Mexico’s economy is driven by domestic consumption and intraregional trade. While the conclusion of NAFTA renegotiations in 2018 removed some uncertainty, the new President’s early actions have given mixed messages at best, uncertainty remains in Mexico with questionable initial policies of its new President. Rising prosperity and growth, in turn, are fueling demand for all types of goods, services, and modern real estate. According to a newsletter by the Mexican Association, the real estate sector is expected to grow by 6% in 2019.

The outlook for commercial real estate remains positive due to the enormously strong domestic market, particularly the rising middle class and improving the performance of its manufacturing sector. The market is fertile ground for development, investment, and diversification due to the increase in funding sources and the real estate asset demand. There is a rise in demand from foreign investors too. American and Canadian buyers are returning to Mexico, after a several-year slump, due to low oil prices and the strong US dollar.

Key Market Trends

Growth in Tourism is Fostering Developments in Commercial Real Estate

Real estate and tourism are large contributors to the Mexican economy. The tourism industry is one of the greatest growth drivers for the country and has a significant impact on the real estate sector. The area experiencing the greatest growth because of this cross-pollination of sectors is mainly around the Mexico City district.

Just like Mexico City, the cities of Tulum and Merida are becoming the preferred destinations for real estate investors due to its tourism. Both cities are currently experiencing a rise in urban growth and investment in eco-tourism. This boom is allowing the greater development of many real estates projects such as museums, shopping malls, and even concert halls.

Playa del Carmen is another Mexican place where tourism is influencing real estate but in a different manner. The North American youth are widely attracted to beach resorts, music festivals, carnivals, and a party culture gathering nearly 12 million visitors in 2018. This highly seasonal but regular tourism makes real estate management simpler where the quiet off-peak times make hotels, and other residencies cheap.

In Mexico City, foreign buyers (mostly from Brazil, Spain, and the US) tend to invest in new construction or commercial properties.

Declining Office Vacancy Rate in Mexico City

There is healthy growth in office space demand and sustained business activity. Office real estate demand has a notable performance. 403,600 square meters (sqm) were absorbed in 2018. There is a demand in office space from various industries. Government and financial services sustain their traditional leading role, while technology and media continue their gradient as big office space users.

Mexico City has the largest inventory of modern, quality office space in Latin America. Mexico City a place where significant positive Class A absorption was paired with negative class B and C absorption. The vacancy rate signals the beginning of a tenant’s market for this cycle. However, this could be short-lived, since supply is rapidly adjusting from its record peak into a more sustainable level for the middle term.

Competitive Landscape

Mexico’s commercial real estate market is fragmented due to the presence of a large number of players in the market. The Mexican housing market is not driven by speculators. There are many developers, and it is highly competitive. There is an increase in mixed-use developments, medium-sized and small-sized real estate developers arise in strategic regions of the country and there is a boom in the use of financial investment instruments, such as Fibras and CKDs.

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