Demand for Mexican logistics real estate is heating up as global companies are looking to fight volatile market conditions by moving their production closer to U.S. end consumers, also known as “nearshoring,” according to a report from the real estate firm Prologis.
Nearshoring is a significant driver of demand, with every $1 billion invested in Mexican auto factories generating 5 to 10 million square feet of local logistics demand, Prologis said in a paper titled “Impacts of Nearshoring on Demand for Mexican Logistics Real Estate.”
Three main reasons for the trend are close location, free trade, and inexpensive labor. The report concluded that recent shifts in global supply chains have made those advantages more appealing, thus attracting more companies to Mexico.
And Mexico is ready to absorb that rising demand. Prologis found that industrial real estate fundamentals are strong in the country. Demand for industrial space doubled in 2022 versus 2019 levels, leading to a sharp decline in vacancy to approximately 1% and a rise in rents of 16% in 2022. The numbers reflect conditions in Mexico’s six main markets: Mexico City, Monterrey, Ciudad Juárez, Guadalajara, Reynosa, and Tijuana.
Finally, this is just the first wave of investment. Mexican logistics sector rents are poised to spike again in 2023 and Prologis expects the movement to play out over decades as local economies there build a critical mass of infrastructure, expertise, and suppliers. That expansion will also help Mexico capture demand in new sectors, expanding from its traditional strength in the auto business into the electronics, the report said.
The Prologis study echoed similar results from supply chain visibility provider FourKites, which found that U.S. companies have driven a 20% rise in shipment volumes from Mexico to the U.S. over two years. And the U.S. Bank Freight Payment Index recently found that truck freight volume contracted nationwide during the first quarter in all U.S. regions except for the southwest, where nearshoring has driven a steep rise in the flow of source goods from Mexico instead of overseas.