Reports: Industrial Demand Stays Strong in Cross-Border Region

Need for industrial real estate remains robust in the U.S.-Mexico border region that consists of San Diego County, even in the middle of rising worldwide tensions over trade tariffs and the potential re-negotiation of the North American Open Market Agreement (NAFTA), according to two current reports.

The manufacturing supply chain in the area is draining billions of dollars worth of items and foreign exports that are increasing the requirement for storage facilities on both sides of the border, the reports summary.

One report from the San Diego Regional Economic Advancement Corp. (EDC) and the University of California San Diego noted that the area has ended up being the world’s biggest medical device manufacturing cluster. That is increasing demand for industrial realty from makers of medical and biotech-related gadgets such as Becton Dickinson and Thermo Fisher Scientific, which in recent years have enlarged their industrial existence in the cross-border area that includes the Mexican state of Baja California, along with San Diego and Imperial Counties on the United States side.

Likewise active in the border area are industrial users including makers of audio and video equipment, semiconductors, aerospace parts and plastic goods.

In overall, the production supply chain within the combined region, known informally as Cali Baja, produces $2.5 billion of items yearly. That area represent $24.3 billion in foreign exports, and trade with Mexico supports more than 566,000 California jobs, the report notes.

Mexico’s Tijuana market has been getting a large share of the mega-region’s new commercial jobs due to aspects including increasing costs and longer approval processes on the U.S. side. A report from Los Angeles property brokerage CBRE Group Inc. keeps in mind that the area included 800,000 square feet of new industrial inventory throughout the second quarter, while preserving that market’s commercial job rate at a historically low 3.6 percent.

At mid-year, Tijuana had an extra 1.8 million square feet under construction, about one-third of which was pre-leased. CBRE cited commercial survey findings from the Mexican data firm Solili, indicating 70 percent of respondents in Tijuana increased need throughout the second quarter and 50 percent forecasted higher need over the next 6 months.

With spaces in Tijuana filling up, demand is slowly increasing in Baja California commercial markets even more to the east, such as Tecate and Mexicali.

In past cycles, observers kept in mind, there has been a maquiladora or “twin plant” set-up, where firms establish operations on both sides of the border to, for instance, manage making with a lower-cost workforce on the Mexico side and circulation or final assembly on the United States side. That dynamic stays, though to a lower level than seen during the 1980s and 1990s when it was flourishing.

” It depends considerably on exactly what the manufacturing operation is and to where they ship the ended up item, along with where they get raw materials or sub-assembly parts,” said CBRE Senior citizen Vice President Joe Smith in downtown San Diego, in an email.

Even as the marketplace remains strong now, it could alter if trade policies do. The report by the Economic Development Corp. and university scientists added that disturbances to the cross-border economy– including those that might arise from trade agreement or tariff modifications– could disrupt a manufacturing sector that directly utilizes more than 418,000 workers on both sides of the border.

Still, there’s possibility of ongoing demand outside of trade-reliant business. Smith kept in mind that Otay Mesa, San Diego’s crucial border-adjacent production and logistics submarket, over the last few years has become less dependent on cross-border business and has actually grown its regional profile as the “affordable option” for users within San Diego County. Otay Mesa’s rents and land costs remain generally lower than rates for corresponding sites in places like main San Diego and North County.

” It is very important to mention that South San Diego County is still the house of the least pricey housing opportunities,” Smith stated. “It would seem logical that Otay Mesa will continue to be the focus of extra manufacturing and back-office growth in the coming years.”

South County neighborhoods, especially neighboring Chula Vista, have actually recently seen a rise in completions of new apartments and single-family homes, normally priced lower than in other parts of San Diego County to the north. That real estate, other observers have actually stated, is currently triggering firms to think about Otay Mesa for their commercial operations, a minimum of more so than they would have simply a couple of years back.

” Business entities will determine that it may make more sense to find job opportunity in locations that are easier to the employees than for in charges,” Smith stated.

In the meantime, mid-year numbers from CoStar Market Analytics paint a picture of an usually healthy commercial climate for Otay Mesa, with new building and construction restricted to a couple of speculative jobs. The amount of new industrial area under building as of mid-year in Otay Mesa– at 591,000 square feet– is only about one-third of what was underway on the Tijuana side of the border.

The Otay Mesa submarket’s job rate is 7 percent, greater than the total San Diego region’s 4.5 percent, however still traditionally low. Its annual rent development of 7.2 percent tops the region-wide 5.5 percent rate since mid-2018. Today, the typical Otay per-square-foot monthly rate is 77 cents, well listed below the San Diego local average of $1.24.

Investors are banking on the continued growth of market. Otay Mesa’s commercial property purchase volume throughout the past 12 months was $122 million, up 74 percent from the previous year. Meanwhile, San Diego County as an entire saw deal volume come by 10.8 percent, though it still hit a strong $1.6 billion.

Lou Hirsh, San Diego Market Reporter CoStar Group.

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