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2009 First Quarter Market Summary

Click here to view the full 2009 First Quarter Market Summary for El Paso, Cd. Juarez, McAllen and Reynosa.

El Paso, Texas

Total Market Size: 54,230,000 SF
Total Activity: 493,000 SF
Positive Absorption: 264,000 SF
Net Absorption: -430,000 SF
New Construction: 0 SF
Industrial Vacancy: 12.8%

While industrial real estate activity in EI Paso has been slow, the market has not taken significant steps backwards like many industrial markets across the country. Activity has been lower than any quarter in the past five years, however vacancy has only risen 1.2% and few significant ope'ations have closed
their doors.

The two key lease transactions over the past three months were the lease of 19 Butterfield Trail by Dee's Foods and 7100 Bi-National by Expeditors. There were also two building sales; the former Hanley Paint facility of 65,000 SF and the former Shippers building and trailer yard off Pine Springs. There were several other smaller leases and renewals over the past three months, but total activity was only 493,000 SF. Over the same period there have been two significant operations that shut down. Simply Goodies vacated 150,000 SF and Siemens vacated 127,000 SF, both on the eastside.

El Paso Industrial Activity
El Paso Inustrial Supply

TeamNAFTA expects the leasing market to remain slow in the 2nd quarter across EI Paso with total activity close to 500,000 SF. Much of this activity will be lateral as companies look to take advantage of the poor market to renegotiate leases or relocate into space at more aggressive rates. Vacancy should stabilize at 13% and lease rates should continue to dip as landlords with available space become more aggressive in pursuing any tenants in the market. This is clearly a "tenants market."

McAllen, Texas

Total Market Size: 15,500,000 SF
Industrial Vacancy: 10.0%

Industrial real estate demand in McAllen has been slow over the last three months with no significant increase expected for the next six months. When manufacturing output in Reynosa starts to rebound we expect to see an increased focus on using 3rd party warehouse/logistics providers that should create demand for industrial space in McAllen. Due to security concerns we expect these projects to be on the U.S. side of the border for the foreseeable future, reversing the trend witnessed over the last five years.

Supply of industrial space in McAllen is good, allowing tenants to look for flexible lease terms either on new space or renewals. Firms may also look towards early renewals of leases that expire in 2010 in order to lock in lower rates today for the coming years

Overall we expect demand to remain slow for the remainder of 2009 with the potential to increase in 2010 if Reynosa starts to attract new investment. Lease rates should stay flat. Any real activity should be lateral with companies moving from one location to another, leaving vacancy unchanged or falling for most of the year.

Cd. Juarez, Mexico

Total Market Size: 58,468,000 SF
Total Activity: 454,000 SF
Positive Absorption: 308,000 SF
Net Absorption: -81,000 SF
New Construction: 108,000 SF
Industrial Vacancy: 9.4%

There is no doubt that the manufacturing sector in Cd. Juarez is feeling the effects of the global economic crisis. Almost every company is operating well below capacity and has been forced to schedule prolonged shut-downs, shorten work weeks and layoff employees.

The industrial real estate market is feeling this directly with significantly reduced demand for space compared to the last five years. The situation has not been helped by the security issues. However, despite both serious issues facing the manufacturing industry in Cd. Juarez the real estate market has not retreated as much as expected.

Few firms have shut down their operations and it appears that the exodus seen in 2001 to 2003 is not to be repeated. Instead, many firms have done whatever possible to reduce costs but keep their production capacity in place. While we had expected vacancy rates to increase quickly, there have been few complete plant closures. We see this as a sign that companies are trying to keep their capacity in place for a rebound expected in the second half of 2009 and 2010.

Ciudad Juarez Industrial Vacancy
Ciudad Juarez Industrial Activity
Ciudad Juarez Industrial Supply

The largest new transaction was TTI's lease of the former 195,000 SF Honeywell building in the Pan American Park. KeyTronics also leased a 72,000 SF 2nd generation plant in the Gema Park. Overall, there was negative 81,000 SF of net absorption, meaning that space occupied over the past three months was less than the amount of new space that became available. There continues to be a glut of class "A" space in the southern half of the market and lease rates will be driven lower as landlords compete for the few new requirements currently in the market.

Reynosa, Mexico

Total Industrial Market Size: 29,750,000 SF
Industrial Vacancy: 10.4%

Reynosa has been one of the slower markets in Mexico for the past three years and overall activity continues to be limited. However, there is potential for a steady rebound in the city's industrial real estate market in the second half of 2009.

Reynosa currently has a strong available labor pool, excellent inventory of class "t\' industrial space and advantages of being located along the border with McAllen. Due to the recent focus of security concerns in Mexico from the international media many companies will see this as a major site selection advantage. The opening of the Anzalduas International Bridge and Libramiento (loop highway) will also significantly improve transportation around the city.

We believe Reynosa will start to see new investment in the 4th quarter with momentum building in 2010. The current industrial inventory will support at least 12 months of growth, so we do not expect any new construction until well in next year.

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