Mexico City Industrial Market Industrial Market: Current Conditions

RESEARCH 1Q 2019 MEXICO CITY INDUSTRIAL MARKET INDUSTRIAL MARKET: CURRENT CONDITIONS

SUCCESSFUL START OF THE YEAR • Class A industrial inventory exceeded 10.2 million square meters. After a year end with certain doubts due to the change of government, • Vacancy rate decreased from 6.3% to 6.0%, driven by a large the beginning of 2019 confirmed the strength of the industrial market number of transactions in the Tepotzotlan submarket. in the Metropolitan Area of Mexico City. The significant number of • Quarterly absorption increased to more than 250,000 square transactions in the Tepotzotlán submarket, as well as the sustained meters. growth of class A inventory in the Cuautitlán submarket, demonstrate the confidence of developers and entrepreneurs in this sector. MARKET ANALYSIS

Asking Rent Range by Submarket CUAUTITLÁN, LEADING INVENTORY The Class A inventory in the Metropolitan Area of Mexico City $6.00 12.5% maintained the positive trend and reported a growth of 2.4% compared to the previous quarter. Cuautitlán continues to be the market with the $5.00 10.0% largest inventory -with more than 3.1 million square meters of class A $4.00 7.5% lease space- and delivered more than 158,000 square meters, mainly in $3.00 5.0% San Martin Obispo Park I and III. In the other hand, Vallejo- $2.00 2.5% Azcapotzalco submarket inventory grew in 6.0% and proved its $1.00 0.0% continuous inventory renewal. 4Q15 4Q16 4Q17 1Q19 VACANCY DECREASES Average Asking Rates Vacancy Rate Vacancy rate in the industrial market decreased slightly from 6.3% to Net Absorption 6.0% during this quarter. Cuautitlán and Tepoztlán were two submarkets with the largest vacancy with nearly 177,000 and 151,000 Square Meters (in Thousands) square meters respectively. Iztapalapa and Naucalpan submarkets 500 remained without activity and it is expected to remain this way in the 400 upcoming months. 300

HIGH LOGISTICS DEMAND 200 63% of transactions in this quarter were made in the Tepotzotlán 100 submarket. Noteworthy operations were carried out by Grupo Modelo 0 and Wal-Mart in Megapark with occupations that exceeded 100,000 1Q16 1Q17 1Q18 1Q19 square meters. This was followed by Cuautitlán with 24% and Tultitlán with 7% of transactions. MARKET SUMMARY Current Prior Year Ago 12 Month Most of the demand of class A industrial space was for logistics Quarter Quarter* Period Forecast activity from companies dedicated mostly to industrial consumer Total Inventory (sqm) 10,302,802 10,060,549 9,771,125  goods, and food and beverages. This proves that companies searching Vacancy Rate 6.0% 6.3% 5.9%  for industrial space in the Mexico City Metropolitan Area are looking Qtr Net Absorption (sqm) 254,931 3,610 119,657  forward to meet the demand of the growing population. Avrg Asking Rent ($/sqm) $5.29 $5.19 $5.54 

Under Construction (sqm) 460,172 519,140 395,127 

Deliveries (sqm) 242,254 117,240 121,860  * Modifications were made to the indicators of the previous quarter by adjusting criteria

PROJECTS IN VARIOUS SUBMARKETS PRICE DROP 49% of lease area in future developments is distributed among the Prices had a slight decrease in most submarkets during this period, in submarkets Tepotzotlán, Tlalnepantla and Huehuetoca-Zumpango. part, caused by an improvement in the exchange rate. Only Tlalnepantla Most of the Tlalnepantla projects are in charge of Fibra UNO, with and Vallejo-Azcapotzalco submarkets showed an increase between around 290,000 square meters. 1.0% and 2.0% in their average rents compared with the previous quarter. HEALTHY ABSORPTION Absorption showed a significant improvement during the first quarter of the year and reached about 255,000 square meters. This is due, in large part, to the activity reported in Tepotzotlán in parks such as Megapark and San José Park.

ASKING RENT RANGE BY SUMBARKET ABSORPTION & VACANCY RATE BY SUBMARKET

Asking Rent (USD/sqm/month) In square meters

$7.97 $8.00 $7.50 75,000 25.00% $6.83 $7.00 60,000 20.00% $6.00 $5.70 45,000 15.00% $4.70 $4.80 $5.92 $5.07 $5.72 $5.00 30,000 10.00% $4.00 $4.70 15,000 5.00% $4.00 $3.85 $3.85 $3.85

$3.00 0 0.00%

Toluca

Tultitlán

Cuautitlán Vallejo

Tepotzotlán

Huehuetoca

Tepotzotlán

Huehuetoca

Tlalnepantla

Azcapotzalco Azcapotzalco

MARKET SUMMARY

Under Qtr Total Inventory Total Vacancy Vacancy Asking Rent Submarket Construction Absorption (SQM) (SQM) Rate (sqm/month) (SQM) (SQM)

Cuautitlán 3,117,510 126,902 177,615 5.7% 57,742 $5.03

Huehuetoca 523,689 - 65,868 12.6% 11,404 $4.10

Iztapalapa 247,532 - - 0.0% - -

Naucalpan 60,979 - - 0.0% - -

Tepotzotlán 1,506,018 111,832 151,009 10% 135,503 $4.95

Tlalnepantla 867,375 49,759 66,983 7.7% 11,596 $6.59

Toluca 1,859,613 47,666 43,112 2.3% 5,977 $4.36

Tultitlán 1,665,600 122,563 80,752 4.8% 4,003 $4.83

Vallejo-Azcapotzalco 454,485 1,450 37,779 8.3% 28,706 $7.14

Mexico City Metropolitan 10,302,802 460,172 623,117 6.0% 254,931 $5.29 Area

ECONOMIC CONDITIONS EMPLOYMENT BY INDUSTRY

The first quarter of 2019 showed low economic growth expectations, Mexico City, March 2019 due to a poor level of economic growth , lower petroleum income and both social and security instability.

10.2% 7.1% The Minister of Finance decreased the Gross Domestic Product growth 6.1% forecast for this year from 2.5%-1.5%, to 2.1%-1.1%. He also estimates a reduction for the budget income in 0.5% of the GDP compared with the one planned in the Federal Budget Law. Inflation is expected to 20.4% increase to 3.4%, up from the 3.0% in the previous quarter. 46.9% Projected growth of the national economy is dropped in 0.6% for 2019 9.2% and lowered from 2.0% - 3.0% to 1.7% - 2.7% for 2020. However, this will occur only if the government guarantees a healthy macroeconomic environment and sustainable public finances. Goverment General Services (Financial, Social & Leisure) Transportation and Telecomunication Comerce Constrution Source: Manufacturing Department of Labor UNEMPLOYMENT RATE EXCHANGE RATE

Annualized Mexican Peso (MXN) vs US Dollar (USD)

5.6% 6.0% 5.4% $22.00 5.0% 4.7% 4.7% 5.0% $21.00

3.6% 4.0% $20.00 $19.41 $18.97 $19.12 $19.20 $18.73 3.0% 3.6% $19.00 3.4% 3.2% 3.2% 3.3% 3.3% 2.0% $18.00

1.0% $17.00 17-4Q 18-1Q 18-2Q 18-3Q 18-4Q 19-1Q 2018-1Q 2018-2Q 2018-3Q 2018-4Q 2019-1Q Mexico Mexico City Source: INEGI Source: Banxico

CONSUMER PRICE INDEX (CPI) FOREIGN DIRECT INVESTMENT

6.5% Others Mining 5.45% 5.5% Electricity and water 4.91% 4.83% 4.57% Inf. Mass Media Financial and Insurance 4.5% 4.10% Construction Commerce 3.5% Transportation, mailing Manufacturing 2.5% 18-1T 18-2T 18-3T 18-4T 19-1T 0% 10% 20% 30% 40% Mexico Source: Banxico, Annualized Source: Department of Economy 1Q 2019 MEXICO CITY INDUSTRIAL MARKET

INDUSTRIAL SUBMARKETS IN MEXICO CITY AND METROPOLITAN AREA

Far North 1 1 Huehuetoca CCT District 2 Tepotzotlán 3 Cuautitlán 4 Tultitlán Middle North 5 Tlalnepantla 6 Naucalpan 7 Vallejo - Azcapotzalco 2 Southeast 8 Iztapalapa – Tláhuac 9 Toluca (not visible) 3

4 MEXICO STATE

MEXICO 8 CITY

MEXICO CITY JUAN FLORES CLAUDIA MONTOYA DIEGO LEÓN LAOS Espacio Santa Fe Director of Research Market Research Analyst Market Research Analyst Carretera México-Toluca 5420-PH 1 55.5980-2000 55.5980-2000 55.5980-2000 Santa Fe, México, CDMX, 05320 [email protected] [email protected] [email protected] 55.5980.2000

Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are also available at: www.ngkf.com.mx/en/localmarketreports.html

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