20 Aug 2001

Tijuana Real Estate Market 2001 Summary

The North American Free Trade Agreement (NAFTA) and an overvalued Peso are increasing costs for manufacturing companies in Baja. A US recession and tighter border controls in the wake of the 9/11 attacks is making business more difficult. Economic stagnation in Asia and China’s admittance to the WTO have lowered costs for Asian Manufacturing. Each of these factors are combining to reduce occupancy of Border manufacturing facilities. On the positive side, labor and top level managers are a dime a dozen, and highly improved facilities are available.

Mexico’s Border manufacturing industry has been hit by defections by Non-North American firms who can no longer avoid Mexican duties using the Maquiladora or in-bond Program. NAFTA -specifically Articles 303, 304- forbids the importation of third country parts duty free. Although duties have dropped for North American products, firms using Asian and European components and raw materials are seeing their duty costs rise and many are returning to Asia and Europe. SAFT (France) is subleasing their 160,000 SF Battery manufacturing plant. Asahi electronics, Sanyo, Jabil Circuits , ALPS and others are also vacating Baja facilities taking the Tijuana Industrial vacancy to the highest level in 13 years.

Although 7% vacancy seems like a balanced market to most real estate professionals, in Tijuana it is unheard of and rents are dropping, especially in the lower quality, older industrial areas. During recent years, landlords have been able to command $0.35 per SF/ Month for even dilapidated old buildings without basic lighting and power. Now, tenants have been leaving these older facilities and have been occupying better facilities for a similar price.

As you can see from the chart below, almost half of the available buildings above 75,000 SF are C grade or below. A grade are Modern, Tilt-up construction with 50% land coverage ratios, high ceilings (24 ft.) and security. B grade buildings are often 5 year old, second generation facilities with up to 60% land coverage. C grade buildings usually have lower ceilings (16-18 ft.), block construction with more than 10 years of age and difficult truck maneuvering space or parking. D grade are usually “0 lot line” 15+ years old and have difficult truck access. F grade buildings are functionally obsolete or dangerous.



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