With Trump’s border wall prototypes recently being introduced in East San Diego, the county has seen lots of protests and political action lately, but this hasn’t dampened the cross-border relationship with Mexico, and US attraction to Tijuana’s commercial real estate is heating up.
“San Diego is continuing to defy the national direction of collaboration with Mexico and is maintaining binational operations in the Cali-Baja region,” said Keith Meyer, Senior Associate, Corporate Solutions, at NAI Mexico. “There was definitely a dip in positivity around the election as it pertains to real estate investment across the border, but virtually all companies that held back then are now moving forward.”
According to Meyer, Thermo Fisher is in the process of leasing more space in the Tijuana area, and Samsung is rumored to be making similar moves, so what are the facts and figures behind this growing interest, and how can Nearshore players start to capitalize in the same way?
Measuring the Cross-Border Differences
Tijuana currently has 430,000 square feet of Class A and Class B office space under construction in the Central Business District (CBD). San Diego, on the other hand, has only 313,000 square feet in the works, with a mere 64,000 square feet being built Downtown and in the CBD.
In terms of finished, available space, Tijuana has 130,000 square feet of Class A and Class B property available, for a combined vacancy rate of 9.71% (Class A 5.1%, Class B 12.0%). San Diego has a higher combined county-wide vacancy rate of 12.6%, but Class A vacancy in the CBD area is lower at 8.4%.
Costs are much more affordable in Tijuana, where the average rental price for Class A office space was US$1.71 per square foot, per month, while Class B is U$1.25. For the same space in San Diego County, you can expect to pay US$3.23 for Class A and US$2.46 for Class B, while San Diego Downtown and CBD areas cost US$2.98 and US$2.25 for Class A and B, respectively.
Finally, maintenance and insurance fees for Class A and Class B office space in Tijuana are approximately 50% of the rates in San Diego, making it a very attractive option for BPOs.
Tijuana’s International Design Standards
Tijuana’s new developments are highly mixed-use and trending towards the co-working model, according to Meyer.
“The areas are following the US trend of “Live, Work, Play” with an emphasis on containing all elements of office, retail, hospitality, residential, and entertainment,” he said. “Even so, the region is slow on the uptake for the WeWork co-working model in both San Diego and Tijuana, because we still need a medium to large corporate client to come into the area as a flagship company and show that it works as a catalyst for growth.”
In terms of specs, the new buildings have a height of five meters floor to floor, as well as low-vibration slab construction, modern seismic codes to prevent earthquake damage, and long span steel support beams that enable column-free internal spaces, ideal for contact centers.
Weighing the Good and the Bad
Baja Call Center is one operator that currently has three locations in Tijuana and another being built before the end of the year. In all locations the company has five-year lease agreements, and is responsible for all utilities and upgrades. The buildings are initially provided as a shell with a floor, ceiling, and one bathroom, so additional amenities must be built by the lessor themselves.
“We’ve selected Class A buildings in good locations, with good transportation routes, ample parking, and a nice façade, then will fill out the interiors to our specs with the help of an architect,” said Justin Lines, CEO of Baja Call Center. “This way we get a US$15 rate per square meter, but that is closer to US$13 in new buildings. All things considered, we have to put in between US$100,000 and US$200,000 to get the buildings operational.”
Despite the increased interest in commercial real estate, the fresh demand it has created for new residential zones is actually causing some challenges for call centers in the region.
“With over 2,000 high-end condominiums being built in Tijuana right now, development is starting on new buildings for restaurants and other amenities, which inevitably drive up real estate costs,” said Lines. “Call centers will be victims of this price rise because they need to be centrally located where transportation is not an issue. As commercial property gets bought up for other projects, call centers are being forced to build in less desirable areas where transportation is not as reliable.”
For Lines, another huge challenge has been with personnel jumping between the many call centers that are cropping up in the region, a concern shared by other market entrants.
“Those that already have operations in Mexico are concerned with the ability to ramp up and expand because space is quite tight and they’re unfamiliar with generating new space if needed,” said Meyer. “Labor is also a big focus topic, initially, but the technical side is being sourced well from Mexico, so that concern has trended in a positive direction.”
Despite many players in the SoCal region being oblivious to the goings on in Northern Mexico, the comparatively high rate of availability and the rapid development of modern facilities in Tijuana could easily change that, with early entrants securing the cream of the real estate crop.