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Tariffs, trade wars, and supply chain crises during the pandemic have all led importers and manufacturers to conclude two things: A need to diversify their sources, and the nearer, the better.

Importers into the world’s largest consumer market are moving away from China and into southeast Asia and Mexico. This trend, also known as nearshoring, means the US can avoid rising tariff-related costs and mitigate against any future supply chain disruption.

Expanding infrastructure assets

Freight rail

Mexico's freight rail network carries a significant portion of its trade. Investments are targeted towards modernization, expansion, and double-stacking capabilities, aligning with the growing North American trade corridor.

Monthly freight flows between the US and Mexico consistently surpass those of Canada.

Monthly freight flows between the US and Mexico consistently surpass those of Canada – traditionally the largest trading partner with the US.

Chart 1. Freight imports between the US

This growth in freight flow is positive for infrastructure assets in Mexico, and we expect growth to continue mainly in the country’s northern states. Juárez, Tijuana, and Monterrey account for 55% of the gross leasable area added in 2023, with an average size of 150,000–200,000 square feet.

However, the average size of new assets in 2024 is expected to be around 230,000 square feet, which suggests that big-box industrials are still in vogue in Mexico. This trend contrasts with the US, where smaller facilities below 100,000 square feet are now in demand.

Airports

As a global tourism powerhouse and current nearshoring boom, Mexico boasts a busy air travel market, with major airports requiring upgrades and expansions. Passenger traffic is projected to rise steadily, making investments in new terminals, runways, and cargo facilities highly attractive.

For example, one of Mexico's largest airport operators headquartered in Guadalajara plans to invest over $1.4 billion between 2025 and 2030, focusing on projects that cater to the nearshoring phenomenon.1 This highlights the concrete opportunities within the Mexican airport sector.

Seaports

Mexico's extensive coastline positions it as a key logistics hub. Investments in port infrastructure aim to improve efficiency, handling capacity, and cruise ship facilities. This aligns with the country's growing role in global trade.

  • The rise of nearshoring
    As manufacturing shifts closer to the US, Mexican seaports become prime destinations for both inbound raw materials and outbound finished goods. The Mexican government's Tehuantepec Isthmus Corridor project, aiming to create a major East-West trade route across the country, will further enhance the importance of key ports like Salina Cruz and Coatzacoalcos.
  • Modernization for efficiency
    Many Mexican ports, while well-located, struggle with outdated infrastructure. Investment in automation, deeper water channels, and improved cargo handling systems will streamline operations, allowing them to compete effectively with other major American ports. For instance, the expansion of the container terminal at Manzanillo, Mexico's busiest port, aims to double its capacity by 2027, showcasing the government's commitment to port modernization.

An infrastructure triangle

Mexico City: Small spaces, big demand

Mexico’s easterly land borders are understandably receiving more attention. They provide quicker access to the bulk of the US population. They are also close to most final assembly plants for high-value goods, such as automobile manufacturing, concentrated around the Gulf Coast and the Midwest. Mexico also has a growing domestic market in Mexico City.

Mexico City is not just a beneficiary of the national infrastructure boom but a key driver. Around 30 million people live within 50 miles of Mexico City’s center, which is 10 million more than in central and northern New Jersey. Given the surge in e-commerce penetration, it’s no surprise that e-commerce giants such as Amazon, Mercado Libre, and DHL have been expanding across the Cuautitlán, Tultitlán, and Tepotzotlán corridor in Mexico City.

Projects such as Panorama Coacalco and World Park Tlalnepantla are projected to be completed this year, and pre-leasing has been strong. Across the market, 57% of infrastructure-related space under construction has already been pre-leased. These projects present opportunities for investors in traditional infrastructure sectors alongside innovative smart city solutions.

Monterrey: Location, location, location

Monterrey is the second-largest city in Mexico and a major industrial center in northern Mexico. With the quickest access to the bulk of the US consumer market, it is a crucial link for nearshoring initiatives.

Monterrey has proven to be a popular ground for manufacturing and sub-assembly, with several tech giants pledging large investments in the area. Together with homegrown firms headquartered in Monterrey, these companies push industrial/logistics demand in this border market to record levels.

Juárez: Bridging the gap

Ciudad Juarez, bordering El Paso, Texas, is a vital commercial and trade gateway. Upgrading the cross-border infrastructure, including bridges and customs facilities, is a priority. Five border bridges link Juárez to the US. There is a direct connection to El Paso and the major east-west artery of Interstate 10 if you cross the border into the US using the Bridge of the Americas.

Additionally, investments in Juarez's rail network will strengthen its connection to Monterrey and the national rail system, further enhancing its role as a key logistics hub. Freight flow growth for Juárez was 9.5% year-on-year in the first quarter of 2024, coming in second behind the 10.6% growth for Laredo in Texas (the largest in terms of freight). With an increasing number of foreign firms driving demand, there is limited availability regarding second-generation space (previously occupied but now empty assets). Most of the take-up can be attributed to completed build-to-suit assets.

Post-election ramifications

Essentially, the ruling party in Mexico, the Morena party, has gained a super majority by securing wins in congress, state governorships and legislatures, and municipalities. This allows them the authority to push through a reform agenda that's considered controversial due to fiscal costs and questions over how to fund the new initiatives sustainably – something outgoing president Andrés Manuel López Obrador has said he wants to do. However, he won’t be in power much longer as his protégé, former Mexico City mayor Claudia Sheinbaum, takes office October 1, which may potentially put future nearshoring initiatives at risk.2

While nearshoring has become popular in northern and central Mexico due to proximity to the US market, other parts of the country still face challenges with inadequate infrastructure, including water and energy supply, as well as security concerns. Not to mention the need for a transportation network for freight deliveries and even passenger trains for workers in their daily commute.

The big questions center on future investment and establishing manufacturing hubs elsewhere within Mexico.

Impact on the US

New infrastructure developments in Mexico will complement the growth of the logistics sector in the US. Around 80% of the US population lives in the eastern half, and last-mile facilities remain crucial for delivering goods to their final consumers. With increased land freight, markets with developed intermodal terminals and infrastructure will also benefit.

These factors align with our forecast for investment returns to be strongest around the East and Gulf Coast and some Midwestern markets in the US with established intermodal infrastructure.

While some US manufacturing jobs might shift to Mexico, nearshoring can also benefit US infrastructure. Upgraded border infrastructure and a more efficient North American supply chain will ultimately lead to smoother cross-border logistics, potentially reducing transportation costs for US businesses.

Final thoughts

Mexico's infrastructure landscape presents a confluence of factors ideal for investors. The government's commitment, ongoing modernization needs, and established public-private partnerships framework create a potentially secure and lucrative investment opportunity. With a diversified portfolio of assets across rail, airports, and seaports, Mexico offers the potential for long-term, stable returns alongside the satisfaction of contributing to the nation's economic growth.

1 "Grupo Aeroportuario el Pacífico plans 2025–2030 budge." Airport Information, May 2023. https://airport-information.com/data/news/grupo-aeroportuario-del-pacifico-plans-2025-2030-budget.
2 "Mexico's President-elect Could Be a Boon for Nearshoring." MSN, June 2024. https://www.msn.com/en-us/money/markets/mexico-s-president-elect-could-be-a-boon-for-nearshoring/.

Important information

Any individual companies or other securities discussed above have been selected for illustrative purposes only to demonstrate abrdn's views or investment management style. They're not meant as an investment recommendation, indication of future performance or as an indication of any holdings by abrdn.

Projections are offered as opinions and are not reflective of potential performance. Projections are not guaranteed, and actual events or results may differ materially.

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

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