Green Nearshoring with EDGE: the Needle that is Turning Mexico’s Real Estate Towards Sustainability
Mexico recently surpassed 9 million square meters of EDGE certified green floor space, the third largest of any country in the world.
As the United States’ main trading partner, Mexico has become one of the most attractive destinations for companies, leading to an increase in the construction and upgrade of industrial spaces in several Mexican cities. The reconfiguration of supply chains closer to home, commonly referred to as nearshoring, has resulted in increased demand for warehouses, particularly those that can fulfill sustainability requirements for large companies reporting on ESG indicators. Although Mexico already showed significant growth in EDGE-certified projects in different sectors, such as green affordable housing, for several years, the needs of a more sustainable supply chain in the industrial sector recently resulted in an exponential growth of spaces certified with EDGE. Over the past three years, EDGE’s portfolio in the country has multiplied almost fivefold. As of June 2024, there are more than 800 green projects certified with EDGE throughout the country, accounting for a total of more than million square meters of floor space, with 738 more projects in the pipeline for certification.
Nearshoring with EDGE
In the first six months of 2023, Mexico received around $29 billion in foreign direct investment (FDI) related to nearshoring, 5.6% more than in 2022. Based on reports by the Mexican Association of Private Industrial Parks (AMPIP) prior to 2022, the availability of industrial warehouse space stood between approximately 6% and 7 on average nationally while by 2022 this figure had dropped to 2%. The Association estimates that by 2023, the availability had dropped close to 0% in some areas of the country’s northern border region. To meet this rising demand, the industrial real estate sector is projected to invest at least US$1.9 billion between 2023 and 2024. AMPIP estimates that between 2019 and 2022, the number of industrial parks grew from 273 to 432, an increase of 58.2%.
The growth of EDGE-certified industrial spaces in Mexico responded to this uptake in the market. For example, EDGE-certified warehouses grew from 54 projects in 2023 to 208 less than a year later. This real estate market segment includes real estate investment trusts (REITs), or FIBRAS, companies that began certifying whole portfolios with EDGE in that timeframe. To date, close to 60% of the FIBRAS in Mexico are using EDGE. Fibra UNO (FUNO), the largest REIT in Latin America, has certified more than 1.8 million square meters of assets with EDGE, including offices, commercial spaces, and industrial warehouses. More than a quarter of a million square meters of new projects are still in the pipeline for certification with EDGE. Other big players in the industrial market including Vesta and Fibra Macquarie (FMQ), have certified more than one million and over 400,000 square meters respectively.
REITs perceive several benefits associated to EDGE-certifying their new and existing real estate portfolios. As companies relocating to Mexico seek to report on their ESG commitments, an EDGE-certified space can be listed in the SCOPE 2 section of ESG reports, as it relates to the engagement of supply chains. In addition, in the financing structure to obtain or refurbish existing spaces, EDGE can be listed as a third-party mechanism to guarantee the proceeds towards an asset align with ESG goals.
"As a development bank with climate commitments, green nearshoring projects are expected to constitute 50% of IFC’s $1 billion investment portfolio in Mexico for the 2024 fiscal year."
As a Green Building certification, EDGE can also be used as a target indicator in sustainability-linked credit facilities. In 2023, FIBRA Macquarie México closed a US$250 million refinancing deal in which a sustainability-linked key performance indicator (KPI) was included, requiring an increase in the coverage of its green building certified properties. Under this KPI, by reaching its targets of green portfolio expansion, FIBRA Macquarie would obtain a 5 basis points reduction in the applicable refinance rate.
As a development bank with climate commitments, green nearshoring projects are expected to constitute 50% of IFC’s $1 billion investment portfolio in Mexico for the 2024 fiscal year. As part of this financing, IFC issued a $150 million sustainability-linked loan for FMQ, for the the development of new, green industrial parks in Mexico City, Monterrey, Ciudad Juárez, Reynosa and Tijuana for a total area of close to 200,000 square meters. The loan also includes energy-efficiency upgrades to existing properties supported by IFC’s Green Pathways for Real Estate Institutional Portfolios (GRIP) decarbonization program.
Leveraging Green Financing using EDGE
In 2020, IFC provided a $20 million loan to Grupo VINTE to finance the construction of 2,000 EDGE-certified homes in Mexico. This deal marked IFC’s inaugural financing specifically targeted at the housing sector, under Green Loan Principles. Vinte, a developer focused on green social housing, has since also received the EDGE Champion recognition for its commitment to sustainable construction with EDGE. As of June 2024 In 2023, IDEI, a large-scale residential developer, announced the issuance of an 800 million Peso green bond to promote sustainable construction. This bond, supported by IFC with a guarantee covering 50% of the amount, aims to strengthen green financing for construction projects. As of mid-2024, IDEI has EDGE-certified 1,761 housing units under this this investment.
Local financing mechanisms are instrumental to bolster green construction in a country. In May 2023, in Mexico City, IFC and Santander, one of the largest banks in Mexico, signed an alliance to promote Green Buildings in Mexico, aiming to build a green financing pipeline using EDGE. This partnership encourages clients to achieve the EDGE Advanced standard, helping Santander to identify and certify sustainable construction projects for financing. Continuing this effort, Santander launched a Green Mortgage program in July 2023, the first in Mexico to reward certifying Green Buildings (in the case of EDGE, at the Advanced level). In September 2023, HSBC, another banking giant in Mexico, followed suit with a similar Green Mortgage product offered to EDGE Advanced-certified homes. As of June 2024, two other banks have launched similar products.
Based on IFC reporting, the investment opportunity in the green construction business in Mexico City alone, is estimated at USD $18 billion, opening the horizon for developers and other financial entities to partake in this growing market. Using performance-based or certification volume-based KPIs, development companies now have access to better interest rates on bridge loans.
The next frontier for EDGE in Mexico is driven by the ambition of clients working toward even greater efficiencies, including achieving certifications with EDGE Zero Carbon.
Looking Ahead
In Mexico, a total of 34% of certified industrial projects have achieved the EDGE Advanced level. The next frontier for EDGE in Mexico is driven by the ambition of clients working toward even greater efficiencies, including achieving certifications with EDGE Zero Carbon. Utility savings for an EDGE Advanced industrial space can lead to a significant reduction in operating costs, thereby improving the competitivity of any industrial operator. As the demand for sustainable industrial spaces continues to surge, Mexico stands at the forefront of green nearshoring, driving a transformative wave in real estate that is set to redefine the industry’s future.
