 1Q 2019 - 1Q 2020 (m²).

Source: Solili, May 2020.

The construction of important office projects in the city was estimated for 2019, however, they were stopped for not having the permits released by the government. Estimates indicated that at the beginning of the year, once the entire permitting process was completed, construction began, however, the effects of the pandemic aggravated the problem, so even until May 2020 these projects are still in the planning phase and we estimate that They will continue to postpone the date to start construction. At Solili, we perceive that developers of corporate space in Mexico City are waiting for the effects of the COVID-19 pandemic on the Mexican economy, adjusting their cash flows, renegotiating terms with suppliers and financial institutions, and adapting to their companies to work remotely in non-operational areas to shore up the start of works. For this reason, we estimate that these projects will start up at the end of this year or at the beginning of 2021.

Between April and mid-May of this year, the construction of corporate buildings in Mexico City had not reported the start of construction of any new works. The projects that Solili was about to start construction this quarter were around 4 buildings, which would add a total profitable area of approximately 60 thousand m², located on the Bosques and Insurgentes corridors. However, and as previously mentioned, the effects of the pandemic have caused none of these projects to start construction. Despite this, in Solili we have a total of 78 monitored corporate projects that are planned, these add up to a total of approximately 1.5 million m² of profitable area, distributed throughout the city.

The growth of Mexico City's corporate inventory has been constant, in at least the last four years that Solili has monitored this market. During 2019, Mexico City reported a 6% growth in its corporate inventory, which represented an increase of 605 thousand m². For 2020, Solili estimated an increase in this indicator of 4%, since a total of 430 thousand m² was expected to finish construction.

Graph 3: Volumes of new quarterly estimated and projected new offer for the office market in Mexico City (m²).

Source: Solili, May 2020.

Note: The estimated offer corresponds to the dates that the developers provided to Solili to complete the work, while the projected offer is a calculation made by Solili including the inactivity of the sector due to the COVID-19 factor.

Derived from the COVID-19 pandemic, it has been approximately two months that construction is suspended in most of the corporate works in Mexico City, thereby generating delays in scheduled deliveries by the developer. According to the data provided by the Solili platform, for 2020 we project a downward adjustment of 30% of the estimated figure. Faced with this new scenario, the corporate real estate market in Mexico City would have an increase of only 250 thousand m², which represents an annual growth of 2.3%.

According to what Solili estimates, the constructions will take between one and two quarters additional to what the developers originally contemplated at the completion of the works. The impact on the delay of these will be seen more pronounced in those that culminated during 2020 and 2021, since in the rest, most are in the initial stage of construction and may streamline processes in the future that will allow these works to be delivered on time.

As of May 2020, the works of corporate buildings that are being developed in the capital show a general delay, however, for the projects that are delivered from 2022 the effects will not be felt. It is important to note that these analyzes are taking into account that the government allows construction activity to resume in late May and / or early June. It will depend on the way in which the policies implemented by the government behave in the face of the pandemic, to determine the real effects of the suspension of construction in the country's capital.