In the last 20 years, Mexico has become the world's 11th largest economy and 3rd in the Americas, behind the United States and Brazil. Due to its geographical location, the agreements on free trade, competitive labor and infrastructure work, the world has set its sights on Mexico as one of the main destinations for foreign investment.
Strategic location of Mexico
Located in North America and having the US as the northern border of the country, Mexico is the largest market in the northern hemisphere. The strategic and geographic location of Mexico gives it with many benefits. With the Gulf of Mexico as its main entrance in the east, Mexico has a natural access to and from the Atlantic Ocean, where the major ports of Veracruz and Tampico are used for international trade, mainly to Europe. To the west, the Pacific Ocean represents some of the most important ports of entry into Mexico. The ports of Manzanillo and Lazaro Cardenas are used for international operations, mainly with Asia. This prime location has encouraged international trade between South America and the rest of the world.
Because of its location, labor costs and infrastructure in seaports, railroads and highways, Mexico reduces logistics costs for both the export of Mexican products and international import of goods to and from Mexican soil. For example, a container coming from the center of Mexico, and taking an average of three days to get to Chicago would take 34 days to travel from Shanghai to Chicago. Delivery time is reduced to a fraction having Mexico as their home base. As wages in China will continue to increase, the availability of skilled labor in Mexico becomes a great advantage to reduce overall costs, basically in any type of operation.
Free Trade Agreements in Mexico
Mexico is the country with the most free trade agreements in the world. These trade agreements have benefited Mexico and its investors as a strategic target for new manufacturing plants. The great flexibility allows unlimited import of goods and export of parts and finishes to many markets around the world.
The automotive industry has taken advantage of Mexico's free trade agreements, resulting in a considerable increase in vehicle production from 1.8 million units in 2002 to 3 million in 2013. This makes Mexico the 8th largest producer of automobiles in the world. If it keeps growing at this rate, it will be producing 4.4 million vehicles in 2020.
The automotive industry has exploded since 2010. Automobile assemblers such as General Motors, Chrysler, Daimler, Volkswagen, Nissan, Mazda, Honda and Audi have invested in infrastructure and manufacturing capacity, and they also have large investments in advertising to increase production capacity or the installation of new assembly plants. BMW has just announced a new assembly plant in San Luis Potosi, where 150,000 vehicles will be produced. Similarly, Kia has officially announced its new assembly plant in Monterrey, in the municipality of Pesqueria, where 300,000 cars will be produced per year. Tier 1 and Tier 2 providers are following their customers, opening numerous plants throughout Mexico to cover their needs. Companies such as Pirelli, Bridgestone, Continental, Johnson Controls, Magna, Faurecia, Katztin, Mahle, Boesh, Delphi, Yazaki and many others have grown their brand and have opened new plants, with the result that Mexico has the fifth place worldwide as a supplier of auto parts, only behind China, Japan, US, and Germany.
Work and infrastructure
In the past, the Mexican labor has been referred to as cheap and of low quality. Recently, this has changed. The qualified Mexican labor is now one of the key elements in providing productivity for investors (seen as labor quality), delivering a high quality production at a reasonable low cost. Ford in Hermosillo, Nissan in Aguascalientes, and VW in Puebla are some of the success stories because of productivity in the assembly of high quality vehicles.
With an estimated 120 million people in 2013, Mexico is the second most populous country in Latin America after Brazil. 40% of the population consists of an age range between 25-54; and 18.1%, aged 15-24. That means that Mexico has a considerable workforce. The average education is equivalent to secondary level. Additionally, around 90 thousand engineers and technicians graduate per year, a higher number compared with countries like Germany, Canada and Brazil.
In terms of connectivity, Mexico has an extensive rail system and a large network of roads. The railway system connects to almost any city in the United States and is mainly operated by two companies: Ferromex and Kansas City Southern, with local carriers serving in the road network.
Seaports play a key role in international trade in Mexico. The ports in the Gulf of Mexico and the Pacific Ocean are used by many international companies as an alternative to congested ports in the United States, mainly the West Coast. The time needed to unload a container at a Mexican port is a fraction of the time required in the US.
There are more than 350 industrial parks in the 32 states of Mexico. Most of these parks meet international standards in the development and construction facilities. Many international players are present in the industrial real estate in Mexico: Prologis, Prudential, Macquarie and Ridge compete with local developers in extending its brand and attracting new investments.
Mexico is a developing country, therefore, most of its Class A and B buildings are only eight years old, on average. Most of the demand is for new buildings or customized buildings. The average unemployment rate is 4% in the secondary markets and 8% in the primary markets. Lease rates have remained constant in recent years because of the availability of capital in the market, creating FIBRAS and the flow of foreign investment in these.
The greatest activity in the last 12 months has been in the markets of Mexico City, Toluca, the Bajio area (Queretaro, Celaya, Leon, Aguascalientes and San Luis Potosi) and Saltillo; some other markets such as Tijuana, Cd. Juarez, and Monterrey have been gaining speed since the beginning of 2014.
Mexico has been running at a very steady pace in recent years and is expected to continue to grow at an even faster pace, at least for the next 10 years due to its recent energy and tax reforms. Business opportunities exist in Mexico and is expected to increase significantly in the coming years.
In real estate, we will continue to see exponential growth in industrial parks, office buildings and commercial sites, to meet growing demand. Expansion and transfer operations of foreign companies for manufacturing operations in Mexico will be more frequent - most of them from the United States and Canada.