Francisco Borrego
Director General
Grupo Inmobiliario CUBE
View from the Top

Guadalajara's Promising Real Estate Market

Thu, 11/01/2018 - 15:13

Q: Why is Grupo Inmobiliario CUBE focused on developing projects that are in between horizontal and vertical when most cities are leaning toward verticalization?
A: We want to be disruptive in the market according to what we believe the absorption rate will be. When we created Torre CUBE there was no vertical construction in the area. Ten years ago, it was impossible to find a quality office development in Guadalajara. Most companies worked from actual houses they rented as offices.
We then realized that the market was expanding quickly and we came across the land to build Distrito CUBE which consists of three towers, two of which would be six stories high and the other four. It was a good opportunity because the market in Guadalajara was still resistant to verticalization. This allowed us to introduce a townhouse-style of product into the market that was not completely a house nor an apartment. Millennials do not mind moving into vertical housing or offices, but for older couples, there is often a need to leave their large homes when their children leave home. However, the transition from a big living space to a smaller one is difficult for them. This is the reason we do not call it an apartment, but instead a home. The market has responded very well and we have already sold 60 percent of the homes.
Combining housing, commercial and other aspects of life into an integrated vertical development is a great way of densifying a city and improving the quality of life of its inhabitants. This is not yet happening on a large scale in Mexico. The city is making efforts to improve mobility throughout the city with projects such as Line 3 of the Guadalajara Light Train. The new line is far away from commercial or AAA products in the city, which is a problem. It is not so much in the hands of the developer, but there must be a 50-50 compromise between the public and private sectors to create better cities.
Q: What are the benefits and drawbacks of investing in Guadalajara?
A: The most attractive aspect of Guadalajara is its novelty. Because it is such a new market, there are many opportunities to take advantage of. The market is more receptive to new products and it is willing to pay for them. Guadalajara is a very complex market and has a certain peculiarity that is not found in other cities. Talking with directors of different industries in Guadalajara, they agree that if your business or product succeeds in Guadalajara, it can make it anywhere in Mexico. Land prices in the Guadalajara metropolitan area have grown rapidly along with the prices per m2 of apartments. Income in the Guadalajara metropolitan area, however, is not the same as in Mexico City and therefore we are having difficulty selling at higher prices. The people do not have the capacity to pay for it. Prices start at MX$30,000/m2, while high-end developers like Thor Urbana are selling at MX$60,000/m2. The risk for developing such expensive products in Mexico is very high, especially in terms of security. We have developed a program for our products that is called Safe Neighborhood where we carry out background studies on the people who purchase homes in our complexes and they must have recommendations. This boosts the safety of the neighborhood and makes our clients feel happier. Establishing such high prices can attract the wrong people, especially in a city like Guadalajara. A good price range is around MX$40,000-50,000/m2 but it should not rise greatly in the next few years.
Q: What is keeping international and national players from venturing into the metropolitan Guadalajara market?
A: International players are still wary of coming into Guadalajara because of its unique characteristics. Big corporates, for instance, mostly settle in Mexico City and Monterrey, with few venturing into Guadalajara. However, Grupo Sordo Madaleno’s Corporativo Andares project is one of the largest developments in the area at 36,000m2, and it houses some of the largest corporations in the country. It shifted all forecasts for the office market in the last year. The absorption rate of that project alone was the predicted absorption for the entire year in the market.