When the pandemic arrived earlier this year, there was significant uncertainty within the real estate market in Guadalajara, Mexico. Global outsourcing providers pivoted to embrace more work-from-home agents, while also adopting social distancing within delivery centers. Now, large real estate companies are embracing new strategies to compete in the local market.
Specifically, Coldwell Banker Richard Ellis (CBRE), an American commercial real estate services and investment firm, recently announced the launch of a commercial product in Mexico called Loan Services, which is focused on the commercial real estate sector.
“Loan Services is the first local, specialized and independent servicer of commercial real estate financing and passive equity investments,” says Gonzalo Portilla, CBRE’s Managing Director of Loans Services in Mexico. “In adherence to the contractual terms, we take care of a wide range of loan administration and asset management duties for the benefit of the parties in a financing or equity investment situation.”
No Surprise, Rates are in Decline
CBRE’s own research indicates that the pandemic’s impact on the Mexican peso has made some commercial space cheaper in Guadalajara. Zapopan Norte went from US$6.41 to US$4.39 a square foot, and Periferico Sur declined from US$5.45 to US$4.56 a square foot. By comparison, in Mexico City rates have been largely stable, and there has actually been a modest increase in Monterrey.
What is clear is that uncertainty in commercial real estate – not only in Guadalajara, but throughout Mexico, and around the world – will continue through the balance of 2020, and into 2021.
“The next twelve months will be crucial,” says Sanja Cancar-Todorovic, Director of Strategic Relationships and Global Real Estate Asset Management at Manulife. “We expect more people to be working from home. It’s been led by the tech sector, but now its becoming the norm.”
Cushman & Wakefield’s own research for Guadalajara has indicated that in Q2 2020 “the office market practically vanished”
That puts pressure on real estate companies to up their offerings with turnkey operations. For example, Cushman & Wakefield, one of the world’s largest providers of real estate services, has partnered with Grupo Tecni in Guadalajara to provide state-of-the-art facilities for BPO providers in HPE Business Park and Parque Industrial Tecnológico 2, both of which are in Periferico Sur.
However, Cushman & Wakefield’s own research for Guadalajara has indicated that in Q2 2020 “the office market practically vanished,” representing “the worst result for a quarter in the last 20 years” – which was when recording began. For Guadalajara, the company has dropped its net absorption rate for the end of 2020 to 35,000 m2 (376,737 sf), a decline of 24%, further stating that “some of the office searches that are currently in the market will be suspended or rescheduled for when market conditions are more stable.”
Experts like Cancar-Todorovic, who represents a portfolio of properties across North America, are signaling that real estate companies are going to be getting creative when it comes to keeping, and attracting, tenants to their facilities.
“We’ve taken a lot of approaches, including rent deferral, to partner with our tenants, and to help them get through this,” she says. “We might be heading into a second wave, and if all the employees aren’t coming back, we can still work to readjust square footage to account for social distancing.”
In Guadalajara, CBRE is doing its best to work with its customers, with the new Loan Service offering – which has already had success in the USA and Europe – acting as a critical component. Given the larger economic uncertainty, having a real estate company that can act as a financial partner could make a significant difference.
“We envision ourselves facilitating the market entry of new debt platforms for those clients who need a competent ‘last mile’ underwriting and administration practice,” says Portilla. “We draw on CBRE’s Loan Services global capabilities, and add the local know-how to get it done.”
A Harder Hit
Guadalajara’s growth in recent years, and its heavy emphasis on the IT sector, has presented both challenges and opportunities. The local real estate market has been hit harder than other Tier One centers, like Mexico City and Monterrey, which have more diverse economies. However, Guadalajara is also well-equipped to adapt.
“There are winners and loser here,” says Stéphane Flochet, a commercial real estate broker in Guadalajara. “You can really see this if look at the measures being taken, and the market trends, as outlined by Kinvek.”
Kinvek, a commercial real estate company in Guadalajara, expects there to be continued downside for shopping plazas, co-working spaces, and tourism. But is also sees commercial opportunity among those companies active in delivering services remotely. This certainly applies to BPO, and so far the trend supports this. Overall, Nearshore expansion has generated at least 26,000 new agent positions over the last nine months, with Guadalajara seeming to be well-positioned to participate.
This, despite the fact that the United Nations Conference on Trade and Development (UNCTAD), has declared that Mexico will be one of the Latin American countries hardest hit by the pandemic. The silver lining is that with tourism in decline, that also frees up a lot of young, bilingual talent that would be a good fit for services. This, combined with a weak peso, less expensive turnkey facilities, and a local telecom infrastructure that supports working from home, could make all the difference.
It also helps that the real estate companies themselves are willing to go the extra mile, providing financing services that ensure longer term stability, and reduce risk.
“We see ourselves as a facilitator, holding hands with the parties in a transaction to see it progress as they initially envisioned,” says Portilla from CBRE. “We support them with extensive experience, local surveillance, and the required technology.”