In Q1 2024, the office market in Mexico continues to face challenges marked by changing trends that embrace the emerging dynamics of remote work, along with the growing demand for adaptive spaces that encourage collaboration and adopt mixed-use modalities. This panorama reveals a corporate sector in continuous evolution towards the new demands of the work environment.

In the macroeconomic environment, the beginning of the year has been marked by the continuous appreciation of the Mexican peso against the dollar, it has even reached its strongest position in the last five years, trading at $16.65 pesos per US dollar. This milestone reflects an improvement in the stability of the national currency as well as the country's economy.

Inflation in Mexico is showing signs of declining. In the first half of February 2024, the National Consumer Price Index reported an annual variation of 4.45%, which represents a notable reduction compared to the 7.75% recorded in the same period of the previous year in 2023.

The monetary policies applied by the Bank of Mexico to contain inflation have shown positive effects, as demonstrated by the stability of the exchange rate and the decrease in the INPC. However, although the reference interest rate remains unchanged at the end of the first quarter of 2024, a next cycle of cuts by the Central Bank is anticipated.

Against this backdrop, the national office inventory experienced a slight annual increase of 2%. The office markets of Puebla and Monterrey stand out especially, which recorded the largest increases in their inventory, with an annual increase of 7.6% and 4.0%, respectively.

The vacancy rate in the country decreased at the end of the first quarter of 2024, reporting 17.7%, which represents an annual reduction of 2 percentage points. Among the office markets with the lowest vacancy rates nationwide, León and Mérida stand out, with rates of 9% and 9.7%, respectively.

On the other hand, the cities of Puebla and Mexico City have the highest vacancy rates, with rates of 25.7% and 19.7%, respectively, where both markets report rates that are above the national average.

At the end of the first quarter of 2024, leasing activity in the office market registered a demand of 197 thousand square meters throughout the country, which represents a decrease of 40% compared to the same period of the previous year.

Despite the decrease in demand experienced during the first quarter of the year, a recovery is anticipated in the coming quarters, an optimism supported by the continued interest of companies in occupying corporate spaces in the country, since it is consolidated with a wide range of competitive and cutting-edge options in the corporate segment offering.

The metropolitan area of Mexico City continues to significantly lead the demand figures in the office market nationwide, representing 70% of the occupied space in the country. This translates into 143 thousand square meters leased in absolute terms. Followed by the office markets of Monterrey and Guadalajara, which register a gross demand of 21 thousand and 18 thousand square meters, respectively.

The office markets in Guadalajara and Querétaro experienced a significant increase in demand for corporate spaces. Guadalajara reported an increase of 68%, while Querétaro showed an increase of 28% compared to the first quarter of 2023.

At the end of the first quarter of 2024, the construction of office spaces nationwide reached a total of 1.2 million square meters in the development process. Among the leading markets in buildings under construction, Mexico City and Monterrey stand out, with construction volumes of 716 thousand and 212 thousand square meters, respectively.

Office developers continue to pay attention to the evolution of market indicators, as well as the new trends and products that tenants are demanding. Although the office market has evolved favorably in recent quarters, indicators such as vacancy continue to report levels of oversupply in most of the country's markets, which has caused projects that are in planning phase have not started construction and the volumes of active projects maintain a downward trend compared to pre-pandemic levels.

Mexico City is the only office market in the country that has reported the start of new buildings, with 112 thousand square meters that began construction during the first quarter of the year. On the contrary, the rest of the markets at the national level have not experienced changes in this indicator.

Despite the inflationary pressures reported in the last year, the average rental price for the office segment remained stable at the end of March 2024, registering $20.16 USD/m²/month, without registering variations with respect to the same month of the previous year in 2023, this behavior is due to the fact that developers continue to bet on maintaining competitive prices to encourage demand.

The office markets of Puebla and Tijuana stand out for reporting the highest percentage increases in rental prices, with 6.6% and 6.3%, respectively. On the other hand, the Querétaro and Monterrey markets show moderate upward adjustments, with an increase of 3.4% and 1.5%, respectively.

The office markets that report the most competitive rental prices nationwide are those of León, with an average rental price of $12.48 USD/m²/month, followed by Puebla and Querétaro, which report rental prices of $14.53 and $14.81 USD /m²/month, respectively.

The office market in Mexico has experienced a palpable evolution, where both the reconversion of spaces for residential and commercial use, as well as adjustments in the demand for offices, have become an inevitable reality that the sector must face. Despite this, there remains a fundamental interest on the part of clients in having dedicated spaces for business activities, which remains a priority for corporations. Proof of this is a continuous demand for office spaces which reflects good performance and maintains growth expectations.