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MEXICO: Business returns to Mexico City

by  Sara SilverFinancial Times
February 8th, 2005


Mexico City's commercial real estate market has concluded its busiest year in recent history, with an oversupply of office space pressing down prices and enticing companies to relocate, especially to Paseo de la Reforma, the historic boulevard they once fled.

From the 225-metre Torre Mayor, Latin America's tallest building, to the new headquarters of HSBC, companies are being drawn to the city's longest and most important boulevard, which runs from the newly renovated Historic Center out to the suburb of Santa Fe, its main competitor for office space.

"This year set a record for leasing and purchasing of office space," said Pedro Azcué, Latin America director of the real estate company Jones Lang LaSalle.

"Since the prices are so low, with vacancy rates above 20 per cent, lots of companies are taking advantage of the situation to find better and newer office space."

Company research shows an explosion of transactions in the first half of 2004, with 309,000 sq m (3.32m sq ft) of Class A office space leased, up 65 per cent over the 186,000 sq m closed during 2003.

Eighteen per cent was leased on Reforma, which had just 8 per cent of the total available space, and was until recently feared as a site of crime and traffic-clogging protests headed to the main Zocalo plaza. This compares with the 20 per cent leased in Santa Fe, which had 43 per cent of available space.

Some of these changes can be seen from the new observation deck on the 59-storey Torre Mayor. Canadian real estate developer Paul Reichmann envisioned the tower in the 1990s to embody the free trade explosion in Mexico, but both the economy and the project were derailed by the 1994 peso devaluation.

Like Mr Reichmann's Canary Wharf in London and his World Trade Plaza in New York, the tower is gradually filling. The award-winning building, with column-free office space and vanguard earthquake technology, has already attracted international tenants including Hewlett-Packard, McKinsey and Marsh & McLennan.

US and Canadian investors have also bought 40 per cent of the equity in the building, said Arturo Aispuro, vice-president of Reichmann International.

Mr Aispuro called the 52nd-floor deck "a Christmas present to the city", but admits it was made possible because the building is only 65 per cent full.

He notes that the Torre Mayor's 74,000 sq m of office space is nearly double that of most skyscrapers.

Indeed, HSBC will centralise its operations in the 40,000 sq m of a skyscraper being built near the Angel of Independence, the most recognisable monument in Mexico City. The curved white façade of the $137m building will mimic that of the column on which the golden angel stands, a nod to the history of Mexico City.

"It is especially significant to be able to have our headquarters on an avenue as important as Paseo de la Reforma," said Sandy Flockhart, chief executive of HSBC Mexico, "and we are proud to contribute to the development of this zone and the surrounding area."

The bank's move comes after the city invested heavily to remodel Reforma's sidewalks, lighting and grand boulevard - and offered substantial property tax abatements.

"Reforma is the heart of the city," said Ramona I. Perez, an expert in urban history at the National Autonomous University of Mexico. "And the municipal government would like it also to be the belly."

Ironically, it was the explosion of office space in Santa Fe that helped to revive Reforma. In the 1980s, the suburb drew away company after company fleeing from the centre's crime and the demonstrations that stopped traffic on Reforma several days a week.

But the popularity of Santa Fe itself led to daily traffic jams and to a dramatic overbuilding, forcing down rates to $13-$15 per sq m per month.

In addition, the lack of urban planning means that there are daily traffic jams on the two arteries leading there. Competitive price pressure lowered rates in the city centre to the mid-20s per sq m, setting off a frenzy of new leasing, as offices move to lock in attractive rates.

"When they did the master plan, they didn't create a city. Santa Fe has no public transportation and the traffic going up there has gotten worse and worse over the years," said Mr Azcué. "At least on Reforma, the demonstrations aren't daily and you can walk to restaurants."

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