INDUSTRIAL | TIJUANA | Q3 2018

1 CONTENT

INTRODUCTION Economic Outlook ______3 Industrial Overview ______4

INDUSTRIAL MAP BY SUBMARKETS Tijuana ______5

SUPPLY Inventory ______6 Vacancy ______7 New Projects ______9

MARKET CYCLE ______10

DEMAND Industrial Buildings Transactions ______11

ABSORPTION Absorption and Vacancy ______12

PRICES Lease prices for class A and B buildings ______13

MARKET ACTIVITY Tijuana Industrial Market Activity Q3 2018 ______14

GLOSSARY ______15

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 2 ECONOMIC OUTLOOK

The third quarter of 2018 witnessed the agreement reached between United States, Mexico and Canada on the USMCA deal, formerly the North America Free Trade Agrement (NAFTA). Moreover, the NAFTA uncertainty raised from the negotiation stage seems to have vanished; expectations on the new USMCA show signs of being positive for industries such as E-commerce and Telecommunications. On the other hand, inflation had a slightly increased on September in anual variation (5.02%) compared to the last month of the 2T2018 (4.65%). Mexico City’s airport cancellation, unofficial vote on public projects, among other things, put upward pressure on inflation and exchange rate. On monterary policy, the Central Bank of Mexico decided to raise interest rate in their last committee meeting (8%). Finally, Andres Manuel Lopez Obrador assumes the presidency on December 1st.

The economic activity had a significant contraction during the Q22018. On the industrial sector, data reported a contraction on construction and mining, meanwhile the manufacturing sector showed upward movements. Construction activity contractioned during the Q22018 on the north, north-center and south regions of Mexico; public and private work on infrastructure performed poorly on the north and south regions. However, the south region continued an upward trend on private construction projects.

Source: Colliers International Monterrey

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 3 INDUSTRIAL OVERVIEW

KEY TAKEAWAYS:

• At the end of the third quarter of 2018, in Tijuana’s industrial real estate market—which consists of ten Q3 2018 industrial submarkets—we have monitored 891 industrial properties (over 21,500 sf), totaling 72,977,916 sf.

• During the second quarter of 2018, the vacancy rate in Class A and B buildings closed at 2.30%.

• Within the Class A properties, there are four industrial buildings under construction, which sum 369,778 sf, which will be incorporated into the Source: Colliers International inventory during the year and in the first quarter of 2019.

• Class A buildings asking rental rates were from $4.79 to $ 6.60 USD/sf/year, and for Class B asking rental rates oscillated between $3.60 to $ 5.15 USD/sf/year, within the ten submarkets.

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 4 TIJUANA INDUSTRIAL MAP

Source: Colliers International

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 5 INVENTORY

At the end of the third quarter of the year, Tijuana’s industrial real estate market ended up with 891 industrial facilities (over 21,500 sf). The final inventory closed with 72,977,916 sf. In terms of classes, 26% represent Class A industrial buildings and Class B represent 74% of the total inventory.

Graph 1. Inventory and Historical Growth Figure 1. Inventory per Class (sf) Q3 2018 Q3 2017 – Q3 2018 (sf) 73,000,000 Inventary Increase 72,000,000

71,000,000 26% A

70,000,000

69,000,000 B

68,000,000 74%

67,000,000 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2019

Source: Colliers International Source: Colliers International

Figure 2. Distribution of Industrial Facilities by Submarket Q3 2018 Table 3. Final Inventory Q3 2017 vs Q3 2018 1.28% Year Buildings SF 0.91% 1.44% Centenario Q32017 875 70'745,336 La Presa 4.02% Q3 2018 891 72’977,983 La Mesa 7.26% Source: Colliers International 29.58% Cerro Colorado Comparing the Q3 2018 inventory with Sánchez Taboada 11.96% respect to the same quarter of the previous San Antonio year, this was increased by 2’232,647 m². Mesa de Otay 12.29% Centro 18.03% Playas 13.24% Cuero de Venados

Source: Colliers International

Table 4. New Buildings Q3 2018

DEVELOPER INDUSTRIAL ZONE SUBMARKET CLASS SF Roca Desarrollos Parque Industrial Roca Tijuana Centenario A 134,936 Vesta Vesta Park Lagoeste La Presa A 60,041 Vesta Vesta Park Lagoeste La Presa A 72,054 ATISA Parque Industrial Pacifico Sanchez Taboada A 28,686

Total 295,717

Source: Colliers International

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 6 VACANCY

The vacancy rate at the end of the third quarter of Figure 3. Vacancy Rate per Class (Q3 2018) 2018 closed at 2.30%.

From the total available space, 30% corresponds to Class A facilities and 70% to Class B, giving a total 30% Clase A of 1’678,861 sf of available space.

Clase B 70%

Source: Colliers International

Graph 2. Inventory and Vacancy Rate in Buildings Class A Q3 2017 – Q3 2018

73,000,000 2.40% Inventory Growth Vacancy Rate 2.30% 72,500,000 2.20% 72,000,000 1.90% 2.00% 71,500,000 1.70% 1.80% 71,000,000 1.50% 1.60% 70,500,000 1.40% 1.40% 70,000,000

69,500,000 1.20%

69,000,000 1.00% 3T 2017 4T 2017 1T 2018 2T 2018 3T 2018 Source: Colliers International

Figure 4. Vacancy Rate by Submarket Q3 2018

Centenario 4% 2% La Presa 11% San Antonio 24% 11% Cerro Colorado

Sánchez Taboada 16% Mesa de Otay

Centro 32% Cuero de Venados

Source: Colliers International

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 7 VACANCY

Graph 3. Historical Availability by Submarket (Q3 2017 – Q3 2018) 600,000 3Q2018 4Q 2017 1Q 2018 2Q 2018 3Q 2018 500,000

400,000

300,000

200,000

100,000

0 Centenario Centro Cerro La Mesa La Presa Mesa de San Antonio Sánchez Cuero de Colorado Otay Taboada Venados Source: Colliers International

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 8 TOTAL 34,354 NEW PROJECTS

At the end of the third quarter of 2018, there were four industrial facilities (Class A) under construction. This will increase approximately 369,778 sf to the final inventory.

Table 5. Industrial Facilities Under Construction Q3 2018

Location Class Submarket Development Sf Finish Project type Sánchez November Parque Industrial Pacifico A ATISA 86,423 Speculative Taboada 2018 March Parque Industrial Valle Bonito A La Presa IAMSA 110,222 Speculative 2019 Parque Industrial Thomas Alba Cuero ARTHA March BTS A 81,500 Edison de Venados Capital 2019 (PepsiCo) March BTS Ciudad Industrial A Centenario VESTA 91,633 2019 (Smurfit Kappa)

TOTAL 369,778

Source: Colliers International

Graph 4. Inventory vs Construction Class A Q3 2018

8,000,000 Inventory Class A In Construccion 7,000,000

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

- Centenario La Presa Sánchez Taboada

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 9 MARKET CYCLE

Tijuana's industrial market continues to expand. The industrial inventory has maintained a constant growth. In this quarter there was an increase in the inventory of 27,473 m2. It is expected that during the fourth quarter of 2018 and by the end of the first quarter of 2019, industrial buildings will continue to be included in the inventory. During this quarter there was an increase in availability. Closing at 2.30% increasing 0.40% compared to the previous quarter, this is mainly due to the incorporation of new buildings into the inventory. Despite this, the industrial market of Tijuana is expanding, changes in the future term are based on the construction of specific buildings.

Source: Colliers International

Source: Colliers International

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 10 INDUSTRIAL BUILDING TRANSACTIONS

The highest positive market activity during the third quarter of 2018 was monitored in the La Presa, Centenaro, and Sanchez Taboada submarkets.

Graph 5. Market Activity by Submarket Q3 2018 (sf)

350,000.00 Less Vacant 300,000.00

250,000.00

200,000.00

150,000.00

100,000.00

50,000.00

-

(50,000.00)

(100,000.00) Centenario La Mesa La Presa San Anotnio de los Sanchez Taboada Buenos

Source: Colliers International

Graph 6. Historical Vacancy and Occupancy in Industrial Facilities Q3 2017 – Q3 2018 (sf)

1,000,000 Less Vacant 800,000

600,000

400,000

200,000

0

-200,000

-400,000 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2019

Source: Colliers International

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 11 NET ABSORPTION

Net absorption for the third quarter of 2018 was 468,947 sf, broken out into 597,280 sf leased and (-) 128,333 sf vacant.

Graph 7. Net Absorption Q3 2017 – Q3 2018 (sf)

900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0 Q2Q3 2017 Q3Q4 2017 Q4Q1 2018 Q1Q2 2018 Q2Q3 2019

Source: Colliers International

Table 6. Industrial Transactions Q3 2018

COMPANY sf SECTOR TRANSACTION INDUSTRIAL PARK DEVELOPMENT

Jacuzzi 132,101 Resins USA Vesta Lagoeste Industrial Park VESTA

Smurfit Kappa 91,635 Corrugado USA Ciudad Industrial VESTA AG Industries 84,073 Medic USA Vesta Lagoeste Industrial Park VESTA Parque Industrial Thomas Alba ARTHA Joint Production 81,500 ND ND Edison Capital MAXON 72,062 Automotive USA Vesta Lagoeste Industrial Park VESTA NYPRO HEALTHCARE 65,000 Medic USA FINSA Alamar Industrial. FINSA Recolectora y Recicladora de 49,351 Recycler China Morelos Industrial Park VESTA Ensenada

Envases Universales 48,795 Packaging Mexico Girasol Industrial Park FIMHER

Source: Colliers International

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 12 LEASE

Asking rental rates ranged between $4.79 to $6.60 USD/sf/year for Class A industrial facilities. On the other side, for industrial facilities Class B, asking rental rates are oscillating between $3.60 to $5.15 USD/sf/year.

Graph 8. Asking Rental Rates for Industrial Facilities Class A Q3 2018 (USD/sf/year)

$7.00 $6.60

$6.00 $5.75 $5.75 $5.75 $5.00 $4.79 $4.79 $4.00

$3.00

$2.00

$1.00

$0.00 Centenario Cerro Colorado La Presa

Source: Colliers International

Graph 9. Asking Rental Rates for Industrial Facilities Class B Q3 2018 (USD/sf/year)

$6.00 $5.04 $5.15 $5.04 $4.79 $5.00 $4.79 $5.04 $5.04 $4.68 $3.84 $4.67 $4.00 $4.19 $3.60 $3.00

$2.00

$1.00

$0.00 Centenario Centro Cerro Colorado Mesa de Otay San Antonio Sanchez Taboada

Source: Colliers International

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 13 INDUSTRIAL MARKET ACTIVITY Q3 2018

WEIGHTED ANALYZED TOTAL AVAILABLE AVAILABLE % QUARTERLY AVERAGE PRICE RANGE SUBMARKET CLASS AVERAGE PROPERTIES MARKET PROPERTIES SPACE sf CURRENT PRICE MIN. MAX. A 124 18,811,009 8 937,181 5.00% $5.66 $4.79 $6.60 TOTAL B 767 54,166,907 13 741,680 1.40% $4.61 $3.60 $5.15 Total 891 72,977,916 21 1,678,861 2.30% $4.97 $4.90 $5.18 A 43 6,919,131 1 134,936 2.00% $5.75 $5.75 $5.75 CENTENARIO B 221 14,664,930 2 42,668 0.30% $4.39 $4.19 $4.79 Total 264 21,584,061 3 177,605 0.80% $5.07 $4.97 $5.27 A 0 0 0 0 0.00% 0 0 0 CENTRO B 16 666,766 2 69,865 10.50% $5.04 $5.04 $5.04 Total 16 666,766 2 69,865 10.50% $5.04 $5.04 $5.04

CERRO A 6 535,170 1 1,951 0.00% 4 4 4 COLORADO B 108 8,434,809 3 161,982 1.90% $4.75 $4.68 $4.79 114 8,969,979 4 182,983 2.00% $4.77 $4.74 $4.79 A 0 0 0 0 0.00% 0 0 0 LA MESA B 174 9,659,537 0 0 0.00% 0 0 0 Total 174 9,659,537 0 0 0.00% 0 0 0 A 39 7,030,890 4 530,603 7.50% $5.94 $5.75 $6.60 LA PRESA B 60 6,123,611 0 0 0.00% 0 0 0 Total 99 13,154,500 4 530,603 4.00% $5.94 $5.75 $6.60

MESA DE A 0 0 0 0 0.00% 0 0 0 OTAY B 34 2,935,955 1 35,004 1.20% $5.04 $5.04 $5.04 Total 34 2,935,955 1 35,004 1.20% $5.04 $5.04 $5.04 A 9 73,815 0 0 0.00% 0 0 0 PLAYAS B 3 139,436 0 0 0.00% 0 0 0 Total 12 933,977 0 0 0.00% 0 0 0 A 10 1,146,645 0 0 0.00% 0 0 0 SAN ANTONIO B 63 4,152,469 2 273,457 6.60% $3.64 $3.60 $3.84 Total 73 5,299,114 2 273,457 5.20% $3.64 $3.60 $3.84

SANCHEZ A 11 1,335,257 2 23,285 0.00% 5 5 5 TABOADA B 88 7,389,394 3 158,703 2.10% $4.94 $4.67 $5.15 Total 99 8,724,651 5 409,345 4.70% $5.11 $4.97 $5.27

CUERO DE A 6 1,049,375 0 0 0.00% 0 0 0 VENADOS B 0 0 0 0 0.00% 0 0 0 Total 6 1,049,375 0 0 0.00% 0 0 0 Source: Colliers International

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 14 GLOSSARY

MARKET.- In the specific case of the industrial real estate market are warehouses, industrial buildings and land with industrial land use. SUBMARKET.- Area bounded by one or more colonies, as well as avenues that have one sufficient amount of industrial spaces that can be commercialized. INVENTORY.- It is the entire completed property (measured in square meters) in the main sub-markets, excluding those under construction or in project stage. VACANCY.- Total spaces in square feet that are offered on the market for sale or rent at any given time. DEMAND.- Measured in square feet showing the total number of spaces that were marketed during a certain period. VACANCY RATE.- It represents the percentage of available space in a market. This indicator is obtained by dividing the total available square feet between the total of the inventory. NET ABSORPTION.- It is the change in the number of square feet of space occupied during a specific period. This indicator shows the total number of square feet which were occupied or unoccupied. If the result is negative the oversupply of spaces available in the market, due to the incorporation of new spaces or the vacating of properties it represents. SUBLEASE.- Is a modality through which the lessee of a space is offered for rent by the end of the lease to a third party. It can offer full or partial space. CLASS.- Classification or degree received a building based on the features that distinguishes it from others. In the industrial market are classified as A and B. INDUSTRIAL BUILDING.- Building designed to industrial activities for manufacturing, transformation, assemble, industrial processes, storage, logistic and distribution. WAREHOUSE.- It is a building designed and built for industrial storage and distribution activities. INDUSTRIAL LAND.- It is an area generally bounded within a park or industrial zone designated for the installation or construction of an industrial building. INDUSTRIAL PARK .- It is geographically bounded and surface specially designed for the settlement of various industrial properties. It has the infrastructure and features suitable for industrial processes and transport, as well as equipment and services specific to your operation. BTS (BUILT TO SUIT).- Developments made for a client specific with characteristics suitable to the needs of the same operation. SPECULATIVE.- Industrial development built based on standard features to meet the operational needs of different customers. WEIGHTED AVERAGE PRICE.- The number of square meters of the property by the total available meters runner splits available, obtaining the percentage of availability of the property. This percentage is multiplied by the price of the property and the weighted price is obtained. Finally the weighted prices of all properties are added, thus obtaining the weighted average price of each runner.

Q3 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 15 Sergio Resendez Managing Director Northern Mexico | [email protected]

Arq. Jorge Altamirano Lic. Lucino Urrea Director Tijuana Market Research Analyist [email protected] [email protected]

Colliers International | Tijuana Fco. Javier Mina 1551-2001 Zona Urbana Rio Tijuana, Baja California, México 22010 Tel: +52 (664) 684-2434

This document has been prepared by Colliers International and is informative. The information has been provided by reliable sources and is presented in the exact form in which it was received. Sources include associations and real estate councils, as well as government agencies, among others. Colliers International does not guarantee nor is responsible for the veracity of the information presented; any interested party shall be responsible for its own investigation into the accuracy of the information. Colliers International excludes any and all deduced or implied terms, conditions and warranties that may arise with regard to this document and excludes all liability for damages that may arise. This report and other research papers can be found on our website www.colliers.com/en-us/tijuana

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