Mexico, the real estate market where you must invest

Summary: Mexico’s commercial real estate industry is growing due to different factors such as the creation of investment trusts, significant changes in regulations, competitive land prices and the economic development of new business centers across the country.

The Mexican Association of Real Estate Professionals, is expecting to see a growth of 6% in 2014 in the sector, which, according to its president, Martha Ramirez Gallegos, will exceed the predicted 2.77% GDP growth for this year.
In a recent annual survey conducted by The Association of Foreign Investors in Real Estate (AFIRE) Mexico was listed as the third highest emerging country for commercial real estate investments, following China and Brazil.

The Roots of Growth
Jorge Castañares, business director for Aguirre Newman Mexico and specialist and professor of real estate says that the creation of the Real Estate Investment Trust (FIBRAS) as well as the Capital Development Certificate (CKD) boosted the growth in this sector. “In 2005 the Rental Tax Law was modified, entitling certain legal and trust entities to a fiscal allowance enabling them to absorb said tax and allowing structured long-term investments,” Castañares explained. Currently there are eight FIBRAS operating in the country that invest in real estate through the Mexican Stock Exchange and whose value has been estimated in the region of 170 billion Mexican pesos (US$13 billion).
Besides, Mexico has become attractive to the energy industry, the manufacturing industry and corporate industry, according to Castañares. Over the last few years several industrial, logistic, business and techno parks have been built. These currently cover around 50 million square feet, spread out over 300 industrial parks of international quality. The amount of available office space has also shot up outside of Mexico City, in areas such as Toluca, Puebla, Hidalgo and the Bajio region. It is estimated that currently there are in the region of 4.5 million square meters of class A and B offices in Mexico, a figure that could well be doubled by the year 2020, states Castañares.

Valuable Space
After the real estate bubble burst in the United States and Spain, it set off a far-reaching financial crisis towards the end of the last decade; but the Mexican market has shown, at least to the experts, real signs of growth.
Early in 2014, ProMexico published a study regarding the price per square meter of land for industrial use across Mexico City and 52 other locations. The study, based on facts supplied by the Colliers International Real Estate Firm, revealed that the highest prices are in Queretaro, with an average of 2,793 pesos (US$262), rising to as much as 4,781 pesos ($370.86). This was followed by Mexico City’s Federal Disctrict, with an average price of 2,152.80 pesos ($167); Pachuca, Hidalgo, with 1,951 pesos ($151); Tijuana, Baja California with 1,799 pesos ($139.50) and Guadalajara, Jalisco with 1494 pesos ($116).
However, businesses that contract installation areas for commercial and industrial use can find prices ranging from $55 to $75 in the Federal Distict, $50 to $60 in Guadalajara or Monterrey and $40 to $50 in Queretaro.


Bajio, the Place to Invest
KPMG’s survey “Mexican’s Upper Management Outlook for 2014” reveals that 45% of the Mexican executives that are looking to expand their operations in Mexico over the next three years will do so by expanding into the area known as the Bajío region, which encompasses the states of Aguascalientes, Guanajuato, Queretaro and San Luis Potosi.
“The fact that nearly half of the country’s executives are interested in investing in the Bajio region shows the possibilities for its economic and business growth over the next few years,” states Ricardo Arellano, the associate in charge of the KPMG office in Leon, Guanajuato.
The real estate industry has developed significantly in this area. According to Castañares, the area has become one region instead of four separate states. “They will be complementary states that offer commercial, manufacturing, hotelier and residential possibilities; they will become a macro region where complementary real estate services will be provided,” Castañares said.
Although the general consensus is optimistic, the Economic Ministry’s recently revised expectations of 2.77% national growth have prompted conservative forecasts from experts. “If the country does not regularly increase by at least 3.5% over a reasonable period, it runs the risk of investors slowing down.  The sector moves according to demand,” Castañares said.
So, the greatest challenge for the Mexican government is to accelerate the infrastructure plan required by the country, spend prudently, promote the creation of new businesses and thus generate employment, as sustainable growth is needed.