As is the case in many places in Mexico, the Tijuana industrial real-estate market is heating up.

Tecma Group of Companies:

Welcome to another installation of Tecma Talk podcasts during which we speak to both external and internal experts on subject matter that is related to manufacturing in Mexico. Today we are pleased to have someone join us that is an expert in the Tijuana industrial real-estate market. As some listeners may already be aware, the Tecma Group of Companies has recently initiated shelter operations in Tijuana to be able to offer its shelter services in in that area. Hopefully, this will be an interesting podcast for listeners that that are looking at the Tijuana industrial real-estate market, or locations somewhere in Baja California, in proximity to Tijuana, to do manufacturing investments of some sort. Welcome to the podcast, Miguel Velasco. How are you today?

Miguel Velasco:

Fine. Thank you. Good morning everybody.

Tecma Group of Companies:

Typically, the way we start this of is that we would appreciate it if you would provide just a little bit of information on your background, so that people that are listening can put you into the context of the subject matter that we will discuss during this session.

Miguel Velasco:

OK. I’m a local. I am from Tecate, Mexico. A lot of my career has been in the public sector, and, later, in the private sector. I have been involved with economic development agencies. I have worked as an industrial developer locally. I have around twenty-five years of experience being involved with industrial real-estate transactions. Six years ago, I joined the NAI Real Estate company in Tijuana. Presently, I am a senior broker in Tijuana, Mexico.

Tecma Group of Companies:

Beyond the Tijuana industrial real-estate market, you would probably be able to give us some good information on Tecate, and maybe even Mexicali as well. Before we look at those two other places,could you provide us with a general over view of what the Tijuana industrial real-estatee market looks like today? Maybe you can give us an idea of what total inventory is, maybe what occupancy rate is these days, information about any new building activity that you may see happening now, as well?

Miguel Velasco:

Yes.

As you may know the total inventory of square feet in the Tijuana industrial real-estate market is around sixty-five million. There are more than six hundred globally known companies located in Tijuana. We have more than forty-five industrial parks. Those companies are a part of several industries such as aerospace, medical device, electronics, auto parts and general industry. Today available inventory in the Tijuana real-estate market is about 2.5 million square feet of Class A and Class B building. Our vacancy rate today is low. It is around 7.5%. In comparative terms, the vacancy rate in 2012 was twelve percent. Last year’s absorption rate was good. It was around three million square feet of building space. When 2014 is compared to 2014, we had a very good year.Last year fifty percent of the space that was filled to lease or buy or build-to-suit was done so by new companies coming to the Tijuana industrial real-estate market, while the other fifty percent was expansion of existing industry.

Tecma Group of Companies:

In terms of the fifty percent that is new business, do you see any industry pattern? Is or are any one or two industries those which demonstrate the influx? For instance maybe electronics and aerospace are the ones that you are seeing moving most?

Miguel Velasco:

The most important manufacturing sector that is growing locally is medical device. We have new players in the Tijuana industrial real-estate market like Flextronics, Merritt Medical and Angiotech. Three or four new big companies have leased more than three or four thousand square feet of industrial space in just the last year. Medical devices is the most important sector, then also electronics and suppliers to the existing industry here are coming too.

Tecma Group of Companies:

I’d like to make sure that I have the numbers correct. Today, in terms of availability in the Tijuana industrial real-estate market, how much space is existing and available for companies that might want to rent?

Miguel Velasco:

Today there is 2.6 million square feet of space that is available to rent in the Tijuana industrial real-estate market.

Tecma Group of Companies:

Ok. I would assume that you have build-to-suits going up, as well?

Miguel Velasco:

Yes. Right now there is about five hundred thousand square feet of this type of space under construction.

Tecma Group of Companies:

You mentioned quit there was quite a bit of absorption of existing space in the Tijuana industrial real-estate market in the last couple of years. Could you restate that information?

Miguel Velasco:

To clarify, in 2012, the vacancy rate was around twelve percent. Today it is about 7.5%.

Tecma Group of Companies:

There has been an awful lot of movement then?

Miguel Velasco:

Yes, lately.

Tecma Group of Companies:

Looking forward, although we are early into 2015, what kind of sense to you have for the rest of this year, given what you have experienced in January and now moving into February?

Miguel Velasco:

What I see is new companies coming to explore the Tijuana industrial real-estate market. We have had visitors today, and last week, too. Also, the state government is promoting a lot of new investment in the region. As you may know, we have both private and public organizations and agencies promoting our city. The are attracting new investment in the region. We expect more investment this year, and, also, employment numbers will increase. Last year the number of new jobs created in Tijuana was approximately fifty thousand.

Tecma Group of Companies:

When we consider the comments that you made about the types of industry that is coming in, we have to take account that the unique position in which the Tijuana industrial real-estate market is located. You’re right on the Pacific Coast. Consequently, a lot of Tijuana industry comes from Southern California, just north of you, and even going up further in California. Given your geographical location, do you see a lot of Asian companies coming due to Tijuana’s position on the Pacific? Do you see a lot of California companies coming, or is there a visible pattern at all with regard to where companies come from to Baja California?

Miguel Velasco:

Lately we see quite a bit of Chinese, Taiwanese and Korean companies. Many years ago, as you remember, the Japanese expansion was important, but today Korean and Chinese, and even Taiwanese companies are coming to the region. Also companies from the East Coast of the United States, especially medical device manufacturers, are locating in Tijuana too. This includes the aerospace industry. We always have a significant presence of companies from California in Tijuana.

Tecma Group of Companies:

Something that you just mentioned is pretty interesting. I’m sure that a lot of people would like to hear more detail. China is somewhat of a newcomer, in terms of Chinese companies actually bringing capital to Mexico and establishing manufacturing and other types of businesses in Mexico. You mentioned China. Would it be a correct assumption to make that you were referring to manufacturing investment?

Miguel Velasco:

Yes. We have Chinese companies entering the Taiwanese real-estate market directly. There are a few now. I am hearing about new projects coming from Taiwan. This is maybe from Chinese investment in Taiwan. We are not exactly sure if they are companies from China through Taiwan.

Tecma Group of Companies:

What kind of manufacturing are these Chinese capital firms doing in Baja California?

Miguel Velasco:

They are TV manufacturers, and also there are new companies that are making construction products. These consist of windows and structures. We have a recently arrived company from that region in the construction sector.

Tecma Group of Companies:

You have mentioned that you not only have experience in the Tijuana industrial real-estate market, but also we know that there is some industry in Tecate, Mexicali, which is pretty active especially in the area of aerospace, and, then our company, Tecma, has helped a manufacturer to establish an operation in Rosarito. Briefly could you give us a description of those places beyond Tijuana in Baja California that people, who are looking at the state as a whole, might be interested in taking a look at. Do you have any information to share that would be relevant and useful to such individuals and companies?

Miguel Velasco:

Yes. Many years ago Tecate and Rosarito were small towns near Tijuana. Basically, Tecate and Rosarito are now a part of the Tijuana metropolitan area. It is easy to provide services to companies in these places, because they are at a very short distance. It only takes about thirty minutes to get to both Rosarito and Tecate. Companies in Rosarito and Tecate have the benefit of the great industrial base of Tijuana for suppliers for any kind of industry?

Tecma Group of Companies:

How about the availability of workers in those places like Rosarito, Tecate and Mexicali? Is there sufficient workforces if their is a significant influx of industry there? What is the labor market like in those places?

Miguel Velasco:

The labor situation in Rosarito and Tecate is different than it is in Tijuana. The most important aspect of the Tijuana workforce is the human factor. Tijuana is the place where we have the best technical schools and universities. There is a much better labor situation in Tijuana when compared with Rosarito and Tecate.

Tecma Group of Companies:

We’ve covered a lot of ground in a relatively short period of time. If there are people that listen to this podcast that have questions that were not addressed during these few minutes that we have been speaking, Miguel, is there a way that they can contact you directly in order to ask whatever their question may be?

Miguel Velasco:

Please, if you wish to contact me directly at my US telephone number, it is 619-690-3029 extension 114. My website is www.naimexico.com. Ny email is mvelasco@naimexico.com. Listeners can free to call me, or to send me an email.

Tecma Group of Companies:

Thank you, Miguel, for participating in this podcast.