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 Click here to view the full 2010 Second Quarter Market Summary for El Paso, Texas and Cd. Juarez, Mexico.
El Paso, Texas
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Total Market Size:
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54,270,000 SF |
| 2Q Total Activity: |
968,000 SF |
| 2Q Gross Absorption: |
364,000 SF |
| 2Q Net Absorption: |
-45,000 SF |
| 2Q New Construction: |
0 SF |
| 2Q Industrial Vacancy: |
15.7% |
El Paso’s industrial real estate market continues to be slow. Overall market activity (building sales, new leases and lease renewals) was slightly under 1,000,000 SF. This is an improvement over the two-year quarterly average but still resulted in a net absorption of -45,000 SF. Most of the activity came from several large lease renewals: Handguards renewed on 187,000 SF, Tyco on 201,000 SF and Philips for 86,000 SF. The two new significant transactions were Austin Foam’s lease of 115,000 SF and A.O. Smith’s lease of 144,000 SF. However, both companies vacated buildings of similar size.
As in Cd. Juarez, we believe that El Paso’s industrial real estate market is at the bottom of this cycle. We do not know of any planned vacancies coming in the next six months and there are several large transactions we expect to be completed in the 3rd and 4th quarters. However, we do not see any major indicators that will dramatically change the market fundamentals in the near term. Our expectation is for measured growth in the remainder of 2010 and 2011.
El Paso’s industrial market has historically trailed activity in Cd. Juarez by one to two years. With an anticipated slow but steady recovery in Cd. Juarez starting in 2011, this could put off any dramatic reversal in El Paso for some time. However, we do believe there are several opportunities that may be bright spots for El Paso’s industrial real estate market.
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The first is the renewed growth of operations in Juarez. Plants like Foxconn, Electrolux and Wistron represent a major portion of industrial output in the Borderplex. As these firms and a growing number of major operations in the area continue to grow their impact on suppliers and logistics partners will be positive for both sides of the border.
The second part of this equation is security. From 2004 to 2008 we saw a migration of suppliers that had historically been on the U.S side of the border move in Cd. Juarez. Nypro, Jorsa and Orange County Containers are some examples. As the recovery takes hold and the supplier base expands, we believe the trend may reverse as companies take a fresh look at the trade-offs between El Paso and Cd. Juarez, weighting proximity to their clients versus security and overall operating costs.
Cd. Juarez, Mexico
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Total Market Size:
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59,155,000 SF |
| 2Q Total Activity: |
1,450,000 SF |
| 2Q Gross Absorption: |
847,000 SF |
| 2Q Net Absorption: |
482,000 SF |
| 2Q New Construction: |
0 SF |
| 2Q Industrial Vacancy: |
13.0% |
Industrial real estate activity has increased over the last three months but it is clear that market fundamentals have not improved enough to indicate a change in the overall climate. Sale and leasing activity was higher in the 2nd quarter than what we have seen over the last two years, but most of the activity continues to be the shuffling of companies from one facility to another. Many of the transactions this quarter will result in vacancies later this year as companies complete the relocations into their new facilities.
There are two different stories behind this type of activity. The first is that production is increasing across the city. Near and medium-term forecasts are positive enough that firms are making decisions to reposition their facility footprint to be prepared for the coming growth. These firms are also taking advantage of the significantly depressed market conditions to lower their overall real estate costs.
The flip side to this story is a lack of outside investment. Every transaction in the last three months came from companies already in Cd. Juarez. The firms currently operating here see opportunities but that is not resulting in any new real estate demand. Net absorption was slightly less than 500,000 SF and more than half of this amount will be offset by new vacancies coming later in the year.
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When we look at annual net absorption (total amount of vacant space occupied throughout the year minus new vacancies) the industrial vacancy rate will have changed little from the start to the end of 2010. This historically high level of vacant space in Cd. Juarez is going to carry into 2011 and will keep the market fundamentals unchanged.
We believe that the industrial real estate market in Cd. Juarez has bottomed out and we are starting a slow path to recovery. This recovery in Cd. Juarez will be lead by the major operations, their parts suppliers and logistics providers. Third Party Logistics (3PL) providers were the first to vacate large amounts of space in 2008. As the manufacturing operations continue to rebound, their growth will recapture space in their plants that had been turned over to internal warehouse uses. This may create new activity within the 3PL segment and be an engine driving demand in the coming year. This will be felt on both sides of the border.
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