1st Quarter 2019 Tijuana Industrial Real Estate Update

Vacancy: With about 1.4 million SF of industrial property, current vacancy stands at about 2.5%, the lowest level since 1980. Net absorption for 2018 was a record 3 million SF.

Demand: California has raised its minimum wage to $15, bringing an employer’s costs to around $22 per employee per working hour. This, along with Chinese duties are incresing demand for industrial property in Mexico, the greater northern baja region in particular. New or updated regulations are bringing many multi-national manufacturing facilities back to the Americas as well.
Smaller companies (less than 100 employees) have been the backbone of the maquila industry in Tijuana for decades, but most of the growth we are currently seeing is from larger multi-nationals increasing their presence in the market.

Call centers, looking to lower their costs from expensive office space, are relocating and converting large industrial facilities, placing even greater pressure on industrial demand.
Supply: Constrained supply and increased demand are raising dollar rents to unprecedented heights. Class A
space in Otay (with basically zero vacancy) has risen to over $0.52/SF, NNN (maintenence,
taxes, insurance). NNN expenses of up to $0.07 at Class A parks managed by ROCA and FINSA are
securing gross shell rents of up to $0.59/SF monthly. Other areas and Class B facilities are running
just above $0.40, with much lower NNN rates of around $0.02.

L​and: Land prices are also very high, especially near the border where Prime Wheel has been on a buying spree, expanding many buildings to upwards of 50′ high. The former Sanyo battery facility sold for $157/SM, BEFORE environmental mitigation. However, agricultural land in the ALAMAR area, adjacent to Otay sold for $125/SM. Due to negotiations with local farmers, It will take approximately three years before construction can begin.

Construction: Costs are up, with steel tariffs increasing costs to about $30/SF for a 100,000 SF concrete tilt-up shell with 25′ minimum clear height.

Government: The Mexican government has doubled the minimum wage along the border, however, since most companies are paying more than that already, the impact will be negligible.

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