Is there really a saturation of the Mexican office space market? Mexico Infrastructure & Sustainability Review asked Lyman Daniels, President of CBRE for his take on the situation and what the trends that continue to drive demand will be. CBRE Group is the largest commercial real estate services and investment firm in the world. It is based in Los Angeles, California and operates more than 450 offices worldwide and has clients in more than 100 countries.

 

Q: How would you respond to suggestions the real estate market has stagnated over the last few months?

A: I would disagree. Firstly, market activity is actually slightly higher than it was at the same time last year in office, industrial and retail. There has been consistency in the market. 2016 was a record year for absorption and when comparing 2017 year on year it has been a very strong year so far. The elections certainly caused a certain amount of hesitation but this happens in all countries. But the antagonist is the uncertainty rather than the outcome of the elections.

We measure market activity by demand, and the demand this year has been very consistent with that of last year for 1Q18. However, I believe 2Q18 will show completely different results. Having said that, I think after the dust from the elections has settled when we know what direction the country will take, a lot of that uncertainty will be dissipated. Investors and users of the space will be ready to make decisions again.

CBRE remains very bullish on Mexican commercial real estate because of all the factors that have created growth over the last few years, from the population dynamic to the work ethic to the location. We think this market will continue to grow.

Lyman Daniels, President of CBRE

Q: In Mexico City, which areas have received most attention in terms of office space?

A: There has been demand across the city but the Insurgentes corridor has received a great deal of attention. The first reason for this is because the street was developed many years ago as a principal boulevard in Mexico City. After several years, this area was neglected and many buildings in the area became old and outdated. Mexico City is running out of space and now developers are starting to look to redevelopment and rehabilitation of spaces so properties on Insurgentes become very interesting for them. It is viable because Insurgentes is very centrally located and accessible with a great deal of public transport links so this is a natural expansion. It is a lot easier to develop an office product on an avenue that was designed as an office corridor. In other areas it can be much more difficult, especially if they were not set out for this in terms of drainage for example.

Q: Which city do you believe will have the strongest activity in the next few years?

A: I think all the major and secondary cities will have strong activity for their own reasons and each one is very dependent on different industries and different factors. Obviously, Tijuana is strong because of its connection with the US. The issues with Tijuana at the moment are access to labor and access to land. There is a lot of demand in Tijuana for industrial, and right now it is difficult to find solid industrial facilities that are vacant in the city. Guadalajara continues to be a strong market for different reasons. It continues to be an area where there is a lot more development of high tech and R&D facilities. It has highly trained, highly skilled labor and engineers that can satisfy those workforce demands. Monterrey is the major industrial city of the north. It will continue to grow but it is very dependent on industrial activity and output. I think that will have a lot to do with geopolitical and economic situations because ultimately it is an industrial hub.

The whole Bajio region will continue to be important. The growth of this region has historically been very strong, slowing in the last year or two mainly due to the uncertainty in the automotive sector. But I think in general it will continue to grow strongly, but exactly how strongly will be dictated by political and economic forces.

Q: How has the shared office space model affected demand and how do you see this trend progressing?

A: Co-working is a demand driver for our office market, having grown 3 percent per year for A and A+ buildings the last several years. It represents more than 150,000m2 in 65 buildings, and this is only the beginning. The new generation is highly influencing this, with the desire to work in buildings that are more user-friendly and synergistic. I project it will grow at a rate even faster than those seen in other countries with older populations. In Mexico, the population is much younger so there are many more millennials driving this market trend.

Our office is a co-working environment. We have adapted to that millennial demand of having a space that is collaborative. We bring other companies into this space and show them our response to the demand. I would compare developers’ reluctance to adapt to this trend to going to a dentist with bad teeth. We practice what we preach and this is the best reassurance for our clients.

 

This is an exclusive preview of the 2019 edition of Mexico Infrastructure & Sustainability Review. If you want to get all the information, plus other relevant insights regarding this industry, pre-order your copy of Mexico Infrastructure & Sustainability Review 2019 or access the digital copy of the 2018 edition.

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