From Prologis’s Impact of Nearshoring on Demand for Mexican Logistics Real Estate
Key Takeaways
- Nearshoring is a significant driver of demand. Every US$1 billion invested in Mexican auto factories can generate 5-10 MSF of local logistics demand.
- Industrial real estate fundamentals are strong. Demand for industrial space doubled in 2022 versus 2019 levels, boosted by nearshoring, leading to a sharp decline in vacancy to approximately 1%. In turn, rents rose 16% in 2022 and are poised to spike again in 2023.
- Location, free trade, and labor are attracting companies to Mexico. Recent shifts in global supply chains have made these substantial and maintainable long-term advantages more appealing.
- This is just the first wave of investment. We expect this movement to play out over decades as local economies build a critical mass of infrastructure, expertise, and suppliers. This will not be limited to the already strong auto sector; we also expect electronics to take a larger role in Mexican exports.
- Read the whole report here.
- We have experience and a network of resources in Mexico to help guide you as you need.
Inland Empire Market Trends
As the home of West Coast Distribution and within close range of Southern California’s major ports and population centers, the Inland Empire remains critical. Despite the economic uncertainty facing industrial markets, development in the Inland Empire continues to be resilient, with 36 million sq ft under construction and nearly 10 million sq ft completed in the first quarter of 2023 alone. In 2023 Q1, the average asking lease rates experienced further growth, surging to $1.63 NNN, marking a 28% increase compared to the 12 months prior. While rates and development continue to show signs of encouragement, lessened consumer demand is starting to give way to softened market conditions.
Orange County Market Trends
Rent growth in OC came in at 10%, slightly below 2022’s peak of 13.6%, but sentiment has started waning. Additionally, pushback from residents and city governments may impede further growth. The City of Irvine recently enacted a new requirement for conditional use permits for buildings greater than 100,000 square feet. This means that for 100,000 SF users, we need to go through the city planning department to apply to be considered as a tenant for a property. This usually takes $3,000-$5,000 and 90 days. This will change the dynamic of making proposals, and tenants and landlords now need to vy for who is most likely to be able to get through the city with approval in a reasonable amount of time.
Los Angeles Area Market Trends
During the first quarter of 2023 in the Los Angeles Market, the number of move-outs in spaces exceeding 10,000 square feet was twice as high as the number of move-ins. For spaces over 100,000 square feet, three times as high. Safe to say that concerns about an impending recession have dampened the demand for port activity, increasing move-outs.
The result is that tenants are trying to play the wait-and-see game to see if rents will go down before they move. Simultaneously landlords are now looking to find out whether their tenants are going to renew earlier, knowing the time it takes increasing time to re-tenant property in this market. This chicken or egg game though is self-fulfilling in that more properties coming to market sooner makes the lease rates go down, which is what the tenants are waiting for. While I don’t see this trend picking up in any meaningful way this quarter, some groups will get caught short in this game while others will profit.
New Listing
This new listing is .86 acres and is for lease for $0.95 PSF GRS and sale at $125 PSF. It is a current tow yard and can be used for many uses, from car and boat storage to contractor yard to nursery. These parcels are rare in South Orange County, no doubt. Let us know if you have an interest in learning more.
Market Reports
Media
- Book #1
- Industrial Intelligence, The Executive’s Guide for Making Informed Commercial Real Estate Decisions
- Book #2
- Industrial Income, The Investors’ Guide to Maximize the Value in Commercial Real Estate Leases
- I’m currently targeting a publishing date of September 1, 2023, and looking for beta readers for advanced copies of the manuscript now.
- Podcast
We’d love to catch up with you and brainstorm how we can make your goals come to life.
Best Regards,
Justin Smith, SIOR Grant LaBounty
jbsmith@leeirvine.com glabounty@leeirvine.com
Chris Vassilian Jeannette Cano
cvassilian@leeirvine.com jcano@leeirvine.com |
