Luis Gutiérrez Guajardo : Interview

Luis Gutiérrez Guajardo, President, Prologis Latin America

Interview : Luis Gutiérrez Guajardo

What are the principal drivers of growth in the industrial real estate segment?

LUIS GUTIÉRREZ: The growth in industrial parks is driven by two main factors – consumption and the manufacturing industry – which, incidentally, are two of the most important areas for economic growth in Mexico. For the past decade, mass consumption has been the principal internal driver of growth, resulting in both urbanisation and high levels of employment. This trend is driven by the demographic boom of the middle class as well as a growing youth population, with over 25% of the nation aged between 15 and 29. Thanks to increased middle-class spending power and favourable lending policies, this period of consumption should continue unabated over the medium term. Yet, Mexico remains an emerging economy, and its distribution channels for consumer products are still in their infancy.

The secondary driver of growth in industrial parks is the manufacturing sector. As globalisation has evolved, the combination of Mexico’s young population, low labour costs, favourable geographic position and extensive infrastructure has led it to become one of the global leaders of production. With the latest economic cycle, which began in 2008, global value chains have become more regionally integrated, particularly as production costs have risen in China. This, combined with natural disasters in Asia and a rise in trans-Pacific logistics fees, has encouraged multinational manufacturers to relocate from Asia to Mexico. Clusters and financial incentives from state governments have further facilitated this trend, resulting in a supportive business environment for industries such as aerospace and automotive, especially in the region of Bajío.

How are changing business practices in other parts of the value chain affecting industrial parks?

GUTIÉRREZ: Many consumer goods companies are cutting costs in some parts of the supply chain, and are outsourcing their logistics and storage operations. The speciality services and economies of scale offered by many warehouse and distribution companies allow them to deliver smoother operations and cost savings to their clients. As a result, industrial real estate experienced double-digit growth during 2017.

Online shopping is driven by digitally literate consumers through an increasing variety of online stores and platforms, which rely on industrial parks to support their growing operations. Distribution centres offer a more direct service and are the new shops of online commerce. This is already creating a significant structural change all over the world, and although Mexico is slightly behind international leaders such as the UK and the US, the segment has huge potential to grow over the long term. A lot of barriers have already been broken down by two structural reforms that raised the population’s confidence in the legitimacy and security of the online shopping process. The telecommunications reform has helped reduce digital access barriers, while the financial reform has driven growth in credit cards and financial education.

What is the impact of macroeconomics on the shifting supply-and-demand dynamic of industrial parks?

GUTIÉRREZ: There are two interlinking factors at play here. First, the US economy is experiencing an extended period of growth. The changing fiscal policies announced at the end of 2017 and the start of 2018 have increased consumer confidence, which in turn boosted Mexican manufacturing prospects and strengthened demand for industrial real estate.

Second, US President Donald Trump’s protectionist trade policy has deterred new actors from entering the Mexican market over the short to medium term. As a result, the increased demand from US consumers has not been matched with the same increase in the supply of industrial parks. This has boosted occupancy rates to historic heights while simultaneously allowing providers to hike up costs to match growing demand.

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Luis Gutiérrez Guajardo

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The Report: Mexico 2018

Construction & Real Estate chapter from The Report: Mexico 2018

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