Northern Mexico has experienced a significant expansion in the Mexican industrial real estate sector since its major decline from the late 1990s to the early 2000s, due, in part, to low-cost production in China. During the pandemic, that trend began to shift.
“What happened [during] the pandemic was a serious lockdown in China, at a national level,” says Juan Zúñiga, an international transactions attorney who is a managing partner at San Diego–based Rimon PC. “Basically, a massive quarantine, and that ended up significantly constricting the supply chain from Asia to North America and Europe, number one. Number two, the cost of production in China [started] getting more expensive than it was in the ’90s. Now, China is no longer your low-cost manufacturer. It’s actually more expensive, and then the distance to get from China across the ocean is a big deal.”
With the onset of the pandemic came major supply chain problems in Asia that occurred simultaneously to a huge consumer boom in the United States. The fact that so many people were suddenly sheltering at home changed the entire equation.
“The [Mexican] industrial sector was suffering after the election of President Trump, who demonized Mexico,” Zúñiga says. “I remember going to real estate conferences in Mexico in 2018, and the industrial developers are pulling their hair out and saying, ‘We’re going to go bankrupt. We cannot survive in this marketplace because Trump has, basically, made us out to be the bad guy.’ All of a sudden, two years later, the pandemic swings things in the exact opposite direction.”
Newmark Mexico market analyst Genaro Lopez says that, through the second quarter of 2024, vacancy rates in the Tijuana industrial market rose above 2 percent for the first time in the last three years, as a result of completed construction on some big-box buildings with gross leasable areas greater than 150,000 square feet (13,935 sq m).
Industrial construction in Tijuana’s total industrial market, including Tecate and Rosarito, was 4.17 million square feet (387,000 sq m), with the Tijuana submarket alone accounting for 3.42 million square feet (318,000 sq m). “With Mexican elections concluded and the United States elections underway, we can expect a strong absorption [of industrial space] by the end of 2024 or start of 2025,” Lopez writes.
Manufacturing boom
Manufacturing in Mexico instantaneously became the solution to the supply chain constrictions. It proved to be a boost for northern Mexico.
“All of a sudden, we need Mexican manufacturing,” Zúñiga says. “We appreciate it, because someone’s got to make those goods that we buy from Amazon. That’s what it’s about. You want to buy those new headsets for your kid? Well, where do they get manufactured? All these consumer goods that you buy at Target and through Amazon and at Walmart . . . were being made in China, but during the pandemic a whole lot of it got shifted to Mexico.”
As a result, northern Mexico is now benefiting from nearshoring, Zúñiga says. However, nearshoring is not something that is new to the country, as Mexico has profited from it in the past.
Sony, Panasonic, and other big companies have flocked to Tijuana. Bioscience is becoming increasingly popular there, as well.
This shift has led to an uptick in the construction of manufacturing plants, as companies are realizing that they can build such facilities more cheaply in Mexico and then ship their products anywhere in the world, according to Gibram Sanchez, an urban planner who is a consultant at San Diego–based international business consultancy company Steer.
“Due to [their] being so close to the border, companies decided to establish themselves in Tijuana,” says Sanchez, who grew up there.
Retail gains traction
Tijuana is now also attracting more retail store chains, including from central Mexico, as more people are less interested in crossing the border into the U.S. Those stores include Zara, H&M, and Mango.
“It’s more difficult than it was years ago,” says Sharlinee Ceniceros Toscano, an urban planner and architect who is the founding director of Tijuana-based Se Hace Arquitectura. “Historically, Tijuana has been like a dormitory city, where people cross the border to work or go to school in San Diego.”
The current housing boom in Tijuana—which is just 12 miles south of San Diego, across California’s border with Mexico—is currently making the city more diverse. Ceniceros Toscano says there is also more vertical development now. New high-rises are being built to accommodate the increasing number of Americans who are moving to the city.
The aftermath of the pandemic has led to increased wait times to cross the border between California and Mexico, as more people are working from home. Ceniceros Toscano says it can take up to five hours now in the “regular line” to cross the border. About 52,000 pedestrians alone cross there daily, and 148,000 individuals do so each day by car, according to the organization, the Smart Border Coalition.
Relocations
Remote work has also led to an increase in Americans relocating to Tijuana full-time because doing so is more cost-effective, Sanchez says. Many people are finding it less expensive to live in Tijuana than in San Diego.
Not just Americans are moving to Tijuana. According to Ceniceros Toscano, the city is also attracting people from other parts of Mexico, as well as migrants from Haiti and Ukraine. The influx of newcomers is causing some locals to be pushed out of the city as people with more financial resources establish themselves there, Sanchez says.
Demographics have changed so drastically in the area that it is becoming increasingly difficult to find someone in Tijuana who was born and raised there, according to Gibert Ulloa, a business development manager at Tijuana-based SEICA. That firm provides business consulting and logistics services for companies interested in contract manufacturing opportunities in Mexico.
“We have felt a difference, in a positive way, in growing businesses here,” says Ulloa, who is a first-generation Mexican. “At the end of the day, everyone wants to supply to the U.S.”
Manufacturing facilities in Tijuana have also been evolving from a “simple assembly line” to a need for more engineers and a specialized workforce to adapt to new technologies, Ulloa says. The trend is only one among many advantages that experts say Tijuana has to offer.
“The benefit [for Mexico] that you’ve got is [that] you’re so close to the border [and] you don’t need railways or major infrastructure to be able to get something across to the U.S.,” Zúñiga says. “The sophistication of what Mexico can offer in subcontracting manufacturing for U.S. companies is really far more mature than it was 25 or 30 years ago, easily.”
Demand for talent
The spike in the demand for talent and a more advanced labor market is also creating an inflationary environment wherein wages are higher. In addition, the area is also celebrating a milestone: becoming the first cross-border region, along with San Diego, to receive the World Design Capital designation. The World Design Organization is a nongovernmental international group that, every two years, chooses to highlight a city for its impressive use of design in spurring social, economic, cultural, and environmental development.
“It has opened doors in the design community for us to talk about the issues we have as a region,” Ceniceros Toscano says.
Although northern Mexico is celebrating its successes, questions still loom ahead, with some observers taking a wait-and-see approach. Experts on the region say there is much to be considered in contemplating its future.
“I think the big question for Mexico right now is that, when the U.S. gets past this presidential election, and if the Federal Reserve reduces interest rates, [as] everyone anticipates [it] to do—which will create more money supply in the economy—what’s the impact for Mexico?” Zúñiga says. “I think that’s the question . . . we still need to assess and resolve.”
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