In long-term corporate office rental contracts, companies establish the annual amount in dollars or pesos, which is updated year after year to reflect the general increase in prices.

Before Covid-19, corporate users had a preference for closing contracts in pesos. However, in the last year there has been a strong variation in the dollar exchange rate, which has directly affected all contracts concluded in dollars.

Check here: Solili Offices Report, Q3 2023, accumulated national gross demand exceeds 30% compared to 2022

The above is clear from the study The currency factor, how inflation and the exchange rate intervene in the lease contracts of corporate offices prepared by Cushman & Wakefield, where these indicators have been fundamental factors in the negotiations of lease contracts in the corporate office market.

Medium and long-term rental contracts establish the amount of rent in a specific currency. In Mexico City, contracts are drawn up mainly in dollars or pesos, and the rent is increased annually based on the accumulated inflation of the last 12 months, either CPI (Consumer Price Index) of the United States, for rents in dollars, or INPC (National Consumer Price Index) of Mexico in pesos.

According to the study, devaluation, fluctuation in the exchange rate and inflationary increases are imponderable variables that can suffer abrupt changes due to external economic factors or factors unrelated to the office market itself.

By leaning the balance towards contracts in dollars, the lessee covered the risk of an abrupt devaluation of the Mexican currency. Today, the currency, the exchange rate and inflation continue to play a determining role in the negotiation of new lease contracts.

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Although the scenario changed compared to the time experienced prior to the health crisis, the previously mentioned indicators continue to be negotiation factors.

In the case of a corporate user whose contract expiration is approaching, they may realize that when they signed the contract in pesos 5 or 10 years ago, with an exchange rate above 20 pesos per dollar, plus the increase in Mexican inflation in recent years, when comparing your rent in pesos with the dollarized office market at a current exchange rate of 17 pesos per dollar, your rent in dollars will be between 15 and 20% above the fair market price for class A offices in CDMX.

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Original note