I always say that the border is a harbinger of what will happen in the U.S. economy. Tracking industrial space, industrial jobs, and global trends is critical in understanding what is going on at the border and what this portends for Noth America. I recently interviewed Christian Perez Giese, Executive Vice President-Director of CBRE Commercial Real Estate in El Paso to gain insight in these areas in the Borderplex region (Juarez-El Paso-Santa Teresa).
Tell me what happened in the industrial space market in Juarez, comparing 2024 to 2023.
Very little happened in 2024 compared to 2023. Our main indicator that CBRE uses is net absorption. It’s the occupancy of new space minus the vacancy of space, and for the record, we do not count space under construction in our vacancy numbers. Last year, we did slightly more than 2,000,000 square feet of net absorption of industrial activity and in 2023 more than 6,000,000 square feet, so it was down.
Is that an indication of the market slowing down?
Absolutely, and my thesis is that the market actually started slowing in 2022 because of the expectation of an oncoming recession, which didn’t occur. Previously, from an industrial real estate perspective, the time of a client making a decision to lease or purchase a building to CBRE’s research team recording net absorption was roughly six months. Now, what we’re seeing is more sophisticated manufacturing buildings, and the timeline for construction is two years or longer. The recent Taiwanese investment in Juarez is a good example of these more sophisticated buildings. Pegatron has a building in Juarez that’s been under construction for over two years. The decision to expand production in Juarez was probably a year-and-a-half before that. So, these timelines are being elongated. I believe that what we saw happen in 2023 were actually decisions that happened before COVID, and then were executed coming right out of COVID in 2021, and then that space was delivered in 2022 and 2023. We’re dealing with an extraordinary lag in Juarez because of the more sophisticated nature of the buildings – they’re more sophisticated manufacturing operations.
Are there decisions being made now that we’re going to see happen, let’s say in 2026 2027?
No, we’re not seeing any decisions happening right now.
Is this also reflected in the El Paso and Santa Teresa market?
El Paso and Santa Teresa are acting differently than we would have expected. The core client in Juarez I describe as the global 2000 manufacturing firm, doesn’t have clarity to make a decision on installing a new multi-million dollar, multi-hundred-million-dollar facility in Mexico today because of the geopolitics that are going on and because of the tariff conversation. I just don’t think there’s a foundation for making new investments decisions. Today, we’re seeing some investment announcements happening in Mexico, and it’ll be interesting to see what when those announcements get converted into actual transactions. One major company is Tesla, which made an announcement for Monterrey, but Tesla hasn’t done anything.
In your report you cite that industrial space in Juarez has grown from approximately 67,000,000 million square feet from the first quarter of 2017, to 97.6 million square feet by the end of 2024. This is a 45 percent increase or 5.6 percent a year. Is this considered healthy or normal?
No, it was very rapid growth. We were seeing it in the industrial market across North America, so it wasn’t unusual in Juarez, Santa Teresa, or El Paso, but it was unusual if you take the post- COVID snapshot for industrial and look at it at any point over the last 40 years.
In El Paso, during the same time period, it grew from 56.2 million square feet to 76.8 million square feet. That’s a 36 percent increase or about 12.25 percent a year. Same kind of observation?
Yes, although on the U.S. side of the border I generally believe that our community has a ten-year lag culturally, socially, and from an industrial, real estate perspective. I don’t think that we have seen the full effect of the industrial boom that started ten years ago in the U.S. and in central Mexico, and that was really e-commerce driven. We have two large e-commerce facilities here that are a big part of our market, but it was really just two actual transactions, compared to what is driving any major U.S. market or even Mexico City, Guadalajara, and Monterrey to a degree where you have a lot of e-commerce and fulfillment operations. We’re starting to see companies that are making more sophisticated distribution decisions out of El Paso, but it’s not necessarily e-commerce driven, because effectively we’re an island and have to consider one-day or even one-hour delivery timelines. We just don’t have a big enough population to have a huge boom in the e-commerce, last-mile segment.
Your report states that industrial space in Santa Teresa grew from 2.9 million square feet to 5.8 million square feet. That’s a 98 percent increase or a growth rate of about 4.5 percent a year.
There’s a lot going on in Santa Teresa. We never talk about how the growth of Chihuahua City has been huge for Santa Teresa, because I believe that most of the products from that region are crossing at Santa Teresa rather than going through Juarez. And then you’re having some companies that are using their local supply chain and local logistic networks out of Santa Teresa into Juarez, rather than competing with the Zaragoza Bridge in east El Paso. The bypass of the Zaragoza Bridge I think is increasingly important. You have a couple of large transactions, and they have an outweighed impact on the starting point at the 2.9 million square feet data set.
What about the vacancy rates in Juarez, El Paso, and Santa Teresa?
They’ve gone up dramatically since the low rates in 2022 and 2023. They are following a trend in the U.S., and they are also getting back to a historical average. It’s happening more quickly than we’ve seen in the past, but it’s basically getting back to a balance. In the U.S. market, our historical vacancy rate is 9.2 percent, and we’re at 9.5 percent at the close of 2024 in Juarez and El Paso. Santa Teresa is included in our El Paso data. The historical average in Juarez is 7.2 percent and we’ve rebounded to 8.3 percent, so slightly ahead.
How much industrial space was delivered in Juarez, El Paso, and Santa Teresa in 2024 and how does that compare to 2023?
It’s coming down. It was just over 6 million square feet in that was delivered in Juarez last year, and it was roughly 8.5 million square feet in 2023. In El Paso, 5.3 million square feet was delivered in 2024, and that was actually slightly above about 4.5 million square feet in 2023. El Paso has not slowed down on construction projects.
Juarez has gone down from its peak of almost 320,000 industrial jobs in 2022 to approximately 282,500 jobs in 2024. What’s going on with this figure?
I think we’re having a sectorial recession in the United States, and in Juarez we’re seeing companies in the furniture business have a very challenging time. There’s been a couple of furniture operations that have shut operations or slowed down. There’s one large wind energy business in Juarez, and they are well off their full employment figures because of what’s going on in that segment. Then for the past five years, the auto industry has been underperforming from an industrial occupancy perspective, meaning they’re taking less space than they have historically. I think we’re seeing a transition from old internal combustion engine parts to new electric vehicle parts. This transition is being muddled by policy, market demand, and other factors. We have seen some of the legacy automotive guys that were in Juarez for 30 to 40 years moving out, and they have yet to be replaced by the next wave that we think is coming in. Exacerbating that are the tier two or three automotive legacy guys, for example a company making wire harnesses your seats. They are incredibly margin sensitive and high-labor content. As labor costs and benefits have gone up dramatically in Juarez, their margins are being squeezed, and they’re being forced to look at lower-cost locations.
Has the reduction of jobs across the border affected the level of trade in the Borderplex region?
No, looking at the imports into the U.S., those numbers are up dramatically. The value mix has drastically changed, and it’s shifted from auto parts to computers. I think medical and the higher-value auto are the next things we will see coming in. I’m not sure we’re going to see another wave of consumer electronics, because we’re already high up the value chain based on what’s happened during the past five to seven years.
Are products coming out of Mexico, particularly Juarez, having a higher value associated with them, even if our port crossings aren’t necessarily up dramatically?
Without a doubt in the automotive and computer industries, and we’re seeing it at an actual facility level. If you look at the types of buildings that have been built within the last four years in Juarez, they are different facilities than were built in the past. In the case of Pegatron, it’s a unique four-story manufacturing facility. From the outside, the new facilities look the same as the old ones, but when you walk through them, there is way more infrastructure and capital investment being placed inside the buildings. If you’re doing higher-end EV vehicle parts or consumer electronics, you need to control dust, temperature, and humidity, and these systems are very expensive and use a lot of power. It’s a snowball effect where they start improving these buildings, and in some cases bringing in clean rooms to control the manufacturing environment that are different than we’ve seen in the past. They’re building a box within a box for the production, so the cost is high. In many instances, we’re seeing more cost going into the building than the building itself.
Are there any infrastructure challenges you see in the Borderplex to support this new trend in building?
In Juarez, everyone has been talking about power, and we’ve had about a dozen buildings being delivered without power. The ramp-up, for the buildings that have been built that have minimal power to production-level power, is taking a lot longer than they have in the past. But, electrical infrastructure is being built in southern Juarez, so the problem is being solved. We have the same situation on the U.S. side. The power company hit the peak demand it expected in 2030 in 2023, so it is a game of catch-up. However, you do see electrical lines and sub-stations being installed around town. On the U.S. side, there is some concern with sewer and water extensions, especially on the far east side of El Paso, where we’re seeing a lot of development along I-10. In Juarez, you have the same sewer and water issues, and I have not talked to anyone who is actively solving that problem in the southern part of the city where the new industrial growth is occurring.
Is the U.S. still the dominant investor in Mexico’s maquiladora industry?
Totally dominant, more than 50 percent of the investment. However, I have seen growth in Chinese investment, a little bit in Juarez, but primarily in Mexico’s Bajío region and Monterrey. We saw a resurgence of Taiwanese investment. A lot of people think that the Taiwanese investment in Juarez after COVID is new, but those firms have been there for 20 years. Now, they are doubling and tripling their investment to increase their capacity.
What key risks do you see in the future, and will onshoring/nearshoring continue?
Onshoring and nearshoring will continue. The mix that’s going into Mexico from the U.S. will probably change, and we are having discussions with some of our global manufacturing clients about where they are going to put their next production line. That math is changing because of labor costs increasing, tariffs, the general costs of doing business, and bureaucracy. We are having many more conversations today about a “made in America” component of production lines than we had in the past. There’s no doubt that the geopolitical risks that are driving companies to not make decisions to invest further in China is shifting. And that shift is to invest in other countries. You can call that nearshoring, or China-plus-one, or regionalization, but the countries that always seem to be benefiting from this are Vietnam, Thailand, Malaysia, and Mexico. There’s going to be products that go to different locations in different mixes, but if you look at the strength of the Canadian, Mexican, and American economies, consumer demand, and the desire to make products closer to home, there’s no doubt that there’s a renewed second wave of onshoring/nearshoring. We’ve finished the first wave, and we have a delayed second wave because of the political events going on right now. Once they are solved, we’re going to see a reactivation of the market which I will call the second wave of companies that are moving their production into North America. Once we have that second wave that’s expanding beyond the consumer electronics industry, then we’re going to have enough of an industrial base that’s growing in North America, where suppliers will return as well.
You have used the acronym OOC. What is this?
I heard this directly from one of my clients that was looking at production sites. This means “out of China.” Companies manufacturing products being sold in North America are being told by their customers to get their manufacturing out of China. They are not willing to hazard the geopolitical risks with the supply chain of their products getting to consumers in North America. We are in the middle of a global realignment. Starting in 2001, the shift of manufacturing going into China increased, but now it is decreasing. We’re having conversations with our customers about their next production line that we were not having five or ten years ago.
How can the Borderplex region take advantage of these next waves coming over, and be competitive in the future?
Continuing to do the boring infrastructure work that we are already doing. Highway work and transportation connectivity are incredibly important, along with the growth of the electrical system and sewer and water. If we continue to do some of these building-block type deals, we are really set up, because we have a bi-national community, a very strong workforce, and a larger community than most of the other border communities. We can draw on Texas and southern New Mexico to become a much stronger community for stuff coming into the U.S. Add the growing population bases of Juarez and Chihuahua state and this combination is powerful. We need to make sure that we are properly selling our region.
The Borderplex region, particularly Juarez, is an economical place for labor. It’s not that way anymore, is it?
Compared to other areas in the U.S. we are competing with, it is. CBRE’s been involved in U.S. regional site selection projects and we’ve won those, head-to-head with other communities, certainly in the western U.S. This is because of our labor pool and demographics. Globally, we’re not the lowest-cost, nor the highest-cost region for labor. We’re somewhere in the middle and we have the benefits of both sides of the border to move products back and forth. We have a great workforce, managers, mid-level R&D engineers, and quality control people on the Juarez side. Juarez is part of the global supply chain. We have incredible educational institutions in the region, and the ability to upscale our workforce on the U.S. side as well. However, we have a little bit of chicken-and-egg. Do we need the jobs first or the labor? I think we need the jobs and then we can provide the labor.
