CPN - February 2009 - (Page 20)

INDUSTRY PULSE MEXICO Ties that Bind The U.S. Sneezes & Mexico’s Industrial Sector Catches a Cold By Eugene Gilligan ince the formation of the North American Free Trade Agreement in 1994, exports to the United States have figured prominently in the growth of Mexico’s manufacturing sector. With 80 percent of the country’s exports bound for the United States, it should come as no surprise that as the U.S. economy has slowed, Mexico’s manufacturing sector has felt the pain. The Mexican government predicts that the economy will grow by 1.8 percent this year, but other economic forecasts predict flat or even negative growth. A major contributor is the U.S. automobile industry, to which a good part of Mexico’s manufacturing sector contributes. Industrial vacancy rates overall, which traditionally hover between 5 and 6 percent, are moving above 10 percent. Still, the slowdown in auto sales has not yet had a specific impact, according to Binswanger Mexico managing director Karl Binderberger,although consolidation will probably occur later this year if demand does not pick up. Other key sectors are textiles, aerospace and medical devices, which have performed better. The medical-device sector has been growing 20 to 30 percent a year, S according to NAI Mexico president as the “Silicon Valley of Mexico” factory from China to Juarez. The Gary Swedback. Aerospace could because IBM Corp.,Hewlett-Packard facility broke ground last August. The peso’s devaluation against also slow down as the global reces- Development Co. and Flextronics International have facilities there— the dollar further attracts U.S.-based sion restrains jet manufacturing. firms, as it reduces labor Swedback observed that GOING UP? costs significantly.“The cost many owners of industrial (2008 industrial vacancy rates) of labor has gone down by property in Mexico are movBulk HighTech/ 20 to 30 percent,” Sweding more cautiously, rewritWarehouse Manufacturing R&D back said. ing leases at lower rates to 4% 3.8% N/A keep their tenants.“Industrial Tijuana 16% 15% 20% RELATIVE HEALTH users are focused on making Mexico City Other property sectors it through the recession,” he Guadalajara 9% 8% 2% have performed better. said.“Many major expansion Source: NAI Global While demand for office plans have been put on saw a slowdown last year, Binder- space will decline somewhat and hold.” New development has also slowed significantly, according to berger said. Its industrial market has speculative projects have stalled, typically absorbed 2.2 million Perez expects the sector to remain Binderberger,and speculative develsquare feet, but that amount will relatively healthy. Mexico City— opment has stopped. In addition, in many cases, com- take more like 18 months to absorb which continues to be the favored market for many major Mexican panies are turning to their facilities now, he noted. The continuing war between company headquarters and which for capital, executing sale-leaseback the government and drug gangs has houses offices for multinational corstrategies to a greater degree than at any time in the past 15 years, he not helped conditions in Tijuana porations—successfully absorbed noted. Others are selling facilities and Juarez’s thriving maquiladora new office space in the past year, outright, reducing the number of sectors. Some manufacturers have resulting in a drop in vacancy rates plants they occupy and retaining relocated their plants to China and from 20 to 10 percent among newly India. But labor costs are also caus- constructed buildings and from 26 to only one or two in strategic locations, though cap rates have been ing some manufacturers to relocate 15 percent for Class A product, their facilities from China to Mexi- according to NAI Global. on the rise for investment-grade The economy has curtailed conindustrial assets, from below 9 per- co, according to Sergio Perez, corcent before last September to as porate accounts vice president for struction of new shopping centers CB Richard Ellis Inc. One recent to a degree,according to Swedback. high as 11 percent, he said. In fact, some of Mexico’s example is Foxconn Technology Continued on page 26 ® strongest markets show signs of Group, an electronics and computVisit www.cpnonline.com/search and wear and tear. Guadalajara—the er components manufacturer that is enter “Mexican investors” in quotation country’s second-largest city, known moving a 1.2 million-square-foot marks for more on investment in Mexico. GLOBAL SNAPSHOT Softer World In the United States and Canada, rents in most markets declined during the fourth quarter, remaining flat in only a handful of markets. Rents in Europe have decreased substantially since the third quarter, owing in part to the drop in asking rents in local currency and the wide fluctuations in exchange rates caused by the global economic downturn. Rents in the Asia-Pacific region were relatively flat in the fourth quarter but have started to fall. We expect asking rents to continue to slide throughout 2009 in the United States, Canada, Europe and Asia-Pacific. Source: Jones Lang LaSalle Inc. • www.joneslanglasalle.com 20 COMMERCIAL PROPERTY NEWS • Februar y 2009 • www .cpnonline.com (4Q 2008 Class A/prime office rental rates per square foot per year) Chicago CBD Midtown New York City Mexico City metropolitan area Downtown Toronto Frankfurt London West End Paris CBD Hong Kong CBD Sydney CBD Tokyo CBD $0 $37 $96 $30 $42 $54 $125 $101 $160 $32 $104 $50 $100 $150 $200 http://www.cpnonline.com/search http://www.joneslanglasalle.com http://www.cpnonline.com

Table of Contents Feed for the Digital Edition of CPN - February 2009

CPN - February 2009 Contents Starting Line Buzzworthy Office Data/Analysis Washington, D.C., Market Profile Ranking: Mortgage Banks & Brokerage Firms Top Deals of 2008 Mortgage Banking Mexico Brokerage Sustainability CPN-Nielsen Claritas Special Report Resource Guide

CPN - February 2009

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