Industrial real estate activity is up in the El Paso/Juarez, Mexico metro area, indicating that the recession-driven slump, which had been intensified by reported violence on the border, has not deterred companies from making long-term commitments to the region. The increase in industrial leasing and sales, as well as improved employment statistics and increasing commercial truck crossing data are all positive signs for the future of the local industrial economy.
The industrial market in El Paso and Juarez totals 115 million square feet split between two countries and is an intersection of international manufacturing firms, global supply chains and the local economy. During the past 3 years both the global recession and security situation in Mexico have reverberated across the industrial market.
However, industrial leasing and sale activity is up on both sides of the border, with Juarez leading the way at 658,000 square feet of net absorption during the first 6 months of the year, and El Paso recording 264,000 square feet. However, El Paso was the first city to start the rebound in 2010 with almost 600,000 square feet of net industrial absorption in the second half of the year. Both markets have seen industrial vacancy levels recede from all time highs in 2010 as shown in the chart below.
In El Paso, demand has continued to be focused on the east side of town, driven by companies wanting to be close to the Zaragoza International Bridge. There remains a fair amount of vacancy in this part of town, but it is concentrated in a small handful of large distribution buildings that were vacated during the recession. Activity in Juarez has been across the city with the common factor in new absorption being companies expanding or relocating within the same submarket.
These statistics are reflective of growing industrial sector activity nationally as indicated in the Federal Reserve Bank of Dallas’ April 2011 Economic Update for El Paso. Increases in activity for March hovered around 10 percent annualized. In turn, Cd. Juarez maquiladoras payroll rose by an almost seven percent annualized rate during the same month, the benefits of which should be seen in the El Paso economy in the coming months.
In addition to the statistics pointing to an improving situation on both sides of the border, anecdotal evidence is also largely positive. Starting in the summer of 2010, CBRE’s industrial team began to see an increasing demand from warehouse and Third Party Logistics (3PL) firms. We have always seen activity from this sector as a leading indicator of market conditions, as it often reflects increasing industrial production levels. Contrary to the start of the last cycle in 2004, we saw activity in El Paso pick up before activity in Juarez. We believe this is a result of both revised logistics models and continued security concerns in Juarez.
Another positive indicator of renewed interest in Juarez is the number of manufacturing plants purchased in 2010 and 2011. Data shows 580,000 square feet of vacant second generation manufacturing plants were purchased by users in Juarez during the last 18 months. These were all expansions coming from the existing industrial base and do not include the 365,000 square feet of investment sales during the same time frame. We expect to see more user purchases in the second half of 2011.
Finally, one of the main components of area growth that has been missing during the past 3 years is high profile investment announcements. This changed rapidly in 2011 with announcements of increased production capacity in Juarez from Foxconn, Electrolux, Automotive Lighting, Plexus and Via Systems Group. These projects are expected to generate more than 1,400 new jobs and represent some of the largest manufacturing employers in the region.
— Christian Perez Giese is with CB Richard Ellis El Paso.