Supply Chain Shifting from China to Mexico


Zocalo Square and Mexico City Cathedral | Image by Diego Grandi/Shutterstock

The trend of companies and manufacturers shifting their supply chain to Mexico has real estate investors looking to capitalize on growing demand in Mexico and towns along the U.S. side of the border.

Many U.S. companies are moving their production and equipment to Mexico to secure a supply chain that is closer to home, according to The Wall Street Journal.

This is reportedly part of the “nearshoring” trend that companies have shifted to following the pandemic, recognizing how easily their supply chain can be disrupted by operating in China.

Companies moving from China to Mexico also avoid tariffs and benefit from the free-trade agreement between Mexico and the United States under the North American Free Trade Agreement (NAFTA).

Laredo has been one such city experiencing a boom due to nearshoring. As previously reported by The Dallas Express, nearly $800 million of goods pass through Mexico into Laredo every day.

Owners of industrial properties are looking to capitalize on this shift. Prologis, the world’s biggest real-estate investment company, said that demand for locations in Mexico is growing.

Real estate investment firm Morgan Stanley said it is focusing on warehouses in U.S. border towns in Texas and California, where it has invested in developments totaling 2 million square feet.

“Today we’re seeing companies manufacturing goods in Mexico and using north of the border for distribution,” Lauren Hochfelder, co-chief executive of Morgan Stanley, told the WSJ.

E-commerce has also been generating demand for industrial space. Companies are willing “to hold more inventory because the loss of a sale is of greater risk than the extra cost of holding the inventory,” Michael Carroll, head of U.S. real-estate research for RBC Capital Markets, said to the WSJ.

Mexico saw $32.1 billion in foreign direct investment in the first nine months of 2022, the largest amount in 10 years, as reported in Coatings World magazine.

Prologis currently owns 44 million square feet of industrial space in Mexico and saw its occupancy rate reach 98% in the fourth quarter of 2022. Many of the projects are concentrated in Monterrey, Juarez, and Tijuana.

Chris Caton, Prologis’ head of global strategy and analytics, told The Wall Street Journal that demand for business in Mexico “was the highest ever, and positive trends continue.”

Border towns such as El Paso, Laredo, San Diego, and Tucson have seen a surge in demand for logistics properties related to nearshoring. CBRE Investment Management, Clarion Partners, and  TPG Inc. have reportedly invested or are considering making investments in these regions.

“Nearshoring in Mexico better guarantees an efficient supply of goods,” a spokeswoman for CBRE Investment Management told the WSJ.

In 2021, Texas cities Laredo and El Paso saw logistics space tied to Mexico grow 6% and 4%, respectively, compared to 2020.

With demand growing for industrial space in Mexico, these border towns are also benefiting, as the components are made in Mexico but the final assembly of products often requires a skilled workforce from the U.S.

These industrial plants in Mexico are known as maquiladoras, described as “mostly foreign-owned plants engaging in labor-intensive assembly of intermediate and final goods for export,” according to the Federal Reserve Bank of Dallas.

Manufacturers and logistics companies have been considering the move from China to Mexico for years leading up to the pandemic due to increasing costs in China, the WSJ reported, and the pandemic has accelerated this trend.

“The catalyst was the break in supply chains due to Covid,” Caton told the WSJ.

Geopolitical expert Peter Zeihan, appearing on the Joe Rogan Experience podcast last month, said that Mexican labor is one-third the cost of China and equally skilled.

“The first movers who take advantage of Mexican workers are the only ones who really win,” Zeihan said in a speech last year.

“That’s one of the reasons why we are seeing the greatest industrialization push in this country right now as industrialists relocate manufacturing plants from East Asia to North America. They are starting to realize that the Mexicans have become a precious resource.”

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Robert Balderrama
Robert Balderrama
1 month ago

That’s going to kill the illegals problem coming to the US. cause Mexicans come to America cause of not able to find work in Mexico. We will see less Mexicans coming North.