Skip to content

CONTRIBUTORS

Pedro Nino

Head of Industrial Research and Strategy
Clarion Partners

Richard Schaupp

Fund Portfolio Manager (Diversified)
Clarion Partners

In today’s world, there are a number of global macro trends rapidly impacting the way we live, work and invest. These include changing demographics, technological advancements and deglobalization. As a research-driven investment firm, Clarion Partners focuses on these trends to identify sources of real estate demand and drive performance. One area that has been of particular focus is deglobalization, which has disrupted global supply chains and challenged how we do business across regions. Evolving rules and regulations, as well as heightened geopolitical tensions, have had a direct impact on logistics patterns in the United States, which has in turn impacted industrial warehouse demand.

One example is the shift in manufacturing and trade away from China and toward Mexico. Trade data show Mexico now accounts for the largest share of all merchandise imports to the US. after seeing a 5.4 percent growth year-over-year in dollar volumes during the first half of 2023 compared to China’s 25 percent decline. Overall, imports from Mexico were also 32 percent higher compared to the same period in 2019 (pre-Covid).1 The recent supply chain shocks, elevated wage and transportation costs, ongoing US political tensions with China, and shifting consumer trends, including the rise of electric vehicles, have incentivized the regionalization of supply chains, presenting Mexico with an opportunity.

Sources of US imports

Sources: US Census Bureau, Clarion Partners Investment Research, August 2023.

As long as costs remain competitive and manufacturing labor pools remain abundant, we believe Mexico is well positioned to attract manufacturing investment from companies that are looking to move their operations closer to the US. This shift is creating an industrial warehouse opportunity along the US. southern border. The El Paso, Texas, industrial market, in particular, is one that is benefiting from this trend, and demand for industrial warehouse space has accelerated here over the past two years, causing an upsurge in industrial rents.

The meeting point between west Texas, southern New Mexico and northern Mexico, known as the North American Borderplex region, serves as the logistics hub for the established manufacturing cluster in Ciudad Juárez, Mexico. Due to its location at the midpoint of the border between the US. and Mexico, the Borderplex region serves as a transborder conurbation known for its scale of manufacturing infrastructure. This is the continent’s seventh largest manufacturing region, offering a significant competitive advantage for manufacturers given the area’s access to multinational supply chains, an abundance of skilled labor, and fast access to US. consumers. We believe that the area is well positioned to benefit from deglobalization and the ongoing shift in logistics from China to Mexico driving industrial warehouse demand in the region in both the near and long-term.

In conclusion, global macro trends and real estate demand in the US. are inextricably linked. Deglobalization, whereby global supply chains are being disrupted and businesses are challenged given changing rules and regulations, is an example of the impact these trends can have on real estate markets and sectors.

Our research and data-driven investment process allows the firm to both analyze these global macro themes and identify markets, submarkets and sectors that may be positioned to outperform as a result, thereby identifying opportunities that others may overlook.

Endnote:

  1. Source: U.S. Census Bureau, Clarion Partners Investment Research, August 2023.

 

WHAT ARE THE RISKS

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Franklin Templeton has environmental, social and governance (ESG) capabilities; however, not all strategies or products for a strategy consider “ESG” as part of their investment process.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S.: Franklin Resources, Inc. and its subsidiaries offer investment management services through multiple investment advisers registered with the SEC. Franklin Distributors, LLC and Putnam Retail Management LP, members FINRA/SIPC, are Franklin Templeton broker/dealers, which provide registered representative services.  Franklin Templeton, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com.

This site is intended only for U.S. Institutional Investors and Consultants. Using it means you agree to our Terms of Use.

If you would like information on Franklin Templeton’s retail mutual funds, please visit www.franklintempleton.com.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.