Cesar CantuGuadalajara, the so-called “Mexican Silicon Valley”, has left the troubles of the pandemic behind and is undergoing a recovery of its office market, enabled mostly by the tech industry.
Though small when compared with the likes of Mexico City and even Monterrey, Guadalajara’s office market has managed to remain competitive, attracting some of the largest tech players in the world. Such high levels of activity don’t come without consequence, though. The local real estate ecosystem is far from saturated, but analysts expect rental costs to hike in the absence of adequate supply to feed the growing demand.
NSAM spoke with Sergio Hinojosa –Executive Director for Guadalajara’s Office Market at JLL Mexico– to get a clear picture of the state of the office market in Guadalajara. Mr. Hinojosa provided an idea of where the local market is at the moment and where one can expect it to go in the short term.
Mr. Hinojosa also shared his thoughts on emerging markets outside Guadalajara, how the city compares with other major office ecosystems in Mexico and which locations to keep an eye on.
NSAM: You shared with us a recent report by JLL on the state of Guadalajara’s office market, in which you conclude that a recovery is taking place. What signs of recovery do you see?
Sergio Hinojosa: It must be noted that Guadalajara’s office market is dominated by the tech industry. Most of the office space is leased by companies from that sector. Guadalajara has for many years been characterized as “Mexico’s Silicon Valley.”
Even though Guadalajara’s office market is the smallest one of the top three cities in the country [including Monterrey and Mexico City], it is the healthiest. We expect vacancy rates to dip below 10% by the end of the first quarter of 2024.
About 70% of office space is taken by the tech industry. Companies in this sector did very well during the pandemic. Tech was one of the very few industries which benefited from COVID. Now that the pandemic’s left behind, companies are coming back to the office.
We’re seeing two phenomena taking place. On one hand, you have already established companies which grew during the pandemic. On the other, you have new businesses landing in Guadalajara, seeking to set foot on the market. That has produced a very healthy office ecosystem. Vacancy rates are quite low, in contrast with what’s seen in other markets not only in Mexico, but worldwide.
NSAM: With business leaders pushing for a return to the office, are companies shopping for traditional offices or are they sticking to environments similar to a coworking space? More open, customizable.
Sergio Hinojosa: There’s a bit of everything. We’ve seen mainly a preference for company-owned offices. I mean, companies are leasing these spaces directly. They build wider environments.
Private offices are a thing of the past, particularly for tech. You do have closed spaces, but those are used mainly for collaborative purposes; as meeting rooms, for brainstorming sessions and activities of that sort.
NSAM: Are companies shopping for office space in the, let’s call it, “chic” side of town? Or are they going for lower prices?
Sergio Hinojosa: They are shopping mostly in the Puerta de Hierro and Americas zones, which are the traditional areas in the office market.
It’s not about pricing. Prices aren’t that different between zones, actually. Buyers are noticing other perks instead. In Zona Sur, for example, which is relatively new to the office market, access during rush hour is less complicated than in Americas and Puerta de Hierro. You have amenities too. Plus, access to Zona Sur is easier from residential areas where many of the engineers working for these tech companies live.
Even though Guadalajara’s office market is the smallest one of the top three cities in the country, it is the healthiest.
They might start shopping in the chic side of town, as you call it, or in traditional office areas, but once they see what’s available in the rest of the market, leasing starts to happen all over the place.
NSAM: Are they experimenting with lesser known areas, then?
Sergio Hinojosa: With non-traditional ones.
NSAM: The tech companies landing in Guadalajara, are they the bigger names in industry? Or are they smaller players?
Sergio Hinojosa: A bit of everything. You see small, medium-sized and big companies. The big, traditional names have been here for years now: Oracle, Cisco, HP, IBM. But there are also smaller, lesser-known names.
Something we’ve noticed is that small companies land here and open business centers or coworking offices. They rent spaces for three or four people, and they follow shortly with a fast expansion.
Clients of ours have told us that they arrive in Guadalajara expecting to operate it as a lab of sorts, just to see how it goes, and they end up being blown away by the talent of the local engineers; by how they solve things differently, creatively. That’s what most companies have told us.
NSAM: In the report you shared, you mention an expected increase in Guadalajara’s office rent prices. Are you expecting price increases for the four main zones [Americas, Puerta de Hierro, Zona Sur and Vallarta] or for some of them only?
Sergio Hinojosa: Each zone has seen pretty much the same level of growth. What we’re seeing is a lack of options. Due to the pandemic, most developers and investors paused their projects. Today, there’s only one project being developed, and it’s in Americas. We expect growth in that area because there are no new options anywhere else.
NSAM: There’s no supply.
Sergio Hinojosa: No supply, but demand is still there. We’re expecting growth in Americas because it is the only zone that will have new options.
NSAM: Are you expecting uncontrolled growth? Or something within the norm?
Sergio Hinojosa: Normal growth, with less supply than demand. Growth would be stronger if there was more supply overall.
Small companies land here and open business centers or coworking offices. They rent spaces for three or four people, and they follow shortly with a fast expansion.
NSAM: Have you noticed emerging officer markets within Guadalajara or even outside of the city?
Sergio Hinojosa: Not in Guadalajara; there’s nothing new inside the city. What we’re noticing is growth in cities near Guadalajara and which, traditionally, didn’t have an office market. Puerto Vallarta and Aguascalientes, specifically.
Due to the vast amount of companies operating in Guadalajara, some are starting to worry about talent availability. They don’t want to compete in the same city for engineers, so they turn to the mid-sized and smaller cities nearby, like the two I mentioned.
NSAM: You’re familiar with Merida’s office market too. I know it isn’t anywhere near Guadalajara, but we’re curious. What’s happening in Merida?
Sergio Hinojosa: Merida is a very small office market. Non-traditional too. You have mainly the bigger banks, insurance companies and developers. It isn’t like Guadalajara’s market, dominated by tech; or even Queretaro’s, with all its data centers; or Tijuana’s, for medical devices.
What we noticed in Merida is that it grew impressively over a short period of time. It grew a lot during the pandemic. Many of us who learned to live away from the office moved to Merida, mainly due to security. It’s quite a peaceful city, in that sense.
We think that all of that growth in the city will bleed into the office market, which is natural.
NSAM: You said earlier that Guadalajara has the smallest office market among Mexico’s top three cities. Are you referring to square meters?
Sergio Hinojosa: Square meters, yes. See here: Mexico City’s office market has between 7 million and 7.5 million square meters; Monterrey has about 1.1 million square meters. Guadalajara has around 600,000 or 700,000 square meters of office space.
What we’re noticing is growth in cities near Guadalajara and which, traditionally, didn’t have an office market. Puerto Vallarta and Aguascalientes, specifically.
NSAM: How would you describe Guadalajara’s office market compared to Monterrey’s and Mexico City’s?
Sergio Hinojosa: It is the healthiest one of the three, in many respects. It comes down mainly to its vacancy rate. Mexico City has improved over the last couple months, but its vacancy rate remains above 20%. Same thing goes for Monterrey. Besides, both cities went through the shocks of oversupply and the pandemic.
Guadalajara’s pricing is slightly below that of Mexico City’s and pretty much even with Monterrey’s.
NSAM: Guadalajara is considerably smaller than both cities. Why is pricing not as different?
Sergio Hinijosa: I think that can be explained by the sort of businesses that land in Guadalajara. The tech industry is more lax, so to speak. Banks love to have a building with their logo displayed outside. They like flamboyance. Their preference is for offices that can be shown off; wide spaces for their directors. Tech businesses aren’t like that. They like open spaces. If the logo isn’t shown outside, that’s OK. It’s like a different way of living; a totally disparate environment.
I think that’s one of the reasons rent in Guadalajara remains slightly below what’s seen in other markets.
Add comment