According to Rafael McCadden of Colliers International Mexican industrial real-estate occupany and absorption rates are healthy.

Tecma Group of Companies:

Hello, and welcome to another installation of Tecma Talk podcasts. If you are a frequent listener to these recordings, you know that they consist of discussions with individuals that are experts in issues dealing with manufacturing in Mexico or related topics. Today is no different. We have the distinct pleasure of having an opportunity to converse with one of my favorite folks to chat with. His name is Rafael McCadden. He is with Colliers, which is a very well-known global industrial real-estate firm. He’s based out of Mexico City. I’ll let him introduce himself to you, and to provide a little bit of background information before we take on today’s questions. Rafael, how are you?

Rafael McCadden:

I’m good. How about you?

Tecma Group of Companies:

Couldn’t be better. Thanks.

Tell us a little bit about yourself so that the listeners have an understanding of the context from which you speak.

Rafael McCadden:

Sure. Thank you. Well, I have been in real-estate for over thirty years. I have been in industrial real-estate for twenty years now, and with Colliers as director of the industrial and logistics division in Mexico for over ten years. It has been a very exciting career. I can say that it is very interesting to see what is happening with industrial real-estate in Mexico.

Tecma Group of Companies:

Rafael, the last time we spoke, and it’s been quite a while. Actually, it has been over a year. At that time you had commented that Mexico had pretty much succeeded in emerging from the difficult period that began in 2008, and that the market had picked up for industrial real-estate in Mexico on a national level. Is that trend continuing? If yes, can you provide us any statistics that will give us an idea of what the activity levels of today are?

Rafael McCadden:

Sure. I would say that the trend continues to be positive in most markets in Mexico. Vacancy rates continue to come down. Net absorption rates are rising. There are a few things that make this happen. One, I would consider, is being neighbors with the US. I would say that this is the most important factor. Sharing a 2,000 mile border with the United States is one of the most important things that has promoted and benefited industrial real-estate in Mexico. Another thing is that the “baby boomer” generation in Mexico is in its mid-20s. This is a very important consideration in that it is generating a lot of people coming out of school that are eager to work. That has helped a lot in terms of hiring and maintaining low turnover rates. Companies are recognizing that there are plenty of young engineers available to hire for design centers, technical centers and, of course, for manufacturing lines, as well.

Tecma Group of Companies:

So, all in all, things are still looking positive. Would this be a safe assumption to make?

Rafael McCadden:

Yes, definitely. Now some of the regions in Mexico do have, I would say, a more prosperous growth and set of circumstances. The Bajio region, which includes four states that are located to the north of Mexico City that are Aguascalientes, San Luis Potosi, Guanajuato and Queretaro, are the ones that are posting the best numbers in terms of growth. This is mainly because of investment that is occurring in the automotive industry. There are four new Japanese assembly plants in the region. It is also said that there are over 300 Japanese suppliers to the automotive industry that have moved in. Of course, that is huge. In a period of less than five years, Mexico has duplicated its automotive production capacity.

It’s not only Japanese companies, however. BMW has begun the construction of its new assembly facility in San Luis Potosi, and, just Southeast of Mexico City, in the State of Puebla, Audi is almost ready to roll out new production of the Q5.

By far, the automotive industry is the main driver for the absorption of industrial real-estate in Mexico.

Tecma Group of Companies:

This has been something that has been visible in the press, and the numbers have been very, very, very significant.

Do you see any other movement? Is there anything happening in medical devices, aerospace or electronics?

Rafael McCadden:

Sure. Yes, absolutely. Besides the automotive industry there are other success stories in, I would say, other sectors. As you mentioned, there has been growth in medical device manufacturing. These items are produced mainly in border cities. I would say that Tijuana is the leader in the medical device area. A lot of that growth is because the “baby boomer” generation in the United States is around 60 years old on average now, and, as such, they require more and more medical attention. This is something that has created a lot of growth in the medical device manufacturing industry in Mexico. This includes, with it, other sectors, or sub-sectors, like plastics injection molding, the assembly of surgery kits, etc. There are all sorts of medical devices that are now being exported from Mexico into the United States.

As you also mentioned, aerospace is also a very important sector that has registered very high growth rates over the course of the last fifteen years. The aerospace industry in Mexico was in its infancy a decade and a half ago. In recent years, it has been growing so quickly that it is no longer a “teenager,” but has reached an even higher level of maturity. The aerospace industry is clustered in certain main cities in Mexico, which include: Queretaro, Mexicali, Chihuahua, Tijuana and a little bit of Monterrey.

Tecma Group of Companies:

We can’t forget Guaymas and Empalme, my friend, in the State of Sonora.

Rafael McCadden:

Yes, you are absolutely right. That is a very important success story. The aerospace industry growth in Guaymas and Empalme, Sonora has been very interesting, in great part, because of the connection between Phoenix, which is a very important US aerospace hub in the United States, and that area to the south on the Sea of Cortez that is popular with many people in Phoenix and Tucson. That in part helped to facilitate the growth of Empalme and Guaymas. Yes, definitely that is a very important cluster for aerospace manufacturing in Mexico. Thank you for reminding me of that.

Tecma Group of Companies:

I thought that we would have been remiss, if we did not include that area.

You spend your days working with investors that come, and I am sure that you tour buildings with them. We’re going to operate under the assumption that most of the individuals that you are walking those buildings with are US investors, but you just mentioned the Japanese, for instance. Where are other investors coming from? Can you give the listeners an ideas of the diversity of the interest that Mexico sees from all corners of the globe?

Rafael McCadden:

The main countries that are investing in Mexican industrial real-estate is, definitely, the United States; Canada is also heavily involved with aerospace and automotive. I would say that European companies, especially those from Germany, and, as I mentioned Audi and BMW are now building their new assembly plants, are quite active as regards Mexican industrial real-estate. Those are the main countries that are investing in Mexican industry.

Tecma Group of Companies:

Since you are seeing what kind of movement is happening in Mexican industrial real-estate is occurring on a daily basis, what advice would you give to anyone that is listening to this podcast as regards doing research on the possibility of leasing or buying Mexican real-estate for inustrial purposes? What would you to do as they start their efforts?

Rafael McCadden:

Sure. First of all, I think that it is very important to note that just having someone in your company that speaks Spanish doesn’t mean that that is the right person to assign the lead to for a project in Mexico. That could be a big mistake. We’ve lived that before. You can have that person be part of the team.

These days, logistics teams, are playing a more predominant role in the site selection process. Of course, there are other teams within companies that are involved in looking at Mexican industrial real-estate. If the company has a real-estate team, they would be very important to include. Sometimes sourcing and finance teams are also involved.

Besides putting together a team, which is what we suggest, we definitely think that hiring a site selection expert is the right move. This is recommendable, because, sometimes, decisions are made without doing the right analysis. We, at Colliers International, do this on a daily basis. Of course, there are other companies that do the same thing that we do. When you’re sick, you go to the doctor. When you need legal advice, you visit an attorney. Well, when you are doing site selection related to Mexican industrial real-estate, you should definitely look for a professional. This should be an expert that knows his way around the market, and can give you the best advice.

Tecma Group of Companies:

That is good counsel, because there are a lot of variables that come into play when you are looking to site something optimally in terms of industry.

Those comments lead me into the final questions that we ask individuals with whom we speak with during Tecma Talk podcasts: For anybody that may be listening to this recording, how would they call or email you in order to ask you questions regarding Mexican industrial real-estate and the site selection process?

Rafael McCadden:

Yes. Thank you. They can Google me. That’s one way to do it. The other way to contact me would be by telephone in Mexico City. I am based in Mexico City, although I do site selection analysis throughout Mexico. My phone number is country code 52, then 55-52093625. I can also be found on the Colliers website. Additionally, my email address is rafael.mccadden@colliers.com