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Mexico Nearshoring: A Great Real Estate Opportunity Could Be Taking Shape

For institutional real estate investors considering the Mexico nearshoring theme, the advice is to standby but don’t stand down. Be aware that most of the nearshoring activity is from Chinese manufacturers moving to Mexico to game the USMCA framework, not from American companies choosing Mexico over the multitude of other options. This is a niche and exotic investment theme until Mexico’s federal government takes serious action to connect population nodes with road and rail infrastructure, cracks down on cartels, and reforms the nation’s regulatory and tax frameworks.

Trucks crossing into america from mexico

According to Morgan Stanley, the world economy is realigning to become a multipolar world with trade and supply chains becoming less decentralized and less deeply interconnected. In other words, the era of globalization is over!


Globalism lifted millions from poverty, lowered prices, opened new markets, and provided opportunities to share with distant cultures. Globalism’s discontents resisted the order because it expanded wealth inequality, birthed multinationals more powerful than governments, and encouraged environmental degradation and exploitation of human and mineral resources.


No country benefited more from the old order than China, and no country will lose more in the wake of its falling. The new order is one based on mutually beneficial bilateral trade agreements, ideally between regional allies. Reinventing the global supply chain will take time and look different for each country and sector. In America’s case, the decoupling from China has thus far mainly been through reshoring. According to US Census data, $18.5 billion was invested to construct manufacturing plants in October alone. That represents an annualized figure of $246 billion, up 73% from 2022, 126% from 2021 and 166% from 2019.


Nearshoring into Mexico as an investment theme is premised on the idea that America does a splendid job manufacturing high-end goods, and goods requiring loads of cheap energy inputs. Conversely, it struggles to profitably produce goods requiring significant cheap labor inputs. On paper, Mexico is the perfect partner. The countries enjoy a 6-to-1 manufacturing wage differential, are close culturally and geographically, and the north of Mexico has a decades-long track record of partnering with American manufacturers.


A match made in heaven? Not so fast!


Geography and Infrastructure

The north of Mexico’s manufacturing capacity is largely tapped out. Labor costs are increasing, manpower shortages are the norm, and a lack of suitable land for more industrial parks is the reality. The low-cost workers outside of the border regions are mostly inaccessible due to poor transportation infrastructure connecting the spread out population clusters. Lack of nearshoring infrastructure investments is an issue, but so is topography. Running roads and rails from the jungles in the south, through the canyons and mountains in the center, to the manufacturing hubs in the high-elevation deserts in the north is no easy task.


Regulatory Environment

Mexico is not a friendly place for business and has a reputation for excess legal formalities, heavy-handed federal regulations, high taxes, and inconsistent delivery of the government services manufacturers require.


Safety and Cartels

Kidnappings increased 30% in the first three months of 2023. Around 36 trucks are hijacked or stolen daily by cartels. Violent cargo truck hijackings numbered 7,644 in 2022.


Chinese Entering

The dirty little secret is that nearshoring investments into Mexico are largely from Chinese manufacturers looking to improperly gain USMCA tax advantages. Can we even call this nearshoring? The maneuver is squarely against the spirit of the USMCA. The next scheduled negotiation by the parties is in 2026 and this issue will be the most contentious.




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