MARKET REPORT TIJUANA

Q4 2018

INDUSTRIAL

1 CONTENT

INTRODUCTION Macroeconomic Indicators ______3 Economic Outlook ______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 Q4 2018 ______14

GLOSSARY______15

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 2 MACROECONOMIC INDICATORS

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 4 ECONOMIC OUTLOOK NATIONAL 2018 was a year of uncertainty. The renegotiation of the Free Trade Agreement (USMCA), the tariffs imposed by the US government on various countries, the presidential elections in Mexico, migrant caravans, among others, put the investors on pause. However, the end of the year stood out for the return of negotiations. For 2019, specialists consulted by the Bank of Mexico (Banxico) reduced their forecast for economic growth next year to 1.89% against 1.97% presented previously, detailing that the main factors that could hinder the growth of the country are: internal political uncertainty, problems of public insecurity, lack of rule of law, uncertainty about the domestic economic situation and the oil production platform. They forecast a more expensive dollar and raised it from 20.34 to 20.70 pesos. Even so, it is estimated that the available inventories will be absorbed and, in the face of economic growth, the rates in the banks will have to return to previous levels, they will fall and in doing so, they will motivate the arrival of investments of plants and industries from other countries to produce what is no longer possible in their places of origin due to lack of human resources.

REGIONAL The government of President Andrés Manuel López Obrador has taken a series of actions that show the relevant role that the northern border strip will have in its policies for the development of the Mexican economy. The Free Zone Program of the northern border of Mexico seeks to attract investment to the region with the reduction of VAT from 16% to 8% and of ISR from 30% to 20% for two years. In addition to homologate the costs of gasoline, electricity, diesel and gas to reduce the gap between the price of energy between the two countries, the goal is to attract investment to the region that has an export platform and important links to the rest of the Mexican economy. On the other hand, investors from China have shown interest in the northern zone of Mexico as an option to settle in the face of tension they are experiencing with the US, as they seek to benefit from the USMCA and through this to carry out their exports. It is estimated that the logistics, electronic commerce and manufacturing industries will require new spaces. LOCAL At the end of the fourth quarter of 2018, in Tijuana’s industrial real estate market—which consists of ten industrial submarkets—we have monitored 898 industrial Q3 2018 Q4 2018 properties (over 21,500 sf), totaling 73,596,160 sf. During the fourth quarter of 2018, the vacancy rate in Class A and B buildings closed at 1.60%. Within the Class A properties, there are ten industrial buildings under construction, which sum 750,051 sf, which will be incorporated into the inventory during the first half of the year. Class A buildings asking rental rates were from $5.40 to $ 6.60 USD/sf/year, and for Class B asking rental rates oscillated between $3.60 to $ 5.52 USD/sf/year, within the ten submarkets.

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 4 TIJUANA INDUSTRIAL MAP

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 5 INVENTORY At the end of the fourth quarter of the year, Tijuana’s industrial real estate market ended up with 898 industrial facilities (over 21,500 sf). The final inventory closed with 73’596,160 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 Q4 2018 (sf) Q4 2017 – Q4 2018 (sf) 73,000,000 Inventory Growth 72,000,000

71,000,000 26%

70,000,000 A

69,000,000 74% B 68,000,000

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

Source: Colliers International Source: Colliers International

Figure 2. Distribution of Industrial Facilities by Submarket Q4 2018 Table 1. Final Inventory Q4 2017 vs Q4 2018 Source: Colliers International Year Buildings sf 1.27% Q42017 879 71’100,730 0.91% 1.43% Q4 2018 898 73’596,160 3.99% Source: Colliers International 7.21% 29.49% In Table 1 we can see a comparison between the Q4 2018 inventory with respect to the same 11.95% quarter of the previous year where 2’495,430 sf of new space were added to the market.

12.34% Centenario La Presa La Mesa

18.27% Cerro Colorado Sánchez Taboada San Antonio 13.14% Mesa de Otay Centro Playas

Cuero de Venados

Table 2. New Buildings Q4 2018

DEVELOPER INDUSTRIAL ZONE SUBMARKET CLASS sf ATISA Pacifico Industrtial Park Sanchez Taboada A 56,371 ATISA Pacifico Industrtial Park Sanchez Taboada A 86,354

IAMSA VIE VERTE Industrial Park La Presa A 103,334 Total 246,059

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 6 VACANCY

The vacancy rate at the end of the fourth quarter of 2018 closed at 1.60%.

Class A vacancy closed at 3.8% while class B closed at 0.8%. From the total available space, 30% corresponds to Class A facilities and 70% to Class B, giving a total of 1’202,220 sf of available space.

Figure 3. Vacancy Rate per Class (Q4 2018) Figure 4. Vacancy Rate by Submarket Q4 2018

Source: Colliers International Source: Colliers International

3% 6% 12% 3% 30% 17%

25% 70%

34%

Class A Class B Centenario La Presa San Antonio Cerro Colorado Sánchez Taboada Mesa de Otay Centro Cuero de Venados

Graph 2. Inventory and Vacancy Rate in Buildings Class A Q4 2017 – Q4 2018

74,000,000 2.4% InventarioInventory Final IncrementoGrowth TasaVacancy de DisponibilidadRate 2.3% 73,500,000 2.2%

73,000,000 2.0% 72,500,000 1.9% 1.8% 72,000,000 2% 1.6% 71,500,000 1.6% 1.4% 1.4% 71,000,000

70,500,000 1.2%

70,000,000 1.0% Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 7 VACANCY

Graph 3. Historical Availability by Submarket (Q4 2017 – Q4 2018)

600,000 Q4 2017 Q1 2018 Q2 2018 Q3 2019 Q4 2018 500,000

400,000

300,000

200,000

100,000

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

Source: Colliers International

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 8 TOTAL 34,354 NEW PROJECTS

At the end of the fourth quarter of 2018, there were 10 industrial facilities (Class A) under construction. This will increase approximately 750,048 sf the final inventory.

Table 2. Industrial Facilities Under Construction Q4 2018

Location Class Submarket Developer sf Finish Date Project Type

Valle Bonito Industrial Park A La Presa IAMSA 110,222 March 2019 Speculative BTS La Encantada Florido Industrial Park A La Presa ARTHA Capital 77,758 March 2019 (PepsiCo) BTS Ciudad Industrial A Centenario VESTA 91,633 March 2019 (Smurfit Kappa) Parque Sur A La Presa Via Capital 44,993 April 2019 Speculative BTS La Encantada Florido Industrial Park A La Presa Grupo Cadena 32,550 April 2019 (Mexfiber) La Encantada Florido Industrial Park A La Presa Grupo Cadena 70,794 May 2019 Speculative Sanchez Pacífico Industrial Park A Atisa 49,998 1T 2019 Speculative Taboada Sanchez Pacífico Industrial Park A Atisa 100,029 2T 2019 Speculative Taboada Sanchez Pacífico Industrial Park A Atisa 76,574 3T 2019 Speculative Taboada FINSA Alamar Industrial Park A Centenario FINSA 95,497 1T 2019 Speculative TOTAL 750,048

Source: Colliers International

Graph 4. Inventory vs Construction Class A Q4 2018 (sf)

Inventory Class A In Construccion 9,000,000

8,000,000

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 Source: Colliers International

Q4 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 246,064 sf. Currently, there are buildings under construction that will be incorporated into the inventory during the first half of 2019. During this quarter there was a decrease in availability closing at 1.60%, with a decrease of 0.70% compared to the previous quarter.

Source: Colliers International

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 10 INDUSTRIAL BUILDING TRANSACTIONS

The highest positive market activity during the fourth quarter of 2018 was monitored in the La Presa, Sanchez Taboada, Cerro Colorado and Centenaro submarkets. The rest of the submarkets did not have any activity or transactions during the same period of time.

Graph 5. Market Activity by Submarket Q4 2018 (sf) 500,000 Leased Vacant

400,000

300,000

200,000

100,000

-

(100,000) Centenario Cerro Colorado La Presa Sanchez Taboada

Source: Colliers International

Graph 6. Historical Vacancy and Occupancy in Industrial Facilities Q4 2017 – Q4 2018 (sf)

1,200,000 Leased Vacant 1,000,000

800,000

600,000

400,000

200,000

0

-200,000

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

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 11 ABSORPTION

Net absorption for the fourth quarter of 2018 was of 1’094,650 sf, broken out into 1’128,197 sf leased and (-) 33,547 sf becoming vacant.

Graph 7. Net Absorption Q4 2017 – Q4 2018 (sf)

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Source: Colliers International

Table 6. Industrial Transactions Q4 2018 COMPANY sf SECTOR TRANSACTION INDUSTRIAL PARK DEVELOPMENT Exemplis 19,602 Furniture USA Parque Industrial La Encantaca Florido Dialight 9,600 Electronic UK Parque Industrial Valle Bonito IAMSA Ricoh Baja 9,290 Electronic USA Parque Industrial El Aguila Tecma 8,872 Shelter USA Parque Industrial FINSA Alamar FINSA Shinil Mexicana 8,522 Electronic South Korea Parque Industrial Pacifico Prologis G.Global 8,022 Logistic Mexico Parque Industrial Pacifico ATISA PepsiCo 7,224 Food USA Parque Industrial La Encantada ARTHA Plastics / AOI Techno 6,110.00 Mexico Parque Industrial Girasol II FIMHER Metals Total Display Solution 5,837.05 Electronic USA Parque Industrial Los Potros Tecma 5236.94 Plastics USA Parque Industrial Pacifico ATISA GNC Supply 3,101.57 Plastics Mexico Parque Industrial El Aguila FIMHER Mexfiber 3,024.00 Mattresses Mexico Parque Industrial La Encantada G. Cadena Dynasty Golf 2807.8 Sports articles Thailand Parque Industrial Pacifico ATISA Estafeta 2,664.00 Packing Mexico Parque Industrial Garita de Otay

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 12 PRICES

Asking rental rates ranged between $5.40 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 $5.52 USD/sf/year.

Graph 8. Asking Rental Rates for Industrial Facilities Class A Q4 2018 (USD/sf/year)

$7.00 $6.60

$6.00 $5.75 $5.40

$5.00 $5.52 $5.40 $5.40

$4.00

$3.00

$2.00

$1.00

$0.00 Centenario La Presa Sanchez Taboada

Source: Colliers International

Graph 9. Asking Rental Rates for Industrial Facilities Class B Q4 2018 (USD/sf/year)

5.75 5.52 5.50

5.25 5.04 5.04 5.00 4.91 5.02 5.02 4.75 4.79 4.50 4.68

4.25

4.00 3.84

3.75

3.50 3.57 3.25 Centro Cerro Colorado Mesa de Otay San Antonio Sanchez Taboada

Source: Colliers International

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 13 INDUSTRIAL MARKET ACTIVITY Q4 2018

WEIGHTED ANALYZED TOTAL AVAILABLE AVAILABLE % QUARTERLY AVERAGE PRICE RANGE SUBMARKET CLASS AVERAGE PROPERTIES MARKET PROPERTIES SPACE sf CURRENT PRICE MIN. MAX. A 130 19,329,020 5 741,102 3.80% $5.64 $5.40 $6.60 TOTAL B 768 54,267,140 7 461,119 0.80% $4.60 $3.60 $5.52 Total 898 73,596,160 12 1,202,220 1.60% $5.05 $4.98 $5.22 A 44 7,014,628 1 134,936 1.90% $5.75 $5.75 $5.75 CENTENARIO B 221 14,664,930 0 0 0.00% 0 0 0 Total 265 21,679,558 1 134,936 0.60% $5.75 $5.75 $5.75 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 0 0 0.00% 0 0 0 COLORADO B 109 8,535,042 1 33,547 0.40% $5.52 $5.52 $5.52 115 9,070,212 1 33,547 0.40% $5.52 $5.52 $5.52 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 42 7,309,142 3 384,213 5.30% $5.77 $5.40 $6.60 LA PRESA B 60 6,123,611 0 0 0.00% 0 0 0 Total 102 13,432,753 3 384,213 2.90% $5.77 $5.40 $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 13 1,479,519 1 20,620 0.00% 5 5 5 TABOADA B 88 7,389,394 1 49,245 0.70% $4.67 $4.67 $4.67 Total 101 8,868,912 2 271,197 3.10% $5.03 $5.03 $5.03

CUERO DE A 6 1,049,375 0 0 0.00% 0 0 0 VENADOS B ND ND 0 0 0.00% 0 0 0 Total 6 1,049,375 0 741,102 3.80% $5.64 $5.40 $6.60

Source: Colliers International

Q4 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 submarkets, 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.

Q4 2018 | INDUSTRIAL MARKET REPORT | TIJUANA 15 Arq. Jorge Altamirano Director Tijuana [email protected] Lic. Lucino Urrea Market Research Analyst [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/tijuana