The nearshoring boom, driven by global supply chain disruptions, rising labor costs in Asia, and the desire for closer production to North American markets, has significantly impacted industrial real estate markets, particularly in Mexico and Texas. As companies seek to move manufacturing operations closer to the U.S., these regions are experiencing increased demand for industrial space, creating both opportunities and challenges for businesses, investors, and governments.
Nearshoring’s Growth and Its Catalysts
Nearshoring, the practice of relocating production and supply chains closer to home markets, has gained traction due to several factors:
Global Supply Chain Disruptions
The COVID-19 pandemic and geopolitical tensions have disrupted global supply chains, pushing companies to rethink their reliance on distant suppliers.
USMCA Trade Agreement
The United States-Mexico-Canada Agreement (USMCA) has strengthened trade relations between these countries, making nearshoring more appealing.
Labor Costs
As labor costs rise in traditional manufacturing hubs like China, Mexico offers a competitive alternative with lower wages and a skilled workforce.
Logistics and Sustainability
Nearshoring allows companies to reduce shipping times, transportation costs, and their carbon footprint by keeping production closer to the U.S. market.
These drivers have catalyzed a significant shift in manufacturing, and the industrial real estate sector has responded accordingly.
The Texas-Mexico Trading Partnership
Mexico is Texas' largest trading partner, and the numbers tell a compelling story.
- Mexico has been Texas' top trading partner for at least the last 16 years, recently accounting for about 5% of Texas' GDP
- Texas exports about one-third of its $375 billion in goods to Mexico with machinery, electronics and automobiles topping the list
- Trade between Texas and Mexico supports over 7 million jobs in both countries. By 2050, TDOT expects that number to increase to 10.9 million jobs
The economic interdependence between Texas and Mexico is exemplified by the seamless movement of goods through the Texas-Mexico border, where approximately $1 billion worth of goods crosses every day. This trade supports a wide range of industries, from automotive and electronics manufacturing to agriculture and energy, positioning Texas as a critical link in global supply chains.
Impacts to Employment and Regional Development
Cross-border trade between Texas and Mexico supports over 7 million jobs on both sides of the border. In Texas alone, hundreds of thousands of jobs in manufacturing, logistics, transportation, and retail depend on the smooth flow of goods and services across the border. Industries such as automotive, aerospace, and electronics manufacturing have flourished in both Texas and northern Mexico, creating a shared economic zone that benefits from skilled labor, proximity to key markets, and advanced infrastructure.
By 2050, Texas Department of Transportation expects that cross-border trade will generate more than 10.9 million jobs and contribute $604.5 billion in GDP to both economies. This highlights the growing importance of the Texas-Mexico partnership as businesses continue to capitalize on nearshoring trends that bring production closer to North American markets.
Key Industries Driving Texas-Mexico Trade
Several key industries are central to the Texas-Mexico trade partnership:
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Automotive Manufacturing: The automotive industry is one of the most important sectors benefiting from the Texas-Mexico trade. Many Texas-based companies import automotive parts from Mexican manufacturing hubs, while vehicles and parts produced in Texas are exported to Mexico. This cross-border supply chain helps maintain cost-effective production and ensures rapid delivery of parts and vehicles to customers in both countries.
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Electronics: The electronics industry also plays a critical role, with many U.S. companies relying on Mexican factories to assemble components such as semiconductors and consumer electronics. Texas companies import these intermediate goods and often conduct final assembly in the state, taking advantage of Mexico’s cost-effective labor.
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Energy and Agriculture: Mexico is a vital market for Texas' agricultural exports, including beef, grains, and cotton, as well as oil and natural gas. At the same time, Texas imports Mexican agricultural products and energy, with the two countries relying on each other for critical supplies of food and fuel.
Industrial Real Estate Boom in Mexico
Rising Demand for Warehousing and Manufacturing Facilities
Mexico has become a prime location for nearshoring due to its proximity to the U.S. and favorable trade policies under the USMCA. Major cities such as Monterrey, Tijuana, Ciudad Juárez, and Querétaro have seen unprecedented demand for industrial space. The maquiladora industry, which allows foreign companies to operate in Mexico with tax incentives, has played a pivotal role in attracting foreign investment.
Key Trends in Mexico's Industrial Real Estate Market:
- Low Vacancy Rates: Cities like Monterrey and Tijuana are facing record-low industrial vacancy rates due to strong demand. In Q2 2023, vacancy rates in these regions dropped below 2%.
- New Developments: To meet the surging demand, developers are rapidly constructing new warehouses, distribution centers, and manufacturing plants. Industrial parks in the Bajío region, a manufacturing hub, have expanded to accommodate international companies.
- Rising Rents: The nearshoring boom has led to increased competition for industrial space, driving up rents. According to market reports, industrial rent prices in Monterrey surged by 10-15% between 2022 and 2023.
- Sustainability Trends: As companies focus on reducing their carbon footprint, demand for energy-efficient and sustainable industrial spaces is growing, prompting developers to integrate green building practices in their projects.
Strategic Border Cities as Key Hubs
Border cities such as Tijuana, Ciudad Juárez, and Reynosa have become strategic locations for nearshoring operations due to their proximity to the U.S. These cities offer advantages in terms of logistics, customs, and the ability to move products swiftly across the border.
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Companies in sectors such as automotive, electronics, and medical devices are particularly active in these border regions. As a result, industrial real estate developers are expanding their portfolios in these areas, while competition for land has led to increased property prices.
The Texas Industrial Real Estate Market Surge
Growth in Cross-Border Trade and Warehousing Needs
Texas, with its geographic position as the gateway between the U.S. and Mexico, has emerged as a significant beneficiary of the nearshoring trend. Ports of entry like Laredo, the busiest inland port in the U.S., play a crucial role in cross-border trade. Texas is also a prime distribution point for goods manufactured in Mexico and destined for U.S. markets.
Key Trends in Texas' Industrial Real Estate Market:
- Expanding Distribution Centers: Cities like Dallas, Houston, and San Antonio have seen an influx of demand for large-scale distribution centers to handle goods flowing from Mexico. Developers are building mega warehouses to accommodate e-commerce, retail, and manufacturing industries.
- Low Vacancy Rates: Similar to Mexico, Texas is experiencing low vacancy rates in industrial real estate, with major markets like Dallas-Fort Worth (DFW) at one point reporting industrial vacancy rates below 10%.
- Rising Land and Construction Costs: The surge in demand has driven up the price of industrial land, particularly near ports of entry and along key highways. Construction costs have also increased, though developers continue to build aggressively to meet market needs.
- Supply Chain Efficiency: Texas benefits from extensive transportation infrastructure, including rail, highways, and deep-water ports, making it a critical logistics hub for nearshoring companies. The state's industrial parks are strategically positioned to support faster delivery to end customers.
Growth in the I-35 Corridor
The I-35 corridor, which stretches from Laredo to the Dallas-Fort Worth metroplex and beyond, has become a focal point for nearshoring-related development. This corridor serves as a major transportation route for goods moving between Mexico and the U.S., making it an ideal location for warehousing and distribution centers.
As companies nearshore operations, they seek industrial properties along this corridor to streamline their supply chains and reduce delivery times. As a result, real estate developers are actively expanding industrial projects along this route to capture the influx of business.
Opportunities and Challenges
While the nearshoring boom presents opportunities for growth, both Mexico and Texas face challenges related to industrial real estate development:
- Infrastructure Strain: The rapid expansion in industrial operations is putting pressure on existing infrastructure, including roads, utilities, and customs processing at border points. Both countries need to invest in infrastructure upgrades to support sustainable growth.
- Land Scarcity: As industrial demand continues to rise, land in prime areas near key trade routes and urban centers is becoming scarce, pushing development into more remote regions.
- Skilled Labor Shortages: Both Mexico and Texas must address skilled labor shortages to support the growing demand for manufacturing and logistics operations. Investment in workforce development programs is essential for long-term success.
Conclusion
The nearshoring boom has reshaped the industrial real estate markets in both Mexico and Texas, creating a surge in demand for warehousing, manufacturing, and distribution facilities. While this trend has brought new investment and opportunities, it also presents challenges related to infrastructure, land availability, and labor. Companies looking to capitalize on nearshoring must navigate these dynamics carefully to optimize their supply chains and position themselves for future growth. For investors and developers, the nearshoring trend represents a unique opportunity to shape the industrial landscape in North America’s rapidly evolving trade environment.
