Impact of NAFTA on Industrial Real Estate

Transcription

1 Impact of NAFTA on Industrial Real Estate Moderator: Brandi Hanback, The Rockefeller Group Panelists: Bob Cook, Cook Strategies Group, LLC Ross Moore, CBRE Limited Lorenzo Berho, Vesta Please silence all cell phones. This session is being recorded. Brandi Hanback The Rockefeller Group Executive Vice President, Industrial Development Head of FTZ, Trade & Logistics Former Chairman and President of the National Association of Foreign-Trade Zones Consults with distributors and manufacturers on global supply chain issues Licensed attorney and U.S. customs broker 2 NAIOP. Do not distribute or reproduce without written permission. 1

2 Introduction 2014 marks the 20th Anniversary of the North American Free Trade Agreement Since NAFTA entered into force in 1994, trade with Canada and Mexico has more than tripled to $1.2 trillion Canada and Mexico buy about 1/3 of U.S. merchandise exports Trade with Canada and Mexico supports nearly 14 million U.S. jobs according to a comprehensive economic study commissioned by the U.S. Chamber Since NAFTA, the U.S. has expanded its participation in trade agreements U.S. is now party to FTA s with 20 countries 3 Introduction NAFTA supports the competitiveness of U.S. manufacturers U.S. manufacturing output rose 73% between 1993 and 2011 Source: U.S. Department of Commerce U.S. remains the world s largest manufacturer, accounting for 24% of world manufacturing value added in 2010 Source: U.S. Chamber 4 NAIOP. Do not distribute or reproduce without written permission. 2

3 Bob Cook Cook Strategies Group, LLC President /CEO of Cook Strategies Group More than 30 years as a professional economic developer in Texas, Tennessee and Mexico Has helped create more than 80,000 jobs and attract over $8B capital investment to communities he has represented Member of NAFTA grassroots lobbying team in Objectives Brief historical overview of NAFTA and its anticipated impacts The changed relationship between the three nations (FDI flows, exchange rates, volume of trade) Explore comparative advantages of each NAFTA country Current real estate opportunities in NAFTA nations; focus on US-Mexico border 6 NAIOP. Do not distribute or reproduce without written permission. 3

4 NAFTA History Should have been called the North American Free-er Trade Agreement Intent was to create world s largest free trade zone Multi-fiber agreement abolished, accelerated demise of textile/apparel industry NAFTA codified, perhaps legitimized an increasingly positive relationship between the US and Mexico Robust manufacturing supply chains have developed, possibly with a little help from NAFTA NAFTA made FDI more attractive to companies from non-nafta nations 7 Trade Flows in Key Industry Segments Point to US Supply Chain Opportunities: Medical Devices $ $9.254 Billions USD Electric Equip, Appl, Components $ $ Light & Heavy Vehicles $ $ Transportation Equipment $ $ Computers-Electronics $ $ $0 $50 $100 $150 $200 $250 $300 $350 Imports Canada Exports Canada Imports-Mexico Exports-Mexico Source: United States Census, USA Trade On-Line, Retrieved May NAIOP. Do not distribute or reproduce without written permission. 4

5 Foreign Direct Investment in NAFTA Era Since 1999 $205.2 B from US 9% manufacturing 0.2% financial svcs -$0.1 B from Mexico $82,000 $62,000 $42,000 $22,000 $2,000 $3,575 $59, Canada Since 1999 $272.7 B from Canada 28% manufacturing 2% financial svcs $20.1 B from Mexico 20% manufacturing Since 1999 $147.0 B from US 45% manufacturing 22% financial svcs $12.1 B from Canada 42% mining 30% manufacturing $415,000 $315,000 $215,000 $115,000 $15,000 $42,000 $32,000 $22,000 $12,000 $2,000 $50,770 $160, $4,901 United States $33, Mexico 9 Comparative Advantages/Disadvantages of NAFTA Countries Advantages Investor Protection Quality of management schools Sound banking system Purchasing power Higher Education Technological Innovation Low Operating Costs (Labor driven) Proximity to the US Most prolific nation in terms of trade agreements Challenges Source: 2013 World Economic Forum; % of executives citing most problematic factors for doing business Access to financing (16.5%) Insufficient capacity to innovate (13.0%) Inefficient government bureaucracy (12.9%) Tax regulations (10.2%) Tax regulations (16.3%) Tax rates (15.4%) Inefficient government bureaucracy (14.0%) Corruption (18.0%) Crime and theft (14.0%) Inefficient government bureaucracy (13.9%) Tax regulations (10.0%) 10 NAIOP. Do not distribute or reproduce without written permission. 5

6 Overall Business Operating Cost Index US= United States Source: Competitive Alternatives, KPMG, Currency Exchange Rates in the NAFTA Era Mexican Pesos Per USD Canadian Dollars Per USD January 1995 January 2000 January 2005 January NAIOP. Do not distribute or reproduce without written permission. 6

7 Opportunity Industrial/commercial opportunities will accrue to developers/brokers who understand the relative competitive advantage of each nation and metropolitan area Estimated 40% of Mexican import value is actually US inputs supply chain look at US-Mexico border Tenant rep opportunities for companies from emerging nations pursuing North American opportunity (Turkey, India, China and others) Key sectors include automotive, aerospace, consumer electronics, and medical devices 13 Ross Moore CBRE Limited Director of Research for CBRE in Canada Started in commercial real estate in 1988 Experience includes knowledge of UK, US and Canadian commercial real estate markets Primary focus includes both leasing and capital markets for office, industrial, retail and multi-family in major markets Member of NAIOP, ICSC, ULI (founding Chair of ULI BC) and CFA Institute 14 NAIOP. Do not distribute or reproduce without written permission. 7

8 Impact of NAFTA on Industrial Real Estate Canada Overall hugely positive for Canada and Industrial CRE NAFTA s legacy more about creating a mindset than trade flows Preceded by FTA and Auto Pact Liberalization of trade in goods AND services Elimination of tariffs and reduction of non-trade barriers Exports key to Canadian growth - 25% to 40/50% of GDP Difficult to quantify exact impact of NAFTA with recent boom in resources Soft option for Asian/European companies who want access to U.S., but prefer Canadian location 15 Exchange Rate CAD/USD 1.1 CAD: USD Exchange Rate (monthly closing) Source: Reuters, May NAIOP. Do not distribute or reproduce without written permission. 8

9 Canada Manufacturing Sales $80 $70 $60 (in billions) $50 $40 $30 $20 $10 $ Manufacturing Sales Inventory New Orders Unfilled Orders 2013 Annual Average Source: Statistics Canada, Canada Exports and Imports % 3.7% 4.8% 5.7% 5.9% Exports 24.1% 2.4% Imports 2.8% 8.5% 3.2% 4.5% 20.8% 7.2% 14.5% 8.7% 18.1% 7.4% 9.3% 11.1% 11.5% 9.7% 12.0% Energy Metal Basic and Industrial Products Farm Electronic Goods Vehicles Consumer Goods Forestry Industrial machinery Metal Ores Source: Statistics Canada, NAIOP. Do not distribute or reproduce without written permission. 9

10 Canada Industrial Space Distribution NATIONAL QUICK STATS Q Current Q-o-Q Y-o-Y Availability Rate 5.6 % Net Absorption 5.1 MSF Net Rent $6.01 psf 750,000 SF 375,000 SF MARKET NRA (SF x 1,000) AVAILABILITY RATE NET ASKING RENT VANCOUVER 178,277 SF 6.6% $7.81 OTTAWA 29,371 SF EDMONTON 6.3% WINNIPEG $ ,214 SF 3.9% 76,864 SF $10.83 WATERLOO REGION CALGARY 4.3% $ ,125 SF 122,963 SF 6.2% 6.0% $4.50 $8.15 LONDON 37,847 SF 12.8% $4.05 Source: CBRE Limited Research, Q MONTREAL 295,129 SF 7.4% $5.17 TORONTO (GTA) 746,817 SF 4.4% $5.20 HALIFAX 11,513 SF 6.6% $ Canada Industrial Inventory Breakdown 6.2% 9.0% Toronto: 43.5% Montreal: 17.2% 7.2% 10.4% 43.5% Waterloo Region: 6.5% Vancouver: 10.4% Calgary: 7.2% 6.5% Edmonton: 6.2% 17.2% Other: 9.0% Source: CBRE Limited Research, Q NAIOP. Do not distribute or reproduce without written permission. 10

11 401 Corridor Windsor London Toronto Brockville - Montreal Montreal Toronto Detroit/Windsor Source: Wikipedia Inventory 401 Corridor Toronto & Montreal 800, , ,000 sq. ft. (000 s) 500, , , , , GTA Montreal Q1 Source: CBRE EA & CBRE Limited Research, Q NAIOP. Do not distribute or reproduce without written permission. 11

12 Impact of NAFTA on Industrial Real Estate Canada Part of global trend towards large trading blocks As stated, difficult to quantify exact impact of NAFTA Exchange rate a challenge for Canadian manufacturers Mexico replacing Canada as auto production powerhouse Latin America now on the radar screen through Mexico trade US retailers driving demand for distribution, logistics & warehousing space Equally important, fewer trade skirmishes! What would Canadian trade look like without NAFTA? 23 Lorenzo Berho Vesta Industrial Real Estate Fund (Mexico) Over 30 years experience in real estate CEO & Board Chairman, Vesta Mexico Chairman of the Board, Latin America Real Estate Network Young Presidents Organization & World Presidents Association (YPO/WPO) Former President of the Mexican Association of Industrial Parks (AMPIP) Industrial Engineer with Executive Programs at Harvard Business School. 24 NAIOP. Do not distribute or reproduce without written permission. 12

13 Mexico before NAFTA Macroeconomic instability (double digit inflation and interest rates, constant devaluation of currency, high public debt) Closed market no foreign trade promotion, strict regulation of imports and foreign direct investment inflows. Legal uncertainty on foreign trade and investment regional rules. 25 NAFTA Effects After 20 Years: Main Aspects Mexico s non-oil exports * (1993 index=100, ) Mexico World Mexico-USA manufacturing production * Correlation USA Mexico Exponential Increase on regional trade. Mexican daily exports grew from $144 mil. (1993) to more than $1 billion (2013). Convergence in consumption, macroeconomy, investment and production * Source: SAI Derecho & Economía 26 NAIOP. Do not distribute or reproduce without written permission. 13

14 NAFTA Effect on Foreign Direct Investment into Mexico FDI into Mexico * Billion USD, ) Average: $3 billion Average: $20 billion Legal certainty (clear rules) Opening of investment opportunities (from 49% to 100% ownership permitted) Creation of regional clusters (i.e. automotive, aerospace) Increase of FDI inflows to the region. Increase of cost competitiveness vs. China * Source: SAI Derecho & Economía 27 NAFTA Success Stories Bombardier Aerospace (Canada) The Learjet 85 carcass is made in Mexico, reaching headquarters in Wichita, Kansas for kitting out and is married to engines built in Canada, but designed by America s Pratt & Whitney. Caterpillar, Inc. (USA) Exports from the US to Canada increased 300% and to Mexico 473%. Employment in the US employment grew 33%, in Canada, up to 700 workers and in Mexico 8,000. Mabe (Mexico) The company became a leading supplier of household appliances to the US and Canada emerging as a leading global appliance supplier, joining forces with other North American industry leaders to deliver products worldwide. 28 NAIOP. Do not distribute or reproduce without written permission. 14

15 NAFTA Effect on Industrial Real Estate Entrance of new key players in the Mexican market: developers, pension funds, reits, commercial banks, global brokers. Legal & economic certainty allowing long-term leasing contracts. Adoption high quality standards in construction & design, aligned to the North American market. Speed of growth in new industrial parks with FDI in the sector, up to $2 billion annually. Increase of Mexico s competitiveness, due to market access, modern infrastructure, regional value chains and alignment with the US economy and production cycles. 29 What is Next? To make North American a more competitive region for the long-term, with modern infrastructure, smart borders, and with regulatory, security and educational standards. To take advantage from cheap and abundant energy, a young workforce, and costs that are increasingly competitive with those in China (reshoring). To develop a Factory North America vs. Factory Asia. To increase intra-regional trade: Mexico buys 40 cents of every dollar in trade with the US vs. China with only 15 cents. A significant amount of what goes to Mexico comes back to the US in jobs. 30 NAIOP. Do not distribute or reproduce without written permission. 15

16 Q&A 31 Thank You! Brandi Hanback Executive Vice President The Rockefeller Group Bob Cook President/CEO Cook Strategies Group, LLC Ross Moore Regional Director of Research CBRE Limited Lorenzo Berho President Vesta NAIOP. Do not distribute or reproduce without written permission. 16