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Published on: 12/19/2005
Last Visited: 12/19/2005
That's according to Michael White, managing director of the CB Richard Ellis (CBRE) El Paso/Juarez office.White and his CBRE colleague Rex Maingot say that because of changing industrial practices, the Juarez boom, triggered by a wave of diversified medical and high-tech manufacturers returning to the border region from Asia, is unlikely to promote the traditional "echo-effect" boomlet in El Paso warehouse construction."Traditionally, when Juarez got a lot of plants, five or six months later those same factories needed distribution space (on the U.S. side of the border) because they were handling both inbound and outbound loads," White said."Today, however, with lean manufacturing, companies are inventorying a lot less.They're only building what they can sell.And they're able, through the Homeland Security FastPass system, to package and seal that trailer on the Mexican side, cross it very quickly and then simply send it on its way to a distribution center elsewhere, or to an end customer."
‘Spec' investingWhite said large institutional investors are increasingly willing to invest in Juarez commercial real estate - including so-called "spec" projects, or those begun without a specific buyer in mind - because it's dawning on them that the perceived risk of investing in Mexico is greater than the actual risk."A spec building today in the 60,000- to 120,000-square-foot range is lucky to stay vacant for more than six months," White said.
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Encouraging the trend toward increasing institutional investment, White said, is the fact that NAFTA has made it possible to hold property in Mexico in fee simple, greatly reducing the actual risk of absentee ownership there.But more than anything, the growing demand for manufacturing space along the 2,000-mile Mexico-U.S. border is what's feeding the current construction boom in Juarez, he said, noting the maquila "shakeout" of 2000-2003 that saw a slowdown in the creation of border plants now appears to be history.The growth of maquiladoras peaked in Mexico in the year 2000; the cross-border manufacturing industry currently boasts 3,700 plants and about 1.3 million direct employees creating $83 billion in gross production annually."The shakeout took about two-and-a half years," White said, "and now companies appear to have learned what products are best suited for Asia."Asia seems to excel at manufacturing small, lightweight products like the flat screen monitors for computers, as well as cellular phones and laptop computers, he said."You can fit a lot of them on an ocean-going cargo container, they're not necessarily time-sensitive, they have a long shelf life for the retailer, and they tend to be highly labor intensive, low-margin products."Makers of those products are continually in search of cheaper labor, White noted, and Asia - specifically China - is currently their location of choice.On the other hand, makers of large capital goods are flooding into Mexico in "unprecedented numbers," he said, citing big-screen plasma and LCD television manufacturers."The glass, which is the key to the technology, is sourced in Asia, but you can go to a Juarez plant today and you'll see a big palette stacked with this very expensive glass," White said.
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"The proximity to the U.S. and the cost differential from, say, Juarez to Cleveland (versus Asia to Cleveland) is so great that we're definitely going to be insulated from the next recession," White predicted."We add so much value on the Juarez side and our proximity is so great that it's very difficult to try to recreate that anywhere else."No longer are manufacturers attracted by low wages in Mexico.Instead, the name of the game is proximity, White points out.Consequently, the plants coming to Juarez these days are clean and orderly, lacking the long rows of workers worrying over small pick-and-sort items."Now you see much more capital-intensive investments, much more automation," White said.
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Typical of the new maquila, White said, is the Juarez Electrolux factory.At 1.5 million square feet, the plant built 18 months ago primarily makes refrigerators for the North American market."They're crossing something like 25 trailers a day of finished goods from that factory," White said."They closed plants in Michigan and South Carolina to move to Juarez.And I'm told in February they'll be announcing a phase 2 for the Juarez plant."The facility is expected to double in size, he said, "and bring an entire new product line and an entire new stream of suppliers into our marketplace."White said the presence of an Electrolux-type factory "is much more significant than any Toyota plant.
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