The Mexican corporate sector, at the end of the third quarter of 2022, continues to go through the recovery march and manages to advance with downward adjustments in vacancy in almost all markets nationwide, as a result of the increase in gross demand of one third with respect to to the previous quarter and double compared to the same quarter of 2021.

The environment continues to be characterized by a significant growth in the inflation rate, which at the beginning of August 2022 reported 8.7%, according to Banxico, driven by the increase in food and energy prices. Inflation becomes a relevant fact in the corporate market that affects both inventory replacement costs and rental prices and that, in combination with the pace shown by demand, will encourage or not encourage developers at startup of new buildings.

If we focus on the gross demand at the national level, of the total of almost 270 thousand square meters of registered corporate spaces, Mexico City concentrates 65%, which indicates the strength that the rest of the corporate markets are taking, which are increasingly becoming more higher share of the national total.

Now, the recovery in the gross demand of the country's capital continues its rise and exceeds by almost 30% what was registered the previous quarter and by 160% than what was registered a year ago, which indicates that we are facing a scenario of sustained return to the offices in Mexico City.

Guadalajara registers almost double the demand compared to the same period in 2021 and together with Monterrey and Querétaro they lean towards equipped offices that are gaining ground, showing that tenants take a measured risk without betting on the long term.

At the end of 3Q 2022 in Monterrey, a greater participation was registered due to the purchase of offices, while in Guadalajara it is rent that dominates the demand for the period. In Mérida, corporate and mixed-use projects continue to make good progress.

The demand from emerging markets such as Mérida and León continues and corresponds to the industrial investment that has settled in these entities during 2022 and that, together with related services, seek to establish themselves in spaces consistent with corporate performance.

The absorption of offices has been characterized by continuing with the rental of existing spaces, pre-leases have lost preference on the part of the tenants, that is to say, that the decision-making of the companies is based on the short term, this has also played in favor so that the vacancy rates of most markets are down.

Another favorable element is the decrease in vacancy, which in the case of Guadalajara, closes the period with almost 16% with a downward adjustment of just over 5 percentage points in the last year. Markets such as Monterrey, Querétaro, Tijuana and Mérida continue with the same trend and decrease nearly three percentage points compared to 3Q 2021.

The highest vacancy percentages at the end of the quarter are found in Puebla with 27%, Mexico City with 22.6% and Querétaro with 18%, this market being the only one that increased its vacancy percentage during the quarter that ended. Another important market such as Monterrey closed with a 17% vacancy.

Regarding prices, we observe a scenario of more moderate adjustments that have allowed slight increases in rental prices, as in the case of Querétaro and Tijuana, between 1% and 2% in annual terms.

The emerging markets of Mérida and León show annual increases of 7% and 16%, respectively, due to the push that industrial demand has created in their regions, as well as for being markets where oversupply is not an element that worries developers .

In the country's capital, although the annual increase in rents looks moderate, there are some corridors that exceed the average where the greatest number of new projects entering the market and achieving the highest rents are concentrated.

During 3Q 2022, only two corporate buildings began construction, one located in Guadalajara, with a leasable area of just over 11 thousand square meters, and the other located in Monterrey with approximately 9 thousand square meters. The country's main market, Mexico City, continues without reporting construction starts, as a result of the still high numbers of vacant spaces reported by the market.

Given the scarce start of new corporate constructions at the national level, the decrease in works in process corresponds entirely to the settlement of projects that had been advancing before the pandemic and that, upon completion, went on to feed inventories.

Almost 100 thousand square meters have been incorporated in Mexico City so far this year and in the case of Monterrey and Puebla the figure was 43 and 45 thousand square meters, respectively. Only during this quarter a total of 10 buildings were added to the inventory nationwide, representing 40 thousand square meters. Mexico City was the market that completed the most buildings during 3Q 2022, with a total of 7 corporate buildings, most of which were spaces classified as B.

Vacancy, as we had been anticipating in the Solili reports in July and August 2022, has decreased in almost all office markets, a sign of the increasingly firm and sustained presence of tenants in staying with leased spaces prior to the pandemic. The fact that more and more people are looking for corporate spaces is a reality and it has to do with the decrease in the home office modality if we compare it with the beginning of the year, where it can still work for certain particular groups, but it is not applicable to the full template.

In the remainder of the year, a significant recovery will continue to consolidate, although at the beginning of 2023 some brokers, such as Bosques and Periférico Sur in Mexico City, or markets such as Mérida, maintain the downward adjustment of vacancy, allowing them to exit of the oversupply thus creating the favorable conditions to once again be at the forefront of the start of new corporate projects.