WORLD PROPERTY CHANNEL ®

Industrial real estate investment and leasing may be the only game left in Mexico's shredded real estate markets, reports the San Diego Business Journal.

Here is how panelists at a recent real estate forum presented by the Urban Land Institute's San Diego/Tijuana chapter, viewed the Mexican market:

• Selected industries in certain geographic areas continue to draw investors on the commercial side.
• Steady cross-border trade continues to keep Mexico industrial properties, including manufacturing and warehouse buildings, as well as leased spaces, in relatively high demand.
• A  glut of office buildings and resort hotels, which came on-line just before the economic crash of 2008, sit empty or remain slow to sell in several once-bustling regions.
• The condo market, which had San Diego County residents flocking across the border less than five years ago for housing bargains, has ground to a halt, with unfinished projects dotting the landscape throughout Mexico, including many in coastal settings.
• Demand for Mexican real estate is being suppressed by concerns of violence fueled by drug trafficking.
• Some cost and procedural barriers to acquisition of properties by U.S. entities remain also remain a problem.

David Wiesley

"Residential development is basically dead right now," said David Wiesley, a locally based vice president of multinational business development with Stewart Title Guaranty Co.

U.S. real estate-related companies have seen their Mexican transactional volume plummet from pre-recession peaks.

 Still, potential investors, and the companies that service real estate transactions, might want to keep an eye on Mexican sectors that could be among the first to bounce back as the economy recovers, reports the Business Journal.

Wiesley noted the Mexican government is looking long term to boost affordable work-force housing, particularly near key industrial centers such as Tijuana and Mexicali.

"Also, retiring U.S. baby boomers, with savings portfolios still under siege from stock market gyrations, will continue to seek lower-cost housing options across the border, particularly in well-placed golf, tennis and beachfront developments with upscale offerings," according to the Business Journal.

John McNeece, an attorney in the San Diego firm, Luce Forward Hamilton & Scripps LLP, who handles transactional issues for clients doing business in Mexico, told the Business Journal the country is making gradual progress in combating government corruption and organized crime.

"Lately, the government has been setting the narco-traffickers back on their heels," McNeece said.

Since the North American Free Trade Agreement took effect in 1994, Mexico has been relaxing real estate-oriented barriers, such as restrictions against majority ownership of large properties by foreign entities.

Other experts, who were not at the ULI forum, noted that leasing is generally seeing more activity than buying in major border-adjacent Mexican markets, especially in the industrial sector, the Business Journal reports.

Joe Smith

Joe Smith, a broker with Cushman & Wakefield who deals with Tijuana and Mexicali industrial real estate, told the Business Journal leasing activity has picked up considerably in the past year.

Because competitive pricing trends favor tenants, as landlords compete to lure them, industrial-oriented firms prefer leasing over buying in the current market, according to Smith.  He said companies that are most active in acquiring new leased space include manufacturers of medical devices and consumer electronics.

A couple of years ago, a number of multinational companies, many from Asia, were buying Mexican land throughout the border region to build factories.

 "That's not happening now -- they're leasing, not buying," Smith said.

He said industrial leasing activity in Mexico has tracked closely in the past decade with increases in international cargo traffic coming through Southern California regional ports, including those at Los Angeles, Long Beach and Otay Mesa.

"Tijuana is tied into a much bigger picture -- it's not just about the Mexico-San Diego border area," he said.

                

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