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 Click here to view the full 2008 Second Quarter Market Summary for El Paso, Texas and Cd. Juarez, Mexico
El Paso, Texas Industrial real estate demand increased across El Paso and the second quarter was the most active three month period in over five years. Demand is largely being driven by warehouse and distribution needs coming from the maquiladora industry in Cd. Juarez. This is a continuation of a positive demand trend that started in 2005 and has resulted in a transition from a soft tenant’s market to a tight landlord’s market marked by decreasing vacancy and increasing rents for Class A and B spaces across town. This transition has been supported by a lack of new product coming on to the market as construction costs remain well above their historic norms. However, as vacancy rates continue to fall below 10.0% rents will continue to climb, especially for Class A logistics space, and the ability of landlords to charge higher rents make new construction projects viable. Assuming absorption remains steady at an average rate of 1.0 million SF annually, El Paso should see new speculative construction by the end of this year with rents stabilizing towards the middle of next year. We expect this level to be above $4.25 PSF annually for triple net rents, well above where the market stood a year and a half ago when rents for Class A product were below $3.90. These dynamics are especially true in the eastside submarkets. Vacancy in Class A and B space has steadily declined in light of strong warehouse demand over the past three years while no new speculative construction has come on line. In the next twelve months companies looking for space over 50,000 SF will have few options on this side of town. Butterfield trail has not seen the same demand as the eastside and vacancy in this park remains higher than the rest of the city. A couple of new vacancies in the 2nd quarter have not helped the situation and we expect this submarket to remain soft for the rest of 2008. However, tenants looking for good Class B space with flexible terms have been leasing space in Butterfield as the eastside gets more expensive. Unfortunately any positive ground has been offset by new facilities coming back on to the market. As of the midpoint of 2008, industrial vacancy stands at 9.8% with total industrial supply of 54,220,000 SF. Total activity was a staggering 1,950,000 SF with just over 1,000,000 SF of positive absorption. Unfortunately there was also a significant amount of new vacancies across town, resulting in only 225,000 SF of net absorption. However, these figures are already close to what happened in all of 2007. Cd. Juarez, Mexico While all of Mexico’s manufacturing industry is experiencing a prolonged growth cycle, no market has been as consistently active as Cd. Juarez. Industrial demand has not let up since 2003 and there continues to be macro trends driving investment into the city and Northern Mexico in general. The most important trend impacting Mexico is increasing oil prices and transportation costs. As the cost of moving goods rises, firms are focusing more efforts on near-shore options instead of China and other locations overseas. These increasing costs are leading investment back into North America, and Mexico specifically. |    
 
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At the same time new capital continues to flow into the country from the real estate investment community, driving a new wave of development in the major markets. Cd. Juarez has two new investors entering the market this summer providing additional competition to the established firms. For users of industrial space, the result is lower rental rates as the growing developer pool becomes more competitive for new projects. Nowhere is this more obvious than in the southeast industrial corridor along Blvd. Independencia. There are currently eight Class A speculative buildings available or under construction in this corridor with at least five planned for the second half of this year. This does not include multiple build-to-suit projects taking place across town. In all, there is 1,540,000 SF currently under construction in Cd. Juarez as of June 30th. Expectations for the final six months of the year are the continuation of the growth cycle, leading well into 2009. This industrial growth is being supported by a stable labor supply in the State of Chihuahua and healthy competition among the developers. When combined with additional attention to logistics costs, we see no concern of investment moving off of the border into the interior states for the near term. Overall industrial vacancy dropped to 6.3% in the second quarter. While speculative construction has been very healthy, it has not kept up with overall demand across the city. Total supply increased 1,250,000 SF to 55,200,000 SF in the 2nd quarter with slightly over 2,800,000 SF of total activity. This resulted in 1,850,000 SF of total absorption including build-to-suit activity. With almost 150,000 SF of new vacancies, net absorption was 1,700,000 SF. |
