Nearshoring: How to take advantage of growing demand

During the last few years, and thanks to the crisis we are experiencing in the supply chain caused by the trade war between China and the United States, coupled with the political tension in Europe and the need to have a more efficient way to meet the demand for imported components and products, a great interest was unleashed by builders and real estate developers to invest in projects located in industrial parks in strategic points of the country; but how easy is it to actually develop an industrial project for the first time?

Every day our consulting and real estate risk analysis office receives developers who wish to be part of the benefits and economic spill over of the so mentioned Nearshoring. Whether building small industrial warehouses of 200 to 500 m2 or acquiring large tracts of land to develop logistics centers, they all have something in common: they consider it a fast, low-cost, low-risk and high-return business.

Indeed, building industrial projects is a business that can be highly profitable, since, according to AMPIP (Mexican Association of Private Industrial Parks) we have seen an increase in the absorption of industrial square meters, since in 2019 we only had 200 thousand square meters of absorption and by the end of 2022 more than 1 million 200 thousand square meters were reported and, without a doubt, the growth trend is going to be maintained during the following years.

It is common for developers who come to our firm to arrive with various concerns and, sometimes, with unrealistic scenarios of what can really be developed in the plazas or land they have selected.

That is why in the last few months, we have taken on the task of visiting strategic points of the country in search of the most reliable, profitable and accessible areas that we can recommend to our clients, especially taking into account the level of risk that they are willing to assume.

Develop in an accessible location

Before starting to develop a project focused on Nearshoring, it is essential to ensure that the area where you want to develop, has the necessary access roads so that carriers, operators and workers of the new industrial building, can easily reach.

Almost five years ago, when we were looking for industrial spaces for Korean clients, the first thing they asked us when we presented locations to them was how far away the housing was for the workers who would work in the plant they were about to build, since they wanted to develop almost two industrial hectares and this implied hiring almost 500 employees, which required considering housing spaces and means of transportation nearby to avoid high personnel turnover.

Feasibilities and services

In addition to a good location, the feasibility of municipal services such as water, drainage and electricity are essential to consider whether the investment is viable. It should be taken into account that each kilometer of medium voltage electricity to be brought to the land will cost more than the land itself, which is why it is essential to have the feasibilities before acquiring the land, otherwise, costs may increase considerably and the expected profitability will not be achieved.

Market

It is essential to make sure that there is a client interested in acquiring the vessel to be developed. Although the figures are favorable and there are cities such as Tijuana, Ciudad Juarez, Mexicali, Tecate and Saltillo that have reported growth of more than 20% in demand, it is important to study the market and who would be the possible buyers or lessors of the warehouse. For this, it is essential to have the advice of a company specialized in market research and the advice of qualified industrial brokers.

Finally, we recommend analyzing the developer's real capacity to build these projects. Regardless of the capacity that the land has to build and the high profitability that it may have, if the developer does not have the economic solvency or the necessary experience, no matter how simple the construction of the building may seem, it can become a real problem that can put at risk the capital of partners, investors and clients.