Abstract
More so than many other Latin American countries, Mexico’s economic
fortunes are closely tied to those
of the US. It is no surprise therefore
that Mexico’s economy has had a rough ride of late. Our latest
forecast is for real GDP growth to contract by 1.3% over 2009. In brief,
industrial production has been hit
hard, consumer confidence has
evaporated and retail sales are poor. Lower private investment levels in
Mexico are likely to be in evidence throughout 2009, and even public spending
now appears under threat
from tighter credit conditions and the
persistence of global risk aversion.
These broader macroeconomic issues
have the capacity to significantly affect Mexico’s real estate
market. So far, however, it appears that the market has held up better than
other parts of the economy. A
recent report by Knight Frank notes that the
average vacancy rate in Mexico City is around 5.8% in
certain parts of the
city.
Generally speaking, the market for commercial real estate is
healthy, mirroring the low vacancy rates of
the real estate market
overall. Vacancy rates will rise gradually over the short to medium term,
however,
suggesting more competitive conditions in coming times. The
market for industrial real estate
(warehousing, logistics, etc.) is, by
contrast, taking a battering. In other regional countries the market for
industrial real estate is holding up considerably better by contrast. An
assessment of the health of the
residential real estate market is not so
easily made. However, we expect that the performance of this
market
segment is comparable with the non-industrial commercial sector.
According
to some of the data available to us, it appears that office space in Mexico
City (in early 2009)
cost around US$30.00, or EUR21.30, per square meter
per year to rent. This represents a fall in rental
prices of 6.3%
year-on-year (y-o-y). As yet, we have been unable to find suitable data on the
housing
market in Mexico. Housing prices generally firmed in major markets
in Latin America.
Over the coming months, the key issues to watch will
likely be, first, the continued carnage in Mexico’s
industrial real
estate sector. Second, the coming online of a significant amount of new space,
which will
have the effect of driving up vacancy rates. Third, whether the
broader economic conditions cause
developers to delay projects, as is
currently expected.
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