Uncertainty is Temporary, Location and Labor are DecisiveSat, 09/01/2018 - 13:12
Q: How has American Industries grown its project portfolio in the real-estate and sheltering markets?
A: We have grown in terms of real estate and new shelter administrative services projects in most of the regions where we operate. These regions include Jalisco, Guanajuato, Queretaro, San Luis Potosi, Nuevo Leon, Ciudad Juarez and Chihuahua. Regarding our real-estate offering, we are growing between 50,000m2 and 70,000m2 in leased area per year, mainly in Guadalajara, Queretaro, Ciudad Juarez, Monterrey and Chihuahua. We are closing between 10 and 12 projects per year and we expect to maintain this level of growth in 2018. Last year was challenging but we expect for more certainty from 2Q18 to the end of the year. Regardless, we know projects cannot be stopped despite the uncertainty originated in the ongoing political-commercial environment.
Q: In which regions does American Industries expect to experience the most growth?
A: Markets that are not too dependent on the automotive industry will not be so sensitive to the uncertainty stemming from NAFTA renegotiations. As a result, we expect more significant growth in regions such as northern Mexico and areas with greater diversification in the electronics or aerospace industries, such as Queretaro, Chihuahua, Ciudad Juarez and Guadalajara. In comparison, states with a greater exposure to the automotive sector, such as Guanajuato, San Luis Potosi or Aguascalientes, will likely see slower development due to this uncertainty. At the moment, between 30 and 35 percent of our operations are related to the automotive industry but despite the uncertainty regarding trade, we will not change our long-term expectations for the industry.
Q: How will American Industries’ shelter services be affected by the NAFTA talks?
A: Putting commercial rules to the test opens the door for doubts regarding the viability of projects in Mexico. In this situation two processes take place. One, there are definitions that reduce uncertainty. Two the companies that choose to bet despite uncertainty will become the winners.
Tariff levels for exports if NAFTA falls through are important for any company planning a new project in Mexico. If NAFTA were scrapped, we would fall into a WTO scheme resulting in export tariffs of 3 percent on average. Exchange rate volatility is already casting doubt on the continuity of NAFTA but eventually, tariffs would be compensated by the currency exchange rate. The peso has devaluated against the dollar 8 percent against a potential tariff of 3 percent. This means the lack of competitiveness due to the end of NAFTA would be diminished by an improvement in exchange rate conditions.
Q: What should real-estate developers and shelters prioritize to promote investment in Mexico?
A: Having the most updated and accurate information is key to helping companies make a strategic projection of their costs in Mexico. American Industries has a Site Selection service where the company offers potential investors a cost-modeling service that measures the feasibility of their business in Mexico. Depending on the industry, one region may be better than another. For the automotive industry it varies.
The most important factors to consider when identifying a new investment site are location of clients and suppliers, cost and availability of labor. These vary from region to region, generate variations in our costs modeling and impact projects depending on where companies choose to install their operations. The north, for example, was ideal for the production of harnesses 30 years ago but as labor costs rose, many harness companies started looking for locations in central and southern Mexico and in more remote northern areas. In this sense, companies that need more specialized labor and can pay higher salaries may be better placed in a city with a more expensive labor market that suits their specialization needs.