The state of Baja California is booming with opportunity as the economy continues to recover from the recent economic slowdown; 2001 and 2002 were critical years for the state's manufacturing sector, which suffered the loss of several thousand jobs. Entire industries were moving out to lower-cost production centers/markets (primarily China), as manufactured goods that became commodities could no longer be made in Baja California cost-effectively. At the same time, other U.S. industries/companies that were under pressure to cut costs and increase productivity were forced to look at Mexico as an immediate solution to help them remain competitive. This would bring about fundamental changes in the state's economy that would help solidify its existence in the years to come as one of the primary manufacturing platforms for North America.
The first goods shipped to Mexico for manufacturing in the post-recession era were mainly bulky products whose high transportation costs made it difficult to ship them back from Asia. A second wave of products followed for a variety of reasons including their shorter lifecycles, which meant they required immediate access to their destination markets; their high inventory value; security concerns at California's shipping ports; intellectual property issues; and the manufacturers' ability to manage an offshore operation in hours, not days.
In recent years, Baja California has attracted several high-value-added manufacturing operations. The sectors that accounted for the majority of this production migration are medical devices, aerospace products, and consumer electronics (mainly flat-screen televisions). These three industrial clusters alone have accounted for most of the high-end job creation and industrial property absorption in the state over the past 24 months. The arrival of Toyota to Tijuana brought another key industry to the state, lessening its dependence on the consumer electronics sector, which for many years was the main driver of its growth.
According to Arturo Monfort, managing director for the Tijuana Economic Development Corporation, "The state government of Baja California has a clear directive to attract higher-value-added industrial clusters to our cities. We are aggressively pursuing companies in the medical devices, high-tech consumer electronics, automotive, and aerospace industries. Baja California is now the leading destination in Mexico for both the aerospace and medical devices industries, and we hope to continue building on that success and keep working to create the type of environment where these companies can thrive and expand their presence in our state."
Ensenada, Mexicali, and Tijuana are the three principal cities driving the state's economic expansion. Following is a review of their unique characteristics:
Ensenada: Its dynamic future is linked to the Punta Colonet maritime port project.
For many years Ensenada's economy was tied to the fishing and tourism industries. Manufacturing still accounts for a small percentage of the local GDP, and the Port of Ensenada's limited capacity to handle cargo has not had the once expected impact on the city's ability to attract more manufacturing or distribution operations. But all of this will change in the next few years as the Punta Colonet maritime port project begins to materialize.
This very ambitious multibillion-dollar project will put the port on par with the cargo-handling capacity of the ports of Los Angeles and Long Beach. When fully operational, Punta Colonet - which is located 90 miles south of Ensenada - will be able to handle approximately six million TEUs (20-foot equivalent units), making it one of the largest maritime ports on North America's west coast.
Although the area in and around Colonet is expected to grow exponentially as the port increases in size and importance, Ensenada should also benefit greatly while the infrastructure required to support the project is completed and the new city becomes self-sufficient. Tijuana and Mexicali should also reap the benefits of the new port, as Baja California's improved infrastructure will help attract other industrial users that require a seaport and rail to bring their raw materials and move their finished products to their destination markets.
Ensenada is home to more than 100 production-sharing manufacturing plants (maquiladoras), but there are few major manufacturing operations based in the city. One of the industrial sectors in decline is textile products, but high-tech electronic companies are doing well and expanding their presence in the market. Firms like Lowrance, which manufactures GPS tracking devices, is one of the technology firms leading the growth of this sector in Ensenada.
Mexicali: This small market could become one of the main technology hubs in North America.
Mexicali is Baja California's state capital and its second-largest city with approximately 900,000 inhabitants. Mexicali is home to approximately 130 maquiladoras, and although it has always had a diverse base of industrial users, it is widely known as one of the major destinations for the aerospace industry in Mexico. Companies like General Dynamics, Honeywell, and Rockwell Collins have been operating in Mexicali successfully for many years. The aerospace sector alone has accounted for the majority of the industrial absorption and manufacturing job creation in the city over the past 24 months. Moreover, there are new projects coming in the near future that should help Mexicali consolidate its leadership position as a home market for these high-value-added production companies.
Mexicali is a city that has been able to plan and direct its growth. The municipal government has done a great job of delivering the necessary infrastructure to support the population expansion as it extends to new quadrants of the metro area. Mexicali is the only city in Baja California with an abundant supply of water and power and a natural gas pipeline servicing most of the industrial areas. This superior infrastructure and adequate supply of industrial land should help sustain the manufacturing sector's expansion in the years to come.
The long term outlook for Mexicali is extremely positive. Silicon Border, the largest industrial/manufacturing development project in the city's history, just received a major push forward with a recent announcement that ING Real Estate has decided to finance the land acquisition and infrastructure work, which could reach a total investment of $1 billion. This 15-square-mile technology complex - located on the border with California - will target semiconductor manufacturers and large-scale technology companies. The impact on the local economy should be tremendous. Companies locating at Silicon Border are expected to create upwards of 50,000 new jobs, and many of these will be for highly skilled, well-paid engineering positions.
Tijuana: It is already one of the elite real estate markets in Mexico, and it will only get better.
Tijuana is primarily an industrial city, with close to 50 percent of its jobs coming from the manufacturing sector. Over the years it has built a reputation as the TV manufacturing capital of the world. In fact, at one point more than 50 percent of all the televisions sold throughout the globe were being made in this city.
Tijuana is home to close to 600 maquiladoras - more than any other Mexican city - and it has been the cornerstone of the maquiladora industry in Mexico for nearly 45 years. Global corporations like Sony, Panasonic, Tyco, Sanyo, GE, Samsung, Toyota, and Hyundai have a manufacturing presence in this major industrial center.
Tijuana's great potential to become one of the elite industrial real estate markets in Latin America has been somewhat hampered by its topography and infrastructure, which is consistently attempting to catch up to its dramatic population growth.
Tijuana has one of the lowest vacancy rates of any major industrial market in Mexico. As a result, recent lease comparables reflect a 5 percent to 10 percent increase in prices for the city's hottest submarkets, which accurately depicts the healthy demand for industrial space in Tijuana. Nonetheless, land prices should remain stable as new infrastructure currently under construction connects the metro area to new growth corridors and gives industrial developers and manufacturing companies access to lower-cost land reserves.
The two largest industrial projects in recent years (Toyota and Dart Container) were developed on the outskirts of the city, toward Tecate. Bringing these two major corporations to Tijuana was an enormous triumph by the private and public sectors, which worked together to insure that the necessary infrastructure was there to support both companies. As a result, the old Tijuana-Tecate highway was widened to four lanes, and it has the potential to become the main industrial corridor in the city. Toyota will continue to expand and bring more of its suppliers to Tijuana. Dart Container is almost finished with the first phase of its impressive 1.2-million-square-foot campus and should begin operations sometime this fall.