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Recent Study: Mexico Real Estate Report Q1 2014

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2013-12-11 09:07:55 - New Business research report from Business Monitor International is now available from Fast Market Research

We are forecasting Mexico's commercial real estate industry to show a consistent, yet unremarkable performance over 2013, with rental rates across all sub-sectors expected to remain flat as the standoff between the market's long-term potential and macroeconomic headwinds continues. The country has one of the most stable growth outlooks in the region, and an operating environment which is seeing tangible improvements and rising longer-term prospects. Nevertheless, the poor financial condition of many of the country's residential developers is a threat. As such, we are forecasting growth to remain flat in the sector in 2014, with the only obvious signs of growth coming in both the office and retail real estate sectors in Tijuana.

A turnaround in fortunes during the second and

third quarters of 2013 means Mexico remains in third place in our Real Estate and Construction Risk/Reward Ratings (RRRs) for Latin America as of October 2013. It maintains a score of 66.7 out of 100. While the country is not likely to surpass Chile or Brazil in the pecking order any time soon, this represents an improvement in the rankings from 65.7 as recently as April 2013.

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Mexico's construction sector benefits from a well established local industry. However, a number of larger international players also have operations in the country, especially the Spanish companies that have made a name for themselves in the energy and utilities sector. Mexico scores moderately for Industry Risks, with 63.3 as of the end of October 2013, the lowest in the region for this indicator - albeit a rating which has improved from 60.0 as recently as April 2013.

To the detriment of the near-term growth of Mexico's real estate sector, the macroecnomic backdrop in Mexico is not as strong as it once was. BMI recently revised down its 2013 real GDP growth forecast for the country from 2.3% to 1.6%, due to a weaker-than-expected performance by the manufacturing and construction sectors in recent months. However, we forecast an acceleration in growth in 2014 to 3.3%, driven by an improvement in private consumption and investment in light of the government's ongoing reform drive and stronger US demand.

Our in-country interviews and data confirm the market sentiment that commercial rental growth in Mexico had been fairly stable over recent years, particularly in the office and industrial sub-sectors. Minimal growth in rents is expected in 2013, amid a continued slowdown in the US that has increased caution among international investors. Nevertheless, we maintain an overall positive long-term view about the potential of the commercial real estate sector in Mexico.

Recent Developments

* In November 2013 it was announced that Macquarie Mexican REIT (MMREIT) had finalised the acquisition of two properties from companies controlled by Fondo Comercial Mexicano in a deal valued at US$153mn. The properties, Coacalco Power Centre and Tecamac Power Centre, are located in the Mexico City Metropolitan Area and have a combined gross leasable area of 134,246 square metres. The properties have an occupancy rate of 98.7%. MMREIT said it expects the portfolio to generate around US $12.8mn in net operating income and US$7.1mn of funds from operations in 2014.
* In October 2013, US real estate firm DCT Industrial Trust announced that it had sold its portfolio of industrial properties in Mexico. The portfolio of all the firm's 15 properties in the country consists of occupied space in five states. They were sold to a trust belonging to MMREIT for US$82.7mn and will allow DCT to focus on the US market. The acquired properties have a gross leasable area of 1.65mn square feet, and are spread across the Monterrey, Guadalajara, Tijuana, San Luis Potosi and Queretaro regions
* During the same month, it was announced that US real estate firm Clarion Partners was planning to offload a portfolio of Mexico-based industrial properties to Mexican real estate investment trust FIBRA Uno. The portfolio, valued at US$202mn, includes 22 buildings, and four land reserves covering 67 acres. In addition, Clarion's local joint venture partner Grupo Garza Ponce will contribute a further six properties to the transaction, bringing the overall value of the deal to US$275mn. The portfolio has a 91% occupancy rate, accounted for by 19 tenants, and is spread across the Monterrey, Saltillo, Reynosa, Ciudad Juarez and San Luis Potosi regions.
* Mexico's largest house builder, Desarrolladora Homex, posted a MXN10.1bn (US$796mn) loss in Q213. This was due to a sharp decline in sales and the company taking a MXN5.3bn (US$415.7mn) loss on construction and land projects. The Mexican government has moved development subsidies from urban areas to cheaper high rise urban projects, leaving Homex and other developers to pay off debt on land purchased in outlying areas. The Q2 loss is in stark contrast to the MXN568mn (US$44.6mn) Homex made in 2012.

Key BMI Forecasts

* Mexico's construction sector is in a period of readjustment as it feels the delayed impact of the change in government. Data for Q113 has been weak. We recently revised down our 2013 real GDP growth forecast for the country, from 2.3% to 1.6%, due to a weaker-than-expected performance by the manufacturing and construction sectors in recent months. However, we forecast an acceleration in growth in 2014 to 3.3%, driven by an improvement in private consumption and investment in light of the government's ongoing reform drive and stronger US demand.

About Business Monitor International

Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at

About Fast Market Research

Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.

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Bill Thompson
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