Cost of Industrial Buildings in Mexico vs. U.S.

July 20, 2020

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Manufacturers of all sizes are always looking for ways to optimize efficiency. If your operation is currently based in the U.S., you know firsthand that industrial space is extraordinarily expensive. 

Rather than looking for cost-cutting measures elsewhere, one of the most beneficial ways to maximize your bottom line is reconsidering where your warehouses are stationed.

For businesses across the U.S., your best option is to move your manufacturing to Mexico.

This guide will cover what it costs to buy or rent industrial buildings in Mexico, as well as how favorably those prices compare to the U.S. Then, we’ll go over other cost-saving benefits of manufacturing in Mexico. Finally, we’ll lay out what it takes to get started.

Cost of Warehouse Space in Mexico

Warehouses and other industrial real estate are significantly less expensive in Mexico than they are in the U.S.. Whether you are looking to rent or lease a space, or even purchase a warehouse to exercise total control over all operations. Considering purchasing an infrastructure in Mexico for your business?

Looking at the respective costs:

• Costs to rent or lease industrial space in Mexico – In Mexico, rental leases for warehouses and the likes of cost approximately:
• • As low as $0.38 persq. ft., monthly
  • Maintenance charges of $.45-.55 per sq. ft. and $.025 per sq. ft
  • Total monthly expenses of approximately $0.3815+ per sq. ft.
• Costs to buy industrial space in Mexico – Purchase prices for industrial properties in Mexico can vary widely: 
• • As low as $2.50 per sq. ft. for land
  • As low as $4.20 for existing facilities¹

These prices are low. Some of the finest warehouse space Mexico City has to offer can be had at a fraction of similar spaces in other major global cities. This is why business owners from the U.S. are turning to manufacturing plants in Northern Mexico. This allows business owners to maintain all parts of their business in close proximity to the U.S. while benefiting from lower industrial space costs. 

Just how well do these rates compare to prices in the U.S.?

Comparison to Warehouse Costs in the U.S.

Relative to the prices above, you can expect to pay much more for industrial real estate in the U.S.—whether you’re renting or purchasing:

• Renting industrial space in the U.S. – Costs break down to the following monthly averages:
• • $0.85 per sq. ft. in base rent
  • $0.25 per sq. ft. in operating costs
  • $1.10 per sq. ft., total²
• Purchasing industrial space in the U.S. – Costs can vary widely:
• • About $7.50 per sq. ft. for an affordable general-purpose warehouse³
  • Up to a whopping $140 per sq. ft. for high-end industrial space⁴

These prices are among the highest globally. The difference between renting and buying prices is proportionate to Mexico’s, but the overall costs are significantly higher.

But why are the prices so different?

Factors Impacting Industrial Real Estate Cost

Industrial real estate has experienced incredible growth over the past decade⁵. That growth has translated into ever-increasing costs for real estate assets themselves.

While the first half of the 2010 decade was difficult for real estate as a whole, 2015-2020 has been a “golden age” for the industrial sphere, leading experts to wonder what the future holds⁶. An increase in demand for commercial real estate has contributed to the economic growth we have been over the last few years. Growth across the global market has held steady, with strong absorption manifesting in:

• Increases in rent
• Decreases in availability

Because of the emergence of e-commerce as a major driving factor, demand for industrial real estate has skyrocketed. More businesses need additional factories and warehouses to keep up with skyrocketing sales.

That’s how the industry managed to recover from the Great Recession and its aftermath.

However, these trends haven’t been reflected everywhere. Mexico’s industrial real estate market has faced turbulence⁷, which came to a head in 2019, with the lowest annual growth (1.5%) in years. As values have surged everywhere else, they’ve stayed low in Mexico.

So, given these relatively low prices, the next logical question is:

Should You Rent, or Should You Buy?

It depends on your needs and means.

Renting or leasing is generally cheaper over the short term. In addition to lower upfront costs, conducting business from rented property enables you to focus on production without worrying about responsibilities associated with ownership.

However, you enjoy less control over the specifications and operation of the property.

Purchasing, on the other hand, is an investment. Although it requires significantly more capital upfront, buying a property pays out in equity over time. In addition, ownership entails additional maintenance costs above and beyond analogous burdens assumed by renters.

But, whereas rental fees are never recouped, payments toward a purchase contribute to assets that can grow in value and be sold in the long-term. This investment can be passed down, and with a growing demand for industrial space in Mexico, having an industrial property in your name settled puts you on the path to potentially greater profit than your competitors. In addition, ownership grants complete control over all aspects of the property, including construction. You can customize your space to meet the exact specifications your operation requires.

The bottom line? Industrial real estate is significantly more affordable in Mexico than in the U.S.—whether you are looking to lease or buy your warehouse(s).

But that baseline cost isn’t the only reason manufacturing in Mexico is beneficial.

Other Benefits of Manufacturing in Mexico

In addition to cheaper industrial real estate, there are numerous other benefits to manufacturing in Mexico. The cost of your warehouse is hardly the only expense chipping away at your bottom line—other major considerations include:

• Logistics
• Trade frictions
• Labor cost

Moving your manufacturing to Mexico can offer solutions on all of these fronts.

Geographical Proximity

One of the major benefits of moving your manufacturing to Mexico is that you’re not moving far away at all. Mexico borders the U.S., so all manufacturing in Mexico is closer than analogous plants in Asia or Europe.

Additionally, most industrial real estate is located in Northern Mexico, further minimizing travel distance to all U.S. locations. That geographical proximity means:

• Streamlined logistics
• Fewer total miles in costly freight travel
• Shorter duration and overall wait times for shipping
• Easier access to physical stock for inventory and maintenance

In addition to geographical proximity, favorable trade agreements with the US make Mexico feel even closer than it is.

Trade Agreements

Free trade protections have been in place between the U.S. and Mexico since 1994, with the adoption of the North American Free Trade Agreement (NAFTA). These protections have only increased with the United States-Mexico Canada Agreement (USMCA), ensuring that all supply and distribution are nearly seamless.

Some of the most important free trade protections include:

• Zero-tariff guarantees, contingent upon certain regulations
• Increased intellectual property protections, especially for tech firms

Finally, Mexico offers further efficiencies in one of the most significant expenses any business is burdened with: labor.

With an increase in these protections with the USMCA, you may be wondering “what all has been changed in these trade agreements?” Well, look no further. Continue reading to find out the differences between USMCA vs NAFTA.  

Quality, Affordable Labor

Labor in Mexico is more affordable than labor cost in the US. In fact, it’s about 70% cheaper, on average, than labor in most developed countries.

Why is that? It has a lot to do with the price floor.

About 11 million Mexican workers earn what amounts to a minimum salary over the course of a year. Here’s a breakdown of what the wage floor looks like in Mexico:

• Minimum wages are up 20%, at 123.32 pesos (about $6.36) per hour
• In the border region, they are higher: 185.56 pesos per hour⁸

Despite being a significant increase over what Mexican workers had earned in years prior, these rates are relatively low. Due to economic backlash, they seem unlikely to increase:

• Wage increases have coincided with decreases to interest rates (from 8.25% to 7.50%)
• Further interest rate decreases (down to 6.50%) are likely

This means that, despite recent uncharacteristic increases, minimum wages are likely to remain stable for the foreseeable future.

But the labor force in Mexico isn’t just more affordable than what you’ll find elsewhere. There’s also an abundant supply of quality direct labor across various skill levels:

• Unskilled direct labor – Workers whose jobs require little to no technical training. Often, monolingual minimum wage earners, these workers are a perfect core for any manufacturing business.
• Semi-skilled direct labor – Workers with two or more years of experience performing specific tasks that require technical training. While these workers can earn up to 20%-30% more than their unskilled counterparts, they are reliable. Turnover is low.
• Skilled direct labor – Workers with over five years’ experience handling tasks that require specific skill sets and rigorous training. Often bilingual workers capable of quasi-managerial tasks, these employees may earn up to double or triple that of unskilled laborers. However, that rate is still lower than equivalent U.S. workers.

Workers across these skill levels will save you money while ensuring quality: a win-win.

For these and all the other reasons detailed above, relocating your manufacturing to Mexico is an excellent way to maximize the efficiency of your business.

NAPS is here to help you get started.

Rent or Purchase Warehouse Space in Mexico

Not only is moving your manufacturing to Mexico significantly cheaper with respect to industrial real estate and all the other efficiencies detailed above—but it can also be extremely easy.

For over 25 years, NAPS has paired clients with industrial spaces in Northern and Central Mexico. Our Site Selection services empower you to lease or purchase warehouses in Mexico with confidence and ease.

Our experts analyze all elements of your business, understanding your needs, and means intuitively. Then, we match your business to at least three locations that meet or exceed your requirements. You tour the locations, and we facilitate all purchase or leasing agreements. Then, we oversee further construction to ensure compliance with local standards.

With the cost of industrial buildings and labor, offshoring to Mexico might be the best move you’ve ever made for your business. 

 

Sources: 

1. American Industries Group. How Much It Will Cost You to Operate in Mexico. http://americanindustriesgroup.com/assets/how-much-ebook.pdf 
2. Prologis. How Much Does It Cost to Rent a Warehouse?  https://www.prologis.com/about/resources/how-much-does-it-cost-to-rent-warehouse
3. Shwarz Properties. Leasing vs. Purchasing a Warehouse Space.  https://www.schwarzproperties.net/tips-tricks/leasing-vs-purchasing-a-warehouse-space/
4. Million Acres. 5 Ways Industrial Real Estate Changed From 2010 to 2020.  https://www.fool.com/millionacres/real-estate-investing/articles/5-ways-industrial-real-estate-changed-from-2010-to-2020/
5. International Journal of Scientific & Technology Research. Factors Affecting Industrial Property Value. http://www.ijstr.org/final-print/jan2020/Factors-Affecting-Industrial-Property-Value.pdf
6. Deloitte. The Future of the Industrial Real Estate Market. https://www2.deloitte.com/us/en/insights/industry/financial-services/future-of-industrial-real-estate-market.html
7. Mexico NOW. Mexico’s Industrial Real Estate Disruptions & Drivers. https://mexico-now.com/mexicos-industrial-real-estate-disruptions-drivers/
8. Reuters. Mexico to Hike Daily Minimum Wage by 20%, Experts Worry About Inflation.  https://www.reuters.com/article/us-mexico-wages/mexico-to-hike-daily-minimum-wage-by-20-experts-worry-about-inflation-idUSKBN1YL051