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Commercial Department: Beyond Our Borders: Mexico: May 2015

 

Beyond Our Borders: Mexico

Much of Mexico’s steady economic growth over the past century can be attributed to its close ties to the U.S. and the fact that the Institutional Revolutionary Party (PRI) has been in power since 1929 — except for a 12-year hiatus from 2000 to 2012. Undisturbed by the military coups that have destabilized other Latin American countries, Mexico’s long-standing political security and a U.S. bailout have enabled the nation to recover from a 1994 economic collapse brought on by over-reliance on oil and reckless spending in the wake of North American Free Trade Agreement.

This dependency means Mexico’s national solvency is vulnerable to fluctuations in the U.S. markets. At the end of this past September, the World Bank named Mexico the leading borrower of the International Bank for Reconstruction and Development, holding nearly $15.2 billion in outstanding debt. With the U.S. purchasing more than a 75 percent share of Mexico’s crude oil and manufacturing exports, a sluggish U.S. economy would put Mexico at risk.

The PRI’s return to power similarly isn’t all good news. The PRI has historically taken a less-than-aggressive stance on drug dealers and government corruption. In 2014, Credit Suisse highlighted the country’s recent drug-related violence, saying the expense of containing violence in Mexico is comparable to the size of its auto industry in terms of gross domestic product (GDP) percentage. The World Economic Forum Global Competitiveness Report cites corruption as Mexico’s greatest problematic factor for doing business.

Mexico’s GDP grew by just 1.1 percent to nearly $1.3 billion in 2013. The International Monetary Fund (IMF) expected reforms in the energy, telecommunications, education and financial sectors to continue to drive growth. IMF forecasts a GDP growth of 3.5 percent this year.

This relative economic strength is attracting commercial real estate investors. The 2015 Association of Foreign Investors in Real Estate Annual Survey placed Mexico in the top three emerging countries for commercial real estate investments. According to a 2013 Hotel Investor Sentiment Survey by Jones Lang LaSalle (currently JLL), Latin American markets have captured peak interest. Out of the 18 markets surveyed, Mexico City received the most positive outlook in performance expectations. Guadalajara, Monterrey, Los Cabos and Cancun/Riviera Maya were also highly rated.

Mexico’s retail market is also booming. The country added 1.3 million square meters of gross leasable area for shopping centers between 2012 and 2013, according to a report from Cushman & Wakefield. 


 

Karen Law is a contributing writer for Scotsman Guide. For questions on this article, e-mail articles@scotsmanguide.com or call (800) 297-6061.

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