Mexico’s economic relations with the US have flourished since the enactment of the North American Free Trade Agreement in 1994, which aimed to decrease trading expenses and surge real estate investment between the two countries. This has created a more competitive environment for their products compared to export-driven countries like the EU and China.
The relationship was strengthened with the execution of the United States-Mexico-Canada Agreement (USMCA) in 2020. The USMCA provides better intellectual property security, free market assurances, and lower trade costs between the two nations.
NAFTA created a symbiotic relation between the U.S. and Mexico, leading to increased U.S. investment in Mexico and making it the largest U.S. trading partner by 2019. The U.S./Mexico trade relationship supports nearly 5 million United States jobs, with California, Texas, and Florida having the highest exposure. Mexican migrants in the United States send over $40 billion in payment to Mexico annually, while Mexico is one of the most renowned tourist locations for the United States people and home to 1.5 million United States expatriates.
Major demand drivers in Real Estate
Why invest in Mexico’s real estate market post Covid? Mexico has recently emerged as a new front-line for property investment due to several matured demand drivers, making it an appealing setting for investment.
Reshoring production and reducing supply chains
As supply chain reliability becomes increasingly important, multinational companies are showing greater interest in bringing their manufacturing and supplies back to their home country or nearby.
While historically, Asia’s cheap labor made it difficult for North American companies to reshore, Mexico’s labor costs are now 25.8% lower than China’s. Combined with rising geopolitical tensions, tariffs, and COVID-19-related supply chain disruptions, many manufacturers and suppliers are shortening their supply chains and moving their manufacturing closer to home.
Mexico offers many advantages, such as proximity to the United States, top-notch labor force, reduced land expenses, a more favorable law system, and quicker speed to market. Additionally, 40% of the product in United States imports from Mexico is sourced from the US, compared to just 4 cents returned for every dollar spent on Chinese imports. This has led to significant reshoring activity, with nearly 70 lease transactions since 2019, representing 7.9 million square feet of gross absorption in Mexico.
High demand for quality industrial real estate Mexico
The move towards reshoring is having a significant impact on Mexico and North America, with a surge in demand for high-quality industrial real estate investment. As companies recognize the added costs and risks of long supply chains, they are increasingly factoring in the “total cost of ownership” when making sourcing decisions. Reshoring allows for a profitable transfer of a significant portion of overseas imports closer to home, while also enhancing self-reliance in crucial industries such as defense, pharmaceuticals, and personal protective equipment.
Diversified economic perspective in Mexico
Mexico’s government has been wise in allocating funds towards vital industries such as oil manufacture, travel and tourism, and production. This, along with other factors, has contributed to Mexico’s thriving economy. Since the end of the global fiscal crisis in 2009 until March 2020, Mexico’s GDP growth has averaged almost 3 percent, and the 2021 prediction predicts a 5.5% rise. As a result of this steady expansion, Mexico’s economy has become more stable and less prone to the fluctuations typically associated with developing nations.
Investing in Mexico’s industrial sector has a promising potential for high rewards, given the healthy demand drivers and long-term growth potential of the country’s real estate investment market. As Mexico shifts from an emerging market to a developed economy, the benefits of investment efforts are likely to be significant.