Monarch Crossing - Market Overview
Employment along the Rio Grande border expanded in nearly all sectors last year with electronics, transportation and chemical fueling the growth. As the maquiladora industry recovered, the Texas/Mexico border recorded widespread job gains.
Driven by growth in the Mexican manufacturing sector, the Texas/Mexico border is brimming with new construction activity as developers try to keep pace with healthy demand. Cd. Juarez sits atop all markets with 1.6 million square feet of new product under construction throughout the city with a large portion located in the Southeast Juarez submarket. Meanwhile, El Paso saw a surge in population due to the military’s Base Realignment and Closure (BRAC) which led to 17,000 troops and 30,000 family members relocating to Fort Bliss. This move will positively influence the demand for industrial space as new government contracts attract manufacturers.
With the sheer amount of new development sprouting up throughout the Texas/Mexico border, concerns of overbuilding arise as growth is expected to slow down somewhat in 2007. The impact will hinge on how the current political situation affects domestic investment coupled with oil prices, remittances and the amount of slowing in the U.S. economy. The declaration of Felipe Calderon as the next Mexican president brought unrest but the Mexican financial markets seemingly shrugged off the uncertainty. In the 12 weeks following the election, the peso appreciated 2.9 percent. 2006 looks to have followed the trend of doing well in an election year which is seen in most democracies around the world. Maquiladora employment along the Texas/Mexico border outpaced2005 figures,generating 20,144 new jobs year to date, an annualized growth rate of 9.8 percent. According to the Federal Reserve Bank of Dallas, the strongest sectors for growth in total jobs were electronics, transportation, chemical and services.
Electronics, a historically strong player in maquiladora employment, continued to perform well with 18,450 jobs created through August 2006.
Meanwhile, the transportation industry ranked second in employment growth for the second consecutive year with 7,729 jobs created. On the other hand, textiles again came up short of other sectors by posting a decline of 4,253 payrolls. The two shining stars along the Rio Grande remain Ciudad Juarez and Ciudad Reynosa, which registered annualized job growth of 6.9 percent and 6 percent, respectively.
Something to keep an eye on is the success microfinance has had as an antipoverty strategy along the Texas/Mexico border by creating jobs, fostering financial stability, enhancing vocational skills and building economically resilient communities among lower income families.
Microfinance focuses on microenterprises, or businesses with fewer than five employees and requiring less than $35,000 in start-up capital. In addition to microenterprise loans, most microfinance institutions around the world offer savings accounts, housing finance, money transfer services, consumer loans, financial education and vocational training to low-income individuals.
While the challenges are great on the border, reports the Federal Reserve Bank of Dallas in its September/October publication Southwest Economy, so, too are the opportunities. Due to the fact that the border is, literally, the intersection of the two national economies, the area has robust population growth, mainly from immigration, with an ever-expanding cross-border level of economic activity.
For instance, the report goes on to state that retail sales to Mexican shoppers generate millions of dollars in revenues annually, accelerated by the North American Free Trade Agreement (NAFTA), passed in 1994.
Consequently, the Texas/Mexico border economic picture paints an optimistic one for the commercial real estate industrial sectors that dot both sides of the Rio Grande River. Builders expect that pent-up demand will lead to new construction activity while lease rates see gains as tenants look to expand and add to their payrolls.
A steady pace in the Laredo industrial market produced record numbers.
The Laredo industrial market was on pace for a record year in 2006. Net absorption of approximately 1.8 million square feet allowed the market to reach 96 percent occupancy. Lower vacancies and a shortage of land have also caused rents to rise.
Any new construction in Laredo was limited and came at a premium, a factor that was overlooked by tenants due to the high demand of industrial space. Overall, activity was brisk and the Laredo market demonstrated that it is a true player in the industrial market.
Manufacturing in Mexico will continue to lead the charge in 2007, having the greatest impact on the market. The activity of the maquiladora industry in Mexico has traditionally had some effect on its neighboring U.S. industrial markets and 2007 will be no exception.
The Northwest and Dillworth submarkets in Laredo will outperform the others due to their proximity to the commercial ports of entry and major thoroughfares. Quick access from Mexico to the U.S. side has become more important when relocating any warehouse/ distribution facilities that are used to support operations south of the border.
Laredo will be experiencing a market expansion in 2007. Developers will have to confront the shortage in available land and begin new construction projects in an attempt to meet the immediate demand. These characteristics will drive annual triple net lease rates up to approximately $4.20 per square foot and carry on being a sellers’ market.
Major projects expected to be completed in 2007 include Verde Realty’s 260,000 square feet and Northwind Development’s 120,000 square feet. The new space will satisfy the immediate need for space but will not be sufficient in the long run.
Additional developments are in planning and will be in high demand in this tight market. Existing buildings will also see some expansion in attempt to satisfy current tenant needs.
Grubb & Ellis Company Commercial Real Estate Services Monarch Crossing Market Information