The Development of Industrial Parks in Mexico Two Years After the USMCA
Industrial parks in Mexico are an essential element of the country’s economic competitiveness. Their strategic geographic location and excellent infrastructure are perfect for attracting foreign and domestic investment.
In the 1980s, Mexico began down a path leading to economic globalization and the competition for Foreign Direct Investment (FDI). First, it entered the General Agreement on Tariffs and Trade (GATT); later, in the 90s, the North American Free Trade Agreement (NAFTA) entered into force. This commercial accord was recently modernized to become, in 2020, the USMCA and is now the new Treaty between Mexico, the United States, and Canada.
For several decades, economic liberalization and opening regulations related to FDI have allowed the entry of foreign investment flows, particularly in manufacturing.
The industrial parks in Mexico have traditionally aligned themselves with the policies related to attracting FDI that the country’s government has implemented. As a result, they have sought to understand and capitalize on a deep knowledge of manufacturing trends.
The second anniversary of the USMCA celebrated recently is an opportunity to reflect and take stock of the drivers that have made it possible to strengthen the success of industrial parks in Mexico.
The Benefits of the USMCA
The USMCA has to do with goods and services that cross borders and require favorable production conditions. Industrial parks are the first link in that chain in Mexico.
The first two years of USMCA have coincided with a unique coronavirus pandemic that brought unprecedented supply chain disruptions, the return of inflation, and a deeply contested US presidential election. But, in general, the trilateral trade relationship is stronger than ever, and today there are great opportunities to attract FDI to Mexico due to the nearshoring relocation trend.
Realigning supply chains has been of recent concern. Because of this dynamic, countries like Canada, the United States, and Mexico can achieve an alignment to promote the relocation of the manufacture of strategic products such as semiconductors to the trading bloc.
This is achieved using tools such as tariffs and local content requirements. Above all, Mexico can accomplish this by supporting the development of a new North American manufacturing ecosystem that includes new semiconductor manufacturing facilities supported by the CHIPS Act to America. Additionally, this end can be reached by developing manufacturing capabilities for crucial components and making efforts to promote sustainable mining and processing of critical minerals. These facilities can be achieved with the model of industrial parks in Mexico.
AMPIP Industrial Real Estate Index (IIIA).
According to the latest report on the industrial real estate sector authored by the Mexican Association of Industrial Parks (AMPIP), at the end of the second quarter of 2022, there was a total inventory of 45.6 million square meters (m2). Furthermore, the average vacancy rate was 2.2%, and the real estate had an average rental price of 5.07 dollars per square meter. Additionally, AMPIP also reported that 2.8 million square meters were under construction.
These indicators are essential to measuring and governing the performance of the industrial real estate sector. This is the case precisely because knowing the main variables that show its behavior and growth allows for developing the required infrastructure. It is essential to have new spaces available to house global companies that generate employment and investment.
Due to the relevance of these indicators, AMPIP, a business organization representing developers, owners, and investors of industrial parks in Mexico, has built the AMPIP Industrial Real Estate Index (IIIA).
This Index seeks to provide a statistical overview of the behavior of the industrial real estate sector in industrial parks in Mexico. It considers the following variables: inventory in square meters, vacancy in square meters, square meters under construction, and rental and sale price (according to the classification of industrial buildings or warehouses).
The AMPIP IIIA was born to be a reference tool for AMPIP members. The objective is to integrate primary, general, and representative indicators of Mexico’s industrial real estate sector under its methodology.
Industrial Parks in Mexico Measurement Methodology
The AMPIP methodology was designed based on in-depth analysis and discussed, fed, and endorsed by a group of experts that generate this information on industrial parks in Mexico. They are the AMPIP members. These parties participate in developing and constructing industrial spaces and are the country’s developers, investors, builders, and other experts in the sector.
The IIIA methodology contains the rules that dictate how it works and ultimately helps determine its performance. Each of its four components is necessary to support design, collection, monitoring, and evaluation. As such, they provide for the periodic generation of information relative to the status of industrial parks in Mexico.
The rules determine values that are eligible for inclusion in the Index, the formulas by which the Index value is calculated, the process for modifying the components, and a schedule for updates.
Just as the Industrial Parks Standard NMX-R-046-SCFI-2015 establishes the specifications of legal provisions, infrastructure, urbanization, services, and administration, for the industrial parks established in Mexico, the IIIA contemplates the minimum specifications that the developers consider for the development and classification of industrial buildings.
Industrial parks are the ally of competitiveness in Mexico. Due to their strategic geographic location and infrastructure, they are the perfect mix for attracting foreign and national investment.
Industrial Real Estate Opportunities
Mexico is among the top 10 recipients of FDI worldwide. The country registered an influx of 31.6 billion dollars in 2021. Therefore, it is desirable for foreign companies looking for the ideal location to make their investment.
The location of Mexico and its border of more than 3,300 kilometers with the United States provides immediate connectivity with the largest market in the world. This and Mexico’s network of free trade agreements with more than 50 countries allows the nation to have preferential access to many consumers worldwide.
Thanks to more than 25 years of Mexico’s integration with the productive region of North America, the country has an extensive national network of world-class suppliers linked to global manufacturing supply chains.
In Mexico, industrial parks have become an essential factor for FDI because they offer quality infrastructure that includes urban works, world-class real estate, operating services, common areas, and an internal administration responsible for the maintenance and security of the properties.
These industrial parks in Mexico, in addition to the available talent, free trade agreements, and competitive costs, make Mexico a highly attractive country for global companies looking for the ideal place to start new production plants or logistics centers in a globally competitive way.
International Promotion
AMPIP is the organization that represents more than 400 industrial parks in Mexico, where more than 3,700 national and foreign companies from more than 40 countries operate. More than 3 million jobs are in automotive, distribution and logistics, metalworking, electronics, plastics, food and beverages, chemicals, construction, pharmaceuticals, paper, textiles, medical devices, and aerospace.
AMPIP also has an international promotion strategy demonstrating a bold vision to attract industrial innovation leaders. The organization does this by taking advantage of opportunities to do business and working to address the interests of the different actors involved in the industrial promotion to generate synergies.
The COVID-19 pandemic clarified the importance of mitigating production risks and anticipating the continuity of supply chains through precise planning. This includes a recognition of the importance of having a short distance between suppliers and an ample quantity and quality of supplies and services. This circumstance is, of course, the essence of nearshoring.
Electric Cars, It’s Now or Never
Mexico has excellent global manufacturing wealth and is recognized for its quality in various industries. Proof of this is that Mexico is the twelfth-ranked world exporter of goods. However, among the primary industries, the automotive industry stands out. Mexico is the fifth largest exporter of vehicles.
According to data from the National Auto Parts Industry Association (INA), Mexico is the seventh largest vehicle producer worldwide and the leading auto parts supplier to the United States. Today, Mexico is in fourth place as a world producer of auto parts.
Digital commerce, which has a chapter in the USMCA, has registered rapid technological change and evolution that, in recent years, has brought a growth in the occupation of spaces dedicated to logistics and distribution.
More recently, in the equation, the electric vehicle (EV) market has become of particular note. In this space, Mexico is already beginning to demonstrate relevant indicators with plants in different entities, installation projects in the short and medium terms, and growing participation in North American production of hybrid and electric cars.
According to the INA, there is an expected change in the automotive ecosystem in which Mexico can significantly increase its participation as a supplier of raw materials and components.
All of the above means that it is a very exciting time for the automotive sector in Mexico. Furthermore, this movement generates attractive opportunities for industrial parks in Mexico and the country.
Analyzing the relevance of the EV market and asking what implications it has for the real estate industry, particularly for industrial parks, leads us to think about the need to build adequate spaces.
Mexico is at a turning point for the sector. The country has seen certain EV brands enter the Mexican market, actually the North American market, some of which come from Asia, but there are also locally established brands.
The exciting opportunity for the real estate market and developers is for those who must house new companies. The focal point is Mexico because the country has led the manufacturing in the region, where many automotive brands have established their nearshore facilities.
Today we see many brands getting involved in the EV market, and the opportunity is historic. Established players or not, they are achieving significant market capitalization (e.g., Tesla).
Established companies are attracting new investment from suppliers, but in the case of EV brands, owners of industrial parks in Mexico need to look at new market entrants.
The real estate infrastructure and all the focus that Mexico has had in recent years, acquiring proven experience in the automotive sector, makes it inevitable that the interaction with the industrial real estate market will come from the new brands. These companies do not yet occupy established properties in Mexico. They are looking for different conditions that accommodate automation and connectivity and provide locations that allow them to enter a growing market.
Are You Exploring Manufacturing in Mexico?
If manufacturing in Mexico is something that you are considering or exploring, please contact us, and one of our Mexico specialists will be happy to provide you with more information and answer your specific questions.
