2021 was for the office real estate segment, worldwide, a long way of reconfiguration and learning, this time from the demand side that abruptly changed the rules of the real estate business.

With the advancement of the vaccination process in the Mexican capital and with the increase in capacity in various commercial, corporate and recreational activities, companies were able to evaluate the hybrid work format that included part of the face-to-face team and another part working remotely.

During 2021, a large number of spaces leased by companies expired their contractual terms and demanded a decision either to reduce areas, to renegotiate amounts for the same space, or to partially or fully deliver the property.

Along with the negotiations in the spaces that remained, the changes required in the arrangement of areas and uses were proposed in accordance with the guidelines issued by the health authorities in order to guarantee the health of collaborators and employees.

The strong economic contraction that the office real estate segment went through alerted the capital authorities that intervened at the beginning of August 2021 with emerging actions to detonate the construction sector.

This initiative gave rise to various changes of uses called reconversions where projects whose original use contemplated the development of offices now managed their permits for homes, hotels or hospitals.

In this context, the country's office market suffered from each of the events that occurred during the year, thus giving way to a last quarter of the year that mostly improved the fundamental indicators in all the country's markets.

Regarding the national corporate inventory, growth was cautious, reflecting an average of 3% at the national level, still far below the growth rates of 8 and 10% that were reported in pre-pandemic periods, however, the markets of Mérida, Querétaro and Guadalajara This year they managed to complete works in progress and increased their offer by 23%, 19% and 14%, respectively.

During 4Q 2021, there was practically no start of new construction in the middle of a market that slowed down investments until it was clear the path that demand will trace. Despite this, during the last part of the year the interest on the part of developers to finalize projects, which are currently in the planning phase, grew.

Despite the fact that in the last quarter of the year an improvement was observed in the indicators, specifically demand, the rental prices of the main office markets in the country, such as Mexico City, Monterrey and Guadalajara, were located below the prices reported at the beginning of 2021. 

Faced with a panorama that still does not make it possible to see clearly the direction that the demand for offices will take and the scenario of oversupply, in practically all the country's markets, prices have not been able to take a path of recovery and are even below those reported in 2020. This effect is largely explained by the adjustments made by developers to lower prices, sell them in national currency, apply discounts and promotions to make their spaces more competitive.

Although it is true that prices still do not show signs of recovery, the one that has done so is demand, which spun two quarters with positive net demands, that is, the commercialization of spaces is exceeding unemployment. Since mid-2021, demand began a recovery process, while unemployment figures have stopped and reported a downward trend. At Solili we identify this as a clear sign that the office real estate segment in Mexico is recovering.

During 4Q 2021, the total lease of offices in the country was 170 thousand square meters, with the Mexico City market being the one that contributed the most to this figure by reporting a demand of almost 110 thousand square meters, followed by Monterrey with 27 thousand and Guadalajara with almost 20 thousand square meters.

Although it is true that in the quarterly comparison the total lease had a decrease of 12%, when comparing it with the results obtained in the same quarter of the previous year, we report a demand that quintupled, that is, that passed the 4Q 2020 of a demand from 31 thousand square meters to almost 170 thousand square meters in 4Q 2021.

In the comparison of the annual behavior, it turned out that throughout 2021 the demand for offices in the eight main financial centers of the country was almost 565 thousand square meters, which represented a growth of 26% of the demand throughout the year 2020. The Demand in 2021 was 115 thousand square meters higher than that reported in 2020. This is another of the key indicators that shows the recovery that the demand for offices in the country is having.

During 4Q 2021, the behavior reported by the net demand of Mexico City stands out, since for the first time, since the pandemic began, the net demand numbers reported positive figures, this being the most relevant news of the quarter since it is about of the most important market in the country and who centers practically 80% of the class A inventory in Mexico. The Mexico City market had negative demand figures for six quarters.

Despite the recovery that demand is reporting, it is inevitable to comment that the oversupply of offices in the country continues, especially in Mexico City, Guadalajara and Monterrey, the main markets that still exceed 20% vacancies.

At Solili, we estimate that developers will continue to be inclined towards mixed-use projects that, under the current circumstances of the pandemic and the possibility of spreading the market risk among the various by-products, make this type of investment attractive, mainly in emerging markets.

In the case of large capitals, there is still a long way to go towards the reconversions that will be accompanied by the growth of the format of flexible spaces where again the consumer will set the pattern of evolution in 2022.

The behavior reported in the last quarter of the year is positive, specifically in terms of recovery, since although it is true we estimate that this will happen, it is doing so in less time and at a higher speed.

2022 comes with important challenges for the office real estate segment, among which the exit of an oversupply in markets that have to satisfy demand for at least two more years, the actions that companies will take in the return of activities and the adjustment of the spaces currently occupied. Despite this, the country's office market continues to be institutionally strong and will have opportunities for new investments to be detonated in the quest to offer spaces that adapt to new times.