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 Click here to view the full 2009 Third Quarter Market Summary for El Paso, Texas and Cd. Juarez, Mexico.
El Paso, Texas
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Total Market Size:
Total Activity:
Gross Absorption:
Net Absorption:
New Construction:
Industrial Vacancy: |
54,230,000 SF
1,712,000 SF
586,601 SF
167,000 SF
0 SF
14% |
Each month the Dallas Fed publishes business-cycle indexes (BCI) for the major metropolitan areas in the State of Texas. The BCI measures non-agricultural employment, inflation, wages and retail sales. El Paso’s index declined at a larger than expected 7.3% annualized rate in August after averaging 3.4% over the past 12 months. However, the decline in total trade through El Paso slowed, dropping only 17.5% year-to-year in July, down from a 21% decline in June and 26% in May.
These macro economics measurements match the trends we continue to see in the industrial real estate market. While the vacancy rate in El Paso remains high, overall activity (new leases, renewals and purchases) has returned to historic norms over the past quarter. Although many of the market transactions were short term lease renewals, this does indicate that firms are not shedding space at the rate seen over the last 12 months and instead are taking a “wait and see” approach for what 2010 will bring.
This stabilization of activity and the vacancy rate fit with our expectation that El Paso will not see any positive growth until manufacturing operations in Juarez have some clarity and can effectively forecast production for 2010 and beyond.
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The key transaction in the 3rd quarter was Ceva Logistics’ lease of the former Lear facility on the eastside. The 350,000 SF lease was the largest in El Paso so far in 2009. Other key activity was Innovative Inc.’s lease of 128,000 SF in Vista del Sol and Expeditors’ lease of 120,000 SF in the Northwest Corporate Center. Market rents have remained steady over the last three months and vacancy continues to be high at 14%. We expect the 4th quarter to be very similar to the 3rd, with a fair level of activity but little net absorption.
Cd. Juarez, Mexico
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Total Market Size:
Total Activity:
Gross Absorption:
Net Absorption:
New Construction:
Industrial Vacancy: |
58,168,000 SF
988,000 SF
430,000 SF
-200,000 SF
0 SF
11.7% |
Estimates of total manufacturing job losses in Juarez range from 51,000 (Dallas Fed) to 83,000 Juarez Maquiladora Association) but it looks like the employment trend has reversed over the past quarter. Initial estimates show at least 5,000 new jobs being created in August, the first increase in 22 months. Also, positive announcements continue to come out for new investment along the border from local operations like Tecma to major multi-nationals like Electrolux and Wistron.
While Juarez’s industrial real estate market is not growing, it has started to trend in the right direction. In the 3rd quarter net industrial absorption was -200,000 SF, down from over -700,000 SF in the previous quarter. There are also fewer significant plant closures expected for the final three months of the year and it is likely that the worst of the recession has been felt on the border.
Overall activity was 988,000 SF with 430,000 SF of gross absorption in the 3rd quarter. ECI’s lease of 125,000 SF was the largest transaction in the 3rd quarter along with several significant lease renewals (most for 3 years or less). The industrial vacancy rate climbed to 11.7% but this was largely due to several plant closures announced earlier in the year.
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Beyond the continued violence, the biggest challenge for Juarez’s industrial real estate market over the next 12 months is the underutilization of production capacity. Anecdotal evidence suggests that many firms continue to operate well below capacity and the amount of underutilized space, which does not show up in the published vacancy rates, is significant. We believe the “soft” vacancy rate could be as high as 35% across the city. As production begins to increase it will be several quarters before this space is put back into production and real demand for additional manufacturing space hits the market.
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