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Managing the Investment Perspective in Mexico’s Recovery

Enrique Lavin - PGIM Real Estate
Managing Director and Mexico Country Head


Tue, 02/01/2022 - 15:00

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Q: What is your general perspective on the various ways in which the Mexican real estate market has been reshaped by the pandemic?

A: I think we can clearly break it down into two groups. First and foremost, I would speak for our strategy and portfolio in the industrial and logistics asset class which has not only proven to be resilient to the pandemic, but is also providing interesting growth opportunities given the acceleration of the e-commerce penetration as well as the growing nearshoring trend. Regarding the latter, I would highlight that we are already seeing a number of companies relocating from Asia to Mexico, it is estimated that these companies currently account for 10 to 15 percent of the demand for industrial space in the country. Moreover, I would also highlight that while before the pandemic the major e-commerce players were already in Mexico catering to local consumption, more recently we have seen and engaged in development projects in border markets, such as those in Tijuana and Cd. Juarez, for e-commerce and 3PL players conducting exports to the U.S. 

Overall, Mexico’s industrial and logistics  inventory is expected to post stellar growth in 2021, with  55 to 60 million square feet of new space, with its corresponding absorption, so we remain bullish and with a keen focus on this asset class given strong fundamentals and favorable visibility.

Now that being said, the industrial sector contrasts sharply with other asset classes that may have a more challenging road ahead.  Retail, for example, was already struggling before the pandemic to compete with the growth of e-commerce and the digital economy. COVID-19 has greatly amplified this struggle and added other asset classes to the list of those having issues. Similarly, the office sector continues to have a number of unknowns, as it is still a big question mark what the new standard will be for big corporations regarding work-from-home vs return to the office. Lastly, and perhaps in the middle of the spectrum, hotels have been recovering steadily and have also demonstrated recent success, particularly in the leisure and high-end segments. Here in Mexico, we are seeing significant development activity as that segment has thrived in areas such as Los Cabos and the Mayan Riviera, which are globally renowned as tourist destinations and highly in favor amid steadily rising demand for vacation travel.

Q: How is the map of Mexico’s real estate development opportunities being redrawn by this new context?

A: There are some new opportunities out there. Clearly, secondary and tertiary markets with good demographics and favorable consumer patterns will represent attractive target locations for e-commerce and 3PL players. Candidates in this category include Merida and Puebla, among others. Further, the southeast region in Mexico is receiving significant attention and support from the current government administration, which in turn should also create opportunities for residential and business hotels development projects. Finally, I would highlight that markets in which water and electricity infrastructure is readily available, coupled with availability of labor, might be attractive for those companies nearshoring to Mexico in an expedited fashion seeking continuity in their operations, and/or the least disruptions in their supply chain. 

Q: What are your expectations regarding the ongoing transformation of the office space?

A: This is one of the pandemic’s defining questions and it continues to be an open question for the sector and investors like us, although our portfolio has no exposure to the office asset class. With that being said, companies are not following a clear overall trend when it comes to back-to-the-office directives. If anything, more and more companies are experimenting with hybrid modalities. This could either mean a willingness to embrace the flexibility of providing home offices to more employees, a transitional phase on the path to returning to full offices, or a path to permanent hybrid modalities and the corresponding reduction in demand for space. Until that curve is defined and reflected when renewing leases, no accurate predictions can reliably be made. There is also the question of incentives: companies that rent office space as opposed to those owning it are much more motivated to have their employees return in some sort of hybrid model that translates into less office space and ultimately into rent savings. Some investors might see this and think of it as a general trend, while others might see through this scheme and regard it as  temporary or not reflective of where the larger market is going.


PGIM, formerly Prudential Investment Management, is the asset management arm of American life insurance company Prudential Financial. Its real estate division manages fixed income, equity, alternatives and multi-asset channels.

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