The increase on transportation costs due to rising oil prices, plus an expensive labor force is pushing European companies to consider moving to the Mexican market. "Mexico's geographic location close to the U.S. market is becoming an attractive option for companies looking to save operating costs, that's why the country is booming with distribution centers," said Lorenzo Berho, President of the Mexican Association of Industrial Parks (AMPIP), during the opening of the Pan-American Commercial Real Estate Summit, held jointly with NAIOP in Mexico City in June.

Commenting on the NAIOP-AMPIP alliance, "Over the past several years, both organizations have brought together the best real estate talent from the Americas as business partners and as peers," commented Alan Beaudette, 2008 NAIOP Chairman and senior vice president, Harsch Investment Properties.

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A recent ProLogis Research Bulletin, "Mexico's Maquiladoras - Climbing the Ladder of Success," states that global manufacturing companies prefer Mexico to China in situations where the final product is expensive to ship, where intellectual property rights are a critical concern, or where the final product can be custom ordered. Beginning in 2003, Mexico's manufacturers have gradually shifted production away from low value-added goods and focused instead on high value-added goods for export, resulting in hefty increases in both the production and export of manufactured goods. The new product mix emphases heavy goods, just-in-time products and products with short cycle requirements - all of which are meant to take advantage of Mexico's proximity to the U.S. Mexico's production is closely linked to the U.S. as shown in Figure 1.

According to the most recent Latin American report by Prudential Real Estate Investors, both Mexican and Brazilian governments are implementing policies to extend the positive momentum of their strong internal demand by focusing on infrastructure projects intended to ensure long-term growth. Mexico continues to be an attractive location for global manufacturing firms, especially from the automotive sector, a factor that supports a strong speculative development in the country's industrial market. In the case of Brazil, the industrial market is not as attractive for developers, since most facilities are owned by users. That is why local and foreign institutional investors are participating more in infrastructure projects.

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According to Wenceslao Bunge, Managing Director of Credit Suisse for Latin America, talking about industrial parks is talking about risk. This is the vision of capital investors who explained the real estate risk spectrum at the Debt & Equity Markets Perspective Panel (Figure 2). Commenting specifically on the Latin American markets, Bunge remarked, "Latin American economic fundamentals are robust, and the region is expected to grow over four percent for the fifth consecutive year.

"Steve Lekki, Director of RREEF Alternative Investments, stated "South America is one of the most dynamic regions for global real estate transactions. The office market is the most active in terms of acquisitions, followed by retail, hotel and industrial."

Regarding investment trends, "Mexico represents 38 percent of the total Latin American real estate transactions -- the retail sector the most dynamic with 27 percent growth in 2007 -- followed by industrial with 20 percent. Although cap rates trend to decrease in all sectors by 8-10.5 percent, Mexico's rent level is stable," said Raul Gallegos, managing director, GE Real Estate, Mexico.

On the tenant side, "Investors are looking for the best location not only in terms of costs but also in logistics efficiency," commented Sergio Ornelas, Intermex Industrial Parks, Mexico. Ornelas explained that some assembly plants that previously moved their operations to east European countries such as Poland or Czechoslovakia are coming back to Mexico, in part as a result of the Euro rise and higher transportation costs. For European companies exporting to the U.S. market, Mexico can offer 30 to 40 percent savings on logistics costs. This is the case of Sezna and Honeywell setting up in Chihuahua, close to the U.S. border.

About Brazil, "While Sao Paulo continues to be the main market, traditional real estate markets are experimenting with decentralization to new markets, attending a more sophisticated tenants' demand," said Jordan Malugen, director of investments, Prudential Real Estate (IPREI), Brazil. Malugen explained that the Brazilian industrial market is basically owner-occupied, large industrial and distribution facilities. He mentioned that after a long period of stagnation occasioned by a low level of investments, the market is expected to recover its growth, as a result of a slow but increasing demand of speculative buildings.

The relevance of this Pan-American Summit was the opportunity to learn more about what's happening in the rest of the continent, to share information and ideas and to promote new business projects among AMPIP and NAIOP members.