Corporate real estate investment has been an example of resilience and adaptability in the midst of a market where oversupply covered a large part of the main Mexican cities.

What determines in a decisive way the behavior of all the country's markets, including corporate real estate, is the high value of money that is expressed through the strong inflation that has continued to advance in the second quarter of the year.

In mid-June 2022, the National Institute of Statistics and Geography (INEGI) announced that the National Consumer Price Index (INPC) in Mexico accelerated and registered an annual variation of 7.88%, pressured by increases in food and energy. .

In parallel, the Bank of Mexico published its second annual announcement of monetary policy decisions, raising the target of the overnight Interbank Interest Rate by 75 points, to a level of 7.75%, in the same trend and amount that it did days before its counterpart the Federal Reserve of the United States, by using this mechanism to seek to stop inflation in that country.

In the daily sphere, we have already learned to live with the dynamics of the latest contagions in the midst of the rearrangement of commercial and office activities, where work, as we knew it prior to the pandemic, has established new formulas.

The companies and their collaborators have proposed, analyzed and executed agreements for a formula that maintains productivity but that incorporates the possibility of defining the physical place from which work is carried out, if the tasks carried out allow it. Flexibility reigns, opening the doors to options that were previously unimagined, in terms and conditions.

The process that we have experienced these last two years has had a direct impact on the office market in the different financial centers of the world, and Mexico is not exempt from it.

Starting in 2020, the time when the pandemic began, it caused the corporate market to report alarming figures in some indicators, such as vacancy and demand. 

During much of 2021 and the first quarter of 2022, this real estate segment continued with some fluctuations but in recovery processes, however, it is not until this second quarter that the improvement in most indicators can be seen, especially that of leasing, thanks to containment, through vaccination, which has been done with the pandemic, the increase in employment and the arrival of new companies in the country.

According to figures from the Solili platform, total office leasing, both in the country's capital and nationwide, showed clear signs of recovery during 2Q 2022.

Between April and June 2022, gross demand has followed the trend towards recovery and managed to reach 204 thousand square meters per quarter in the eight cities that Solili monitors, of which 137 thousand square meters correspond to the country's capital.

In turn, the net demand of Mexico City closes 2Q 2022 with 62 thousand square meters, which proves that vacancies have decreased significantly.

At a comparative level, the gross and net demand reached in Mexico City in 2Q 2019, the last equivalent quarter prior to the pandemic, was 180 thousand and 76 thousand square meters, respectively. With these figures, we would currently be registering 75% and 82% of the gross and net demand, which was registered in a similar period prior to the pandemic.

Another phenomenon observed in Mexico City is that half of the gross demand corresponds to Class A while only a quarter of Class A is part of the net demand, which implies a greater mobilization of Class B spaces.

In corporate markets such as Monterrey and Guadalajara, gross demand already exceeds what was registered in periods prior to the pandemic, closing the quarter with 26 and 16 thousand square meters, respectively.

The demand for Mexico City achieved rental numbers not reported in periods of pandemic, this recovery in activity corresponded mainly to occupations of entire buildings by government institutions, technology companies, financial services, among others.

Although it is true that rental activity is on a recovery path, the indicator that still shows no improvement is prices. The markets of Mexico City, Guadalajara, Monterrey, Puebla and Mérida have seen downward adjustments in the annual comparison, registering the greatest decrease in Guadalajara with $2.00 dollars per monthly square meter to close with $18.4 dollars in 2Q 2022. 

Opposite trend with rise in unit rental prices is indicated by León and Tijuana, which registered increases of $4.5 and $0.6 dollars per square meter per month, respectively.

Despite experiencing a stage of high inflation in the country, office rental prices have not increased due to the pressure still being exerted by oversupply levels, additionally, developers have chosen to leave prices stable in order to make spaces competitive.

Another indicator that is moving in a positive direction is the vacancy rate, which registered decreases in all the country's markets, with the exception of Puebla and León. This trend is also observed in annual terms, with Querétaro and Guadalajara being the entities where the greatest decreases of 7 and 6 percentage points, respectively, have been registered. Tijuana is the market that registers the lowest vacancy rate nationwide, closing the second quarter of 2022 with 8.3%.

In the case of Mexico City, it reports a participation in the national corporate market of 71%, a figure lower than that observed in periods prior to the pandemic, thus showing a sign of the proportional advance of medium and small markets in the national offer, as is the case of Monterrey, Guadalajara and Querétaro.

The fact that practically no new office constructions have been started in most of the main markets at the national level has influenced downward vacancy adjustments and which, in turn, have been decisive for rental price adjustments to be generated within a reasoned scenario. Changes in use have also affected the decrease in vacancy at the national level.

At present, one million 294 thousand square meters of offices are still being executed at the national level, which represents 16% less than what was being executed a year ago. 

They advance 835 and 238 thousand square meters in Mexico City and Monterrey, which represents 83% of the offices that are built nationwide. In Mexico City, the availability of space ranges from 500 to 62 thousand square meters, while Monterrey offers offices from 35 square meters to a complete building of 12.7 thousand square meters.

Although it is true that the recovery in office leasing this quarter in the cities that Solili monitors, compared to the same quarter of 2019, considered a pre-pandemic year, was 80%, we will remain cautious in the process that continues reporting this real estate segment, since there are still important elements to consider when considering these levels of recovery for the remainder of the year, however, the activity of clients seeking to rent or buy office space in the different cities of the country has increased considerably.

The corporate real estate market, a benchmark for institutional investment both in Mexico and in the main cities worldwide, will continue to undergo transformation towards changes in uses that make projects more profitable.

Mixed uses will continue to set the standard in the developments that are still being built and in the next ones to come, where owners and tenants will lean towards those options that allow them a more efficient mobilization in time and resources, increasingly favoring raising their quality of life.