mexico city<u+2014>the u.s. presidential election is still days away but the impact of the campaign and its outsized focus on mexico already are being felt in the market for warehouses and factories in border towns like juarez, monterrey and saltillo. leasing of industrial space along mexico<u+2019>s northern border has slowed sharply as uncertainty has grown over how the election<u+2019>s outcome<u+2014>particularly a victory by republican candidate donald trump <u+2014>would affect demand. mexico<u+2019>s industrial real-estate market has exploded since the north american free trade agreement took effect in 1994 and created a unified market between canada, the u.s. and mexico, making it easier for manufacturers to take advantage of cheap labor, low costs and less-stringent business regulations south of the border. in the past decade alone, it has nearly tripled to more than 710 million square feet of space. but the election of mr. trump<u+2014>who has called for the u.s. to pull out of nafta<u+2014>could have a chilling effect on the market in the short term, experts say. if nafta were done away with, <u+201c>on the mexican side of the border a lot of the facilities will go vacant, rents per square foot will drop substantially,<u+201d> said tom fullerton, an economics professor at the university of texas at el paso. <u+201c>it<u+2019>s not hard to imagine about a 30% to 40% vacancy rate collectively on both sides of the border.<u+201d> the country<u+2019>s largest industrial property owners and investors include a half-dozen real-estate investment trusts<u+2014>known in mexico as fibras<u+2014>and dozens of smaller, family-owned developers and closed-end property funds. large international investors, including san francisco-based reit prologis inc. and pgim real estate, the property arm of prudential financial inc., also have a big presence in mexico. mr. trump has argued that nafta has resulted in the loss of millions of american jobs that have stripped huge parts of the u.s. of its economic base. he has advocated for penalties on u.s. companies that outsource jobs and for steep tariffs on goods imported from mexico and says he plans to build a wall along the border to keep out illegal immigrants. to be sure, not all the news is bad these days for industrial property owners in mexico. those with real estate further from the border are seeing strong demand, thanks to long-term confidence on the part of auto makers and a growing mexican consumer class. indeed, central mexican auto-manufacturing centers of quer<u+00e9>taro, puebla and san luis potos<u+00ed> and the consumer-goods distribution hubs surrounding mexico city are flourishing.<u+00a0>tenants leased 3.96 million square meters (42.6 million square feet) in the country<u+2019>s top 15 biggest markets during the first three quarters of 2016, compared with three million square meters for the first three quarters of 2015, according to commercial real-estate company cbre group inc. but earlier this year, as mr. trump moved closer to clinching the nomination, investors and tenants in the border market began moving toward the sideline, even though democratic candidate hillary clinton has been leading in the polls. leasing fell in monterrey, juarez and saltillo over the first three quarters compared with the same period a year earlier, cbre said. these real-estate markets depend on manufacturers that sell tens of billions of dollars of appliances, medical devices, electronics and apparel in the u.s. those manufacturers, in turn, are big beneficiaries of nafta. <u+2018> companies that are investing on the border are more affected by free trade because they<u+2019>re exporting back to the u.s. directly. <u+2019> <u+201c>companies that are investing on the border are more affected by free trade because they<u+2019>re exporting back to the u.s. directly,<u+201d> said david o<u+2019>donnell, president of o<u+2019>donnell mexico, a large industrial landlord and developer. he said that at least three of his potential tenants have put major deals on hold in border markets because of election-related uncertainty. <u+201c>everything has kind of been on hold,<u+201d> mr. o<u+2019>donnell said. <u+201c>i think after the election, they come right back in.<u+201d> a similar slowdown has hit amistad industrial developers, a large industrial landlord based in ciudad acu<u+00f1>a, a town in mexico<u+2019>s coahuila state across the rio grande from del rio, texas. <u+201c>we have seen two or three companies who have mentioned that they will postpone their investments until after november 8th,<u+201d> in the automotive supply and air-conditioning manufacturing sectors, said amistad<u+2019>s co-chairman marco ramon. mrs. clinton also has criticized nafta but hasn<u+2019>t proposed any specific revisions to the deal that are likely to impede trade. a clinton win could even trigger a surge of deals in the short term because of the pent-up demand. what isn<u+2019>t clear is the long-term impact on the industrial real-estate market from a trump presidency. some believe that the ease of doing business in mexico, the large, inexpensive labor force, the difficult and time-consuming prospect of unwinding nafta and the effect of mexico<u+2019>s trade deals with 45 other countries all serve as long-term buffers for the real-estate market and the economy as a whole. also, many american manufacturers along the border have had a presence in mexico since the late 1960s when the cross-border manufacturing complexes known as maquiladoras mushroomed. manufacturers will likely continue relying on cheap labor there regardless of who is elected president. <u+201c>their outlook is, this thing has been around for 30-plus years, and it<u+2019>s not going anywhere,<u+201d> said mr. ramon, of amistad. <u+201c>they have to pay these lower wages in order to remain competitive.<u+201d> write to robbie whelan at robbie.whelan@wsj.com and erica e. phillips at erica.phillips@wsj.com
how u.s. election may impact factories in mexico - wsj
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