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Automotive Sector Fuels Nearshoring Demand

The automotive sector is driving real estate demand in Mexico, accounting for 35% of all nearshoring demand in 1H23, found a new report by CBRE Research. As Mexico’s automotive sector continues to expand, the country’s prominence as a major supplier of auto parts to the US continues to grow. Although China still maintains a dominant presence, the report highlights a shift in market dynamics as Mexico’s automotive sector continues to expand due to nearshoring.

Due to its proximity to the US, as well as the availability of skilled labor, Mexico’s northern border region is the most active in terms of nearshoring demand. Cities like Tijuana, Juarez, Saltillo and Monterrey are emerging as key players with substantial industrial inventories and low vacancy rates. For instance, Tijuana boasts an impressive inventory of 3.8 million m2, while Juarez offers 4.5 million m2 and Saltillo presents 4.1 million m2 of inventory.

“The automotive sector is the main driver of nearshoring demand in Mexico. This is expected to continue in the coming years,” said CBRE Research Director Alejandro Ortiz.

CBRE’s predictions for Mexico’s industrial real estate market indicate robust demand levels, with modest growth in net absorption. However, limited vacancy rates in the market are likely to constrain total demand. By the end of 2023, it is estimated that gross absorption will reach 6 million m2, with net absorption reaching around 4.5 million m2.

In 1H23, nearshoring demand surged significantly, with nearly 800,000m2 in demand, marking a remarkable 38% growth compared to the same period in the previous year. This surge is primarily attributed to the expansion of the automotive sector and the northern border region’s growing markets. Notably, Saltillo accounted for 33% of the national total nearshoring demand.

Ortiz added that the northern border region remains the most active in terms of nearshoring, although other areas, such as the Bajio region, are also seeing growing interest. In Mexico, China continues to dominate nearshoring investments, according to the same report. The country accounted for 43% of the total demand accumulated from 2019 to 1H23. Asian countries have played a key role in these investments, accounting for nearly 60% in the last four years. Meanwhile, the US, Germany and Canada have also been notable contributors to nearshoring activities.