Second of a two-part series. View part one here.
In my last column, I discussed the industrial boom in the Borderplex region (El Paso, Texas-Juárez, Chihuahua-southern New Mexico), and how industrial absorption and vacancy rates were at historic levels.
This is occurring due to factors such as strong consumer demand, the attempt to better manage supply chain disruptions, and the relocation of production facilities from Asia to North America. While industrial growth at the Borderplex seems to be strong for the foreseeable future, there remain challenges that could affect this growth.
One frustrating challenge is that certain building materials needed to complete industrial buildings, such as electrical components and roofing materials, can have a lead time of several months, which severely delays projects. I have a friend in the construction industry who is trying to deliver a building to a client. However, he has been waiting months for electrical components and a transformer box to complete the project. Demand for industrial space is intensely strong, but the time it takes to deliver a building can be extended due to lack of components and supplies.
In Juárez, buying industrial land is relatively easy; however, finding land with power or that can be connected to power can be difficult.
According to Christian Perez Giese, senior vice president/director of industrial and logistics at commercial real estate services company CBRE’s Borderplex branch, “Building a substation there used to take six months, but now can take three to four years. Power in Juárez could become a limiting factor in three to five years.”
This comes at a time where many companies are bringing their production and logistics operations to North America.
The rapid development of industry at the border is also revealing challenges at the international ports of entry. At the two El Paso commercial ports of entry, it is not unusual for northbound trucks to wait in line to cross into the U.S. for as long as three to six hours. These delays, along with aging port infrastructure, cause disruptions in supply chains, which result in costs going up. The Santa Teresa, New Mexico port of entry has been able to maintain fast northbound crossing times, typically crossing trucks in under 30 minutes. Within the Borderplex this port is becoming perceived more and more as a reliever route for northbound commercial traffic in the region.
According to Giese, “Trucking rates tripled last year, but are only predicted to be double pre-pandemic rates this year. These costs are almost always passed on to consumers, thus increasing inflation.” Longer wait times to cross the ports mean that more diesel has to be consumed. At well over $5 per gallon, the rising cost of this fuel is a major factor in the rise of logistics costs.
The Borderplex continues to be challenged by a perception that it is dangerous and unsafe. I have had many business owners and site-selection consultants ask me if I feel safe living in this region. Much of the concern is a holdover of the violence in Mexico that hit cities like Juárez hard over the last 15 years, and was covered extensively in the media. While violence in Juárez remains due to cartels jockeying to maintain drug and contraband routes into the U.S., this violence generally does not affect the foreign-owned production plants operating in that city. I find myself having to explain to people that El Paso and southern New Mexico are some of the safest places in the world when it comes to violent crimes.
In spite of these challenges, the future looks bright for industrial growth in the Borderplex. According to Giese, “People visiting the Borderplex for the first time always seem to be surprised at how big it is (approximately 2.5 million in population).” Because of growth, better connections to other cities are badly needed at the El Paso International Airport. Site-selection consultants, business representatives, and investors all take into account the ease of traveling to a potential site for a production project.
According to Giese, “Trends in growth and challenges have occurred quickly and the industrial leasing market in the Borderplex was unaware of how quickly these trends impacted the market. For the first time in twenty years, the Borderplex is operating lock-step with drivers in the greater U.S. market. It is no longer an outlier.”
So even though there are challenges affecting growth, the Borderplex promises to remain a major economic development opportunity for New Mexico, Texas and Chihuahua.