At the end of May, the figures for the main indicators reveal the panorama prior to the first half of the year, as a prelude to the federal electoral process to be held on June 6, 2021 in Mexico. The capital that is invested in our country will be under the influence not only of the results that the election throws, but also the inclination that the current government marks to guarantee the security of the investments.

Another fundamental factor that balances the behavior of investments in Mexico is the performance of the American economy, which President Biden will seek to encourage by injecting more than 6 billion dollars for fiscal year 2022, for issues such as infrastructure and others works of social reconstruction. Part of the policies during its first 100 days permeated into the Mexican economy and mainly have influenced the dynamism of the industrial sector.

If we evaluate foreign direct investment (FDI) at the end of 1Q 2021, the preliminary figure of 11,864 million USD reflects a contraction of 29.2% compared to the final figure at the end of 1Q 2020, according to the Ministry of Economy. This contraction is mainly due to the adjustment of just over 50% in the reinvestment segment. The three main sectors that make up two thirds of FDI are manufacturing, financial services and commerce, which account for 46.6%, 14.6% and 13.9%, respectively. Regarding the origin of capital, the United States, Spain and Luxembourg score with 42.5%, 12.1% and 8.2% in the amount reported as of 1Q 2021.

Read: Mexico, among the 10 countries with the highest foreign direct investment in 2020

For its part, GDP, according to the Ministry of Finance and Public Credit, registered a quarterly growth of 0.8% but a contraction of 2.8% with respect to the same quarter of 2020. At the end of May 2021, the annual growth projections in this indicator is 5.3%. Rating agencies and other financial sources in the country handle average scenarios of 6% that mitigate the 8.5% decline registered at the end of 2020, where the effects of the pandemic were overwhelming.

Regarding the Industrial Activity Indicator, published by INEGI in its last update on May 12, 2020, the figures at the end of March 2020 report a monthly increase of 0.7% and an annual increase of 1.5%. This increase is due to the growth registered in the energy and manufacturing sectors of 4.9% and 3%, respectively.

According to Banco de México, a target interest rate of 4% is projected, with inflation of 6.08%, at an exchange rate that registered a loss of 46 cents against the dollar during the first quarter of the year, which combines the scenario on which we proceed to evaluate the behavior of the main variables of the industrial real estate sector at the end of May 2021.

Read: INEGI reveals growth figure for the economy in Mexico

According to Solili figures, the gross industrial demand nationwide was 354 thousand square meters during the month of May, which gives a cumulative 804 thousand square meters for the April-May period. During 1Q 2021, total demand was 1.2 million square meters, so it is expected that for the second quarter the figures will be higher and report increases between 10 and 15%.

As normally happens, the Mexico City market concentrates most of the national demand and for the April-May period this city represented 21% of the country's total demand. Among the submarkets that stood out the most is Tepotzotlán, which accounted for 68%, followed by Cuautitlán and Toluca.

Important markets nationwide, such as Monterrey and Tijuana, registered at the end of May a gross demand of 56 thousand square meters and 44 thousand square meters, respectively. The automotive, manufacturing and retail sectors are the most active in industrial demand in these cities.

One of the markets that at the national level reported outstanding leasing activity during May was Saltillo, which totaled a little more than 85 thousand square meters. Demand from this market is being driven by developments tailored for manufacturing companies.

The industrial market of Guadalajara during 1Q 2021 showed historical levels of demand, however, during the following two months the numbers remained active but without reaching what was reported during the first quarter. According to Solili, this market reached just over 19 thousand square meters of industrial demand in May, but when adding values for the April-May period, the figure is almost 50 thousand square meters.

San Luis Potosí and Aguascalientes, two of the markets that traditionally have less activity in the Bajío region, continued within the preference of foreign capital to invest. During the month of April they had a rebound in their demand and in May they continued with this trend, only in the last month San Luis Potosí reached a figure higher than 19 thousand square meters, while Aguascalientes a little more than 13 thousand square meters . Demand amounts were driven by Asian and North American investments with tailor-made projects in the robotics and automation area.

Reynosa reached a demand figure of 33 thousand square meters in existing speculative warehouses in May, and it is also expected that some additional transactions will take place in the next month, which is why a rebound in demand in this market is estimated. Mexicali, along with Reynosa, was one of the markets whose demand in May exceeded that of the previous month and closed with a figure greater than 8 thousand square meters in the Mexicali-San Luis Colorado submarket.

There were few movements in demand from markets such as Ciudad Juárez, Querétaro and Chihuahua, however, there are a significant number of advanced negotiations, especially in Ciudad Juárez, where it is expected that during the month of June they will be finalized and placed market as one of the most active in this indicator at the national level.

We recommend: Solili: Industrial demand of the country totals 450 thousand square meters in April 2021

The new industrial supply, that is, what went from being under construction to the existing inventory, during May was almost 123 thousand square meters nationwide. About 80% of this new offer is located in the markets of Querétaro, Ciudad Juárez and Monterrey.

Guanajuato highlights that the month ended with the completion of two tailor-made projects with a total of 12 thousand square meters, corresponding to manufacturing companies. Saltillo, Tijuana and Mexicali are markets that registered the addition of new ships to their inventories in insignificant quantities, less than 5,000 square meters.

The construction of 126 thousand square meters began, which added to the month of April gives a total of 358 thousand square meters. In markets with a strong manufacturing vocation such as Saltillo, San Luis Potosí or Aguascalientes; the type of construction was mostly made to measure projects, while in Monterrey, Tijuana, Mexico City and Guadalajara; the construction of speculative projects predominated.

The vacancy indicator during May reported a strong increase, going from 45 thousand square meters in April to 200 thousand square meters at the end of May. This indicator was favored by the increase in vacant spaces in the Mexico City market, which accounted for almost 50% of the total figure.

In general terms, at the end of May 2021 the Monterrey, Tijuana and Guadalajara markets achieved positive net demands with significant values, which guarantees the same trend towards good results around the next quarterly closing. The capital will continue to lead in terms of the amount of demand and as one of the main cities where new construction begins, as well as Guadalajara and Ciudad Juárez. This ensures a wide industrial offer with multiple options for geographical location, diversity of sizes and suppliers, which maximizes the possibility of negotiation for the potential demanding industrial space.

It may interest you: Solili National Industrial Real Estate Report 1Q 2021