MEXICO INVESTOR SENTIMENT SURVEYSurvey is a trend and forecast publication now in its first edition. The objective of the survey is to measure forward-looking inves-tor sentiment to

MEXICO INVESTOR SENTIMENT SURVEY 3Q2020 PROJECTIONS

CBRE’s Mexico Investor Sentiment Quarterly Survey is a trend and forecast publication now in its first edition. The objective of the survey is to measure forward-looking inves-tor sentiment to provide active investors and developers with the most up-to-date market feedback.

The insight of a wide array of industry ex-perts includes active investors, developers, property companies, fund managers, and lenders that provide a clear perspective of the Mexican real estate sector. The Investor Sentiment Quarterly Survey for 3Q2020 focuses on six principal themes:

• Economic cycle and economic drivers of the commercial real estate sector

• Investor/investment sentiment• Occupier/operator expectations• Valuation/underwriting sentiment• Asset Levels yield expectations• Lending Markets terms

CBRE would like to extend our appreciation and acknowledgment of all industry profes-sionals who participated in the survey.

INTRODUCTION

MEXICO INVESTOR SENTIMENT SURVEY | 3Q2020 PROJECTIONS


ECONOMIC CYCLE & MACRO ENVIROMENT

CONTRACTION

OFFICE RETAIL HOSPITALITY MULTIFAMILY HOUSING INDUSTRIAL

STABILIZATION EXPANSION MATURITY

MACRO ENVIROMENT

THE REAL-ESTATE BUSINESS CYCLE WAS DISRUPTED AS SOON AS THE PANDEMIC HIT ACCELERATING CONSUMPTION PATTERNS AND HABITS.SURVEY PARTICIPANT

IMPROVEREMAIN THE SAME

KEY FINDINGS• Industrial is the only asset class where market participants expected improvement in

market conditions in the coming quarter.• Investors also believe that Industrial is nearing maturity stage of the economic cycle. • Participants expect macro conditions for the multifamily sector to remain the same in

the immediate term, it was the only asset class expected to enter into the expansion phase of the economic cycle.

DECREASE


RENTS & OCCUPANCY

• Best in class properties should outperform their peers with a minor impact as the sectors consolidate, especially in office and retail.

• Industrial is the only asset class with any investor expectation of improving rents or occupancy levels in the coming quarters.

• Retail was the asset class with the highest level of negative sentiment followed by hotels and office.

OC

CU

PAN

CY

R E N T S


KEY FINDINGS

DECREASE INCREASE

INC

REA

SE

REMAIN THE SAME

REM

AIN

TH

E SA

ME

DEC

REA

SE


CORE TYPE PROPERTIES COULD HAVE A DOWNWARD ADJUSTMENT BY LESS THAN 15%, BUT VALUE ADD, AND CLASS B PROPERTIES COULD EXPERIENCE A HIGHER DISCOUNT.

EXPECTED ASSET VALUE PERFORMANCE 3Q20

DECREASE INCREASEREMAIN THE SAME

ASSET VALUES

SURVEY PARTICIPANT


• Industrial asset values are expected to outperform all other asset classes in the coming quarter, with multifamily assets a close second.

• Investor expectations were consistently negative for the hotel, office and retail asset classes.

KEY FINDINGS


CAP RATES1CAP RATE = NET OPERATING INCOME / ASSET PRICE

CAP RATES1 PERFORMANCE IN 3Q20

REMAIN THE SAME INCREASEDECREASE

7.0% 7.25% 8.25% 9.25%7.75% 8.75% 9.75%8.0% 8.5% 9.0% 9.5% 10.0%

EXPECTED CAP RATESGREEN AREA = PERCENTILE 40TH TO 60THICON = MEDIAN

7.5%


• Participants indicated and expected reduction in asset level trading activity in next quarter.

• Investors expect a general decline in asset values and further yield deterioration.

KEY FINDINGS

I EXPECT TO SEE SOME FUTURE COMPRESSION IN MARKET CAP RATES, PARTICULARLY IN MXN REVENUE ASSETS, CAUSED BY CONTINUED REDUCTIONS IN LOCAL LENDING RATES.SURVEY PARTICIPANT


RETURN ON COST

2RETURN ON COST = NET OPERATING INCOME (STABILIZED) / COST

• Industrial and multifamily are the only asset classes where market participants estimated that return on costs could improve in the near term. • Market participant indicated that Office, Retail, and Hotel returns on costs are expected to decrease in the near term.

WE STILL EXPECT HIGH UNCERTAINTY DURING THIS QUARTER BUT THERE´S APPETITE FOR MORE INVESTMENTS IF DISCOUNTS REFLECT THE HIGHER RISK AND UNCERTAINTY.SURVEY PARTICIPANT

KEY FINDINGS

RETURN ON EXISTING CONSTRUCTION

MEDIAN EXPECTED RETURN ON COST

REMAIN THE SAMEDECREASE INCREASE

10.5% 11.5% 12% 12.5%11%9.5% 10%



LENDING

WE HAVE SEEN A SIGNIFICANT DETERIORATION IN THE ABILITY AND INTEREST OF LOCAL LENDERS TO PROVIDE US DOLLAR LOAN FACILITIES.SURVEY PARTICIPANT

• Financial institutions have become more risk-averse and primarily focused on their existing portfolio and their existing lending relationships.

• Central Bank rate reductions will benefit borrowing cost, but is expected to only pass through to the best-rated borrowers with second-tier borrowers being impacted by widening spreads.

• Negative lender and borrower sentiment with the largest impact expected to materialize in the construction lending markets.

KEY FINDINGS

REMAIN THE SAMEDECREASE INCREASEREMAIN THE SAME

LESS RESTRICTIVE

LENDING ACTIVITY IN 3Q20

BORROWING COST IN 3Q20

CONSTRUCTION LENDING IN 3Q20

LOAN TO VALUES IN 3Q20

COVENANTSIN 3Q20


COVID-19 has had significant impacts on the market, among them:

• Reduced property level revenues and rev-enue expectations.

• Increased investor market uncertainty. • Increased focus on asset management. • Reduced market activity and limited in-

vestor appetite.• Caused owners to add lenders, refocus

on debt extension and work outs. • Caused tenants to request abatements

and concessions. The market survey provides us with some in-teresting Key Takeaways:

• The implementation of the USMCA and e-commerce growth were cited as the pri-mary factors in driving positive sentiment in the Industrial sector.

• Multifamily assets are expected to re-main resilient during the coming quarter with strong potential upside expected Post-COVID-19.

• Hotel investors expect a negative 3rd quar-ter, but expect to have an improvement in Sun & Sand destinations with capital fo-cused on opportunistic investments.

• Office investors highlighted co-working as a trend expected to accelerate.

• The Retail segment had the broadest lev-el of general negative sentiment, with respondents indicating that certain retail formats (grocery store, pharmacy, & ba-sic convenience) would remain resilient.

CONCLUSIONS


MEXICO INVESTOR SENTIMENT SURVEY 3Q2020 PROJECTIONS

CONTACT INFO

TIM GIFFORDCapital Advisors LATAM

+ (305) 428 6341 [email protected]

HUMBERTO CAMPOSCapital Advisors LATAM

+52 (55) 4165 7409 [email protected]

CHRIS MAUGERIValuation & Advisory Services LATAM

+52 (55) 5284 3293 [email protected]

LYMAN DANIELSCBRE Mexico

+ 52 (55) 5284 [email protected]

ERNESTO RODIRGUEZCapital Markets Mexico

+52 (55) 5284 0024 [email protected]

© Copyright 2020 All rights reserved. Information contained herein, including projections, has been obtained from sources believed to be reliable, but has not been verified for accuracy or completeness. CBRE, Inc. makes no guarantee, warranty or representation about it. Any reliance on such information is solely at your own risk. This information is exclusively for use by CBRE clients and professionals and may not be reproduced without the prior written permission of CBRE’s Global Chief Economist.

YADIRA TORRES-ROMEROResearch

+52 (55) 5284 [email protected]

MEXICO INVESTOR SENTIMENT SURVEYSurvey is a trend and forecast publication now in its first edition. The objective of the survey is to measure forward-looking inves-tor sentiment to

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