Mexico City: A Renters’ Commercial MarketBy Cinthya Alaniz Salazar | Tue, 11/09/2021 - 15:32
You can watch the video of this presentation here.
Commercial office spaces remain largely unoccupied in Latin America, a trend that will only grow as pre-pandemic development projects are completed. "The over-supply in the commercial rental market has allowed renters to emerge as unequivocal winners but places owners at a growing disadvantage." said Pedro Azcue, CEO of JLL Mexico.
Of Mexico City’s almost 7.5 million m2 of commercial office space inventory, roughly 1.8 million m2 remains available, concentrated mainly in Santa Fe with 22 percent, followed by Polanco with 15 percent and Insurgentes Sur with 12 percent of the total market.
Within the available market approximately 43 percent of the spaces are air conditioned, a deliberate choice from companies who looked to cut costs from their bottom lines. This choice has worked at the detriment of office buildings inaugurated between January and September 2021, which had to offer their spaces at the same cost as spaces without this amenity. Yet, some have held out and currently represent 8 percent of the total available market. On top this, their added presence in the already saturated market has increased commercial market availability by 25 percent in just a year; coinciding exactly in the submarkets where there is presently most commercial space availability.
Demand, on the other hand, only increased by 245,739 m2 and about 30 percent of market activity was derived from preexisting contracts. If the hybrid work model takes hold, companies would be further incentivized to scale down their office spaces. In a comparative analysis over the past decade, it became evident that the demand for commercial spaces is cyclical in Mexico, reaching 556,846 m2 in 2014 only to backslide the next year before climbing back to 600,334 m2 in 2016. There was a definitive peak in 2018 with a demand increasing to 646,244 m2 before dropping to the current 245,739 m2.
The pressing question for property owners is: will market demand rebound as it has in the past or should they start formulating an exit strategy now? So far, in the post pandemic economy, the numbers don’t look too great. In all but one submarket region, occupation of office spaces has decreased, most saliently in Santa Fe with a negative 70,944 m2.
Irrespectively, there are more development projects underway, which are estimated to add an additional 710, 019 m2 during the next few years. These are concentrated mainly in Reforma, Insurgentes and Polanco. In addition, there are dozens of other proposed projects on the pipeline that are expected to add a further 1 million m2 of commercial office space in Reforma and Santa Fe.