Pacheco: A continuing discussion of industry, real estate trends in the Borderplex region

EDITOR’S NOTE: Second in a two-part series about the Borderplex region.

The U.S.-Mexico border region is a hotbed of industry and economic might. This region sets trends that later are reflected in the overall U.S. economy.

To understand the current border trends, I sat down to talk with Christian Perez Giese, executive vice president and director of CBRE, a commercial real estate organization, in El Paso. CBRE has its finger on the pulse on industry trends on the border and the overall real estate market. The following are excerpts from our discussion.

Juarez has gone down from its peak of almost 320,000 industrial jobs in 2022 to approximately 282,500 jobs in 2024. What’s going on with this figure?

I think we’re having a sectorial recession in the United States, and in Juarez we’re seeing companies in the furniture business have a very challenging time.

There’s been a couple of furniture operations that have shut operations or slowed down. There’s one large wind energy business in Juarez, and it is well off its full employment figures because of what’s going on in that segment.

Then for the past five years, the auto industry has been underperforming from an industrial occupancy perspective, meaning they’re taking less space than they have historically. I think we’re seeing a transition from old internal combustion engine parts to new electric vehicle parts. This transition is being muddled by policy, market demand and other factors.

We have seen some of the legacy automotive guys that were in Juarez for 30 to 40 years moving out, and they have yet to be replaced by the next wave that we think is coming in. Exacerbating that are the tier two or three automotive legacy guys — for example, a company making wire harnesses for your seats.

They are incredibly margin-sensitive. As labor costs and benefits have gone up dramatically in Juarez, their margins are being squeezed, and they’re being forced to look at lower-cost locations.

Has the reduction of jobs across the border affected the level of trade in the Borderplex region?

No, looking at the imports into the U.S., those numbers are up dramatically. The value mix has drastically changed, and it’s shifted from auto parts to computers. I think medical and the higher-value auto are the next things we will see coming in.

I’m not sure we’re going to see another wave of consumer electronics, because we’re already high up the value chain based on what’s happened during the past five to seven years.

Are products coming out of Mexico, particularly Juarez, having a higher value associated with them, even if our port crossings aren’t necessarily up dramatically?

Without a doubt in the automotive and computer industries, and we’re seeing it at an actual facility level. If you look at the types of buildings that have been built within the last four years in Juarez, they are different facilities than were built in the past.

In the case of Pegatron, it’s a unique four-story manufacturing facility. From the outside, the new facilities look the same as the old ones, but when you walk through them, there is way more infrastructure and capital investment being placed inside the buildings.

If you’re doing higher-end EV vehicle parts or consumer electronics, you need to control dust, temperature and humidity, and these systems are very expensive and use a lot of power. It’s a snowball effect where they start improving these buildings, and in some cases, bringing in clean rooms to control the manufacturing environment that are different than we’ve seen in the past.

They’re building a box within a box for the production, so the cost is high. In many instances, we’re seeing more cost going into the building than the building itself.

Are there any infrastructure challenges you see in the Borderplex to support this new trend in building?

In Juarez, everyone has been talking about power, and we’ve had about a dozen buildings being delivered without power. The ramp-up for the buildings that have been built that have minimal power to production-level power is taking a lot longer than they have in the past.

But electrical infrastructure is being built in southern Juarez, so the problem is being solved. We have the same situation on the U.S. side. The power company hit the peak demand it expected in 2030 in 2023, so it is a game of catch-up. However, you do see electrical lines and substations being installed around town.

On the U.S. side, there is some concern with sewer and water extensions, especially on the far east side of El Paso, where we’re seeing a lot of development along I-10. In Juarez, you have the same sewer and water issues, and I have not talked to anyone who is actively solving that problem in the southern part of the city where the new industrial growth is occurring.

Is the U.S. still the dominant investor in Mexico’s maquiladora industry?

Totally dominant. More than 50% of the investment. However, I have seen growth in Chinese investment, a little bit in Juarez, but primarily in Mexico’s Bajío region and Monterrey. We saw a resurgence of Taiwanese investment. A lot of people think that the Taiwanese investment in Juarez after COVID is new, but those firms have been there for 20 years. Now, they are doubling and tripling their investment to increase their capacity.

What key risks do you see in the future, and will onshoring/nearshoring continue?

Onshoring and nearshoring will continue. The mix that’s going into Mexico from the U.S. will probably change, and we are having discussions with some of our global manufacturing clients about where they are going to put their next production line. That math is changing because of labor costs increasing, tariffs, the general costs of doing business and bureaucracy.

We are having many more conversations today about a “made in America” component of production lines than we had in the past. There’s no doubt that the geopolitical risks that are driving companies to not make decisions to invest further in China is shifting. And that shift is to invest in other countries. You can call that nearshoring, or China-plus-one, or regionalization, but the countries that always seem to be benefiting from this are Vietnam, Thailand, Malaysia and Mexico.

There’s going to be products that go to different locations in different mixes, but if you look at the strength of the Canadian, Mexican and American economies, consumer demand and the desire to make products closer to home, there’s no doubt that there’s a renewed second wave of onshoring (and) nearshoring.

We’ve finished the first wave, and we have a delayed second wave because of the political events going on right now. Once they are solved, we’re going to see a reactivation of the market, which I will call the second wave of companies that are moving their production into North America. Once we have that second wave that’s expanding beyond the consumer electronics industry, then we’re going to have enough of an industrial base that’s growing in North America, where suppliers will return as well.

You have used the acronym OOC. What is this?

I heard this directly from one of my clients that was looking at production sites. This means “out of China.” Companies manufacturing products being sold in North America are being told by their customers to get their manufacturing out of China. They are not willing to hazard the geopolitical risks with the supply chain of their products getting to consumers in North America. We are in the middle of a global realignment. Starting in 2001, the shift of manufacturing going into China increased, but now it is decreasing. We’re having conversations with our customers about their next production line that we were not having five or 10 years ago.

How can the Borderplex region take advantage of these next waves coming over and be competitive in the future?

Continuing to do the boring infrastructure work that we are already doing. Highway work and transportation connectivity are incredibly important, along with the growth of the electrical system and sewer and water.

If we continue to do some of these building-block type deals, we are really set up, because we have a bi-national community, a very strong workforce and a larger community than most of the other border communities.

We can draw on Texas and southern New Mexico to become a much stronger community for stuff coming into the U.S. Add the growing population bases of Juarez and Chihuahua state and this combination is powerful. We need to make sure that we are properly selling our region.

The Borderplex region, particularly Juarez, is an economical place for labor. It’s not that way anymore, is it?

Compared to other areas in the U.S. we are competing with, it is. CBRE’s been involved in U.S. regional site selection projects and we’ve won those head-to-head with other communities, certainly in the western U.S.

This is because of our labor pool and demographics. Globally, we’re not the lowest-cost nor the highest-cost region for labor. We’re somewhere in the middle, and we have the benefits of both sides of the border to move products back and forth.

We have a great workforce, managers, mid-level R&D engineers and quality control people on the Juarez side. Juarez is part of the global supply chain. We have incredible educational institutions in the region, and the ability to upscale our workforce on the U.S. side as well.

However, we have a little bit of chicken-and-egg. Do we need the jobs first or the labor? I think we need the jobs and then we can provide the labor.