JUÁREZ, Mexico — Much like Oakland and San Francisco, El Paso and Juárez are neighboring cities that coexist in a larger regional economy. Juárez and El Paso, however, are separated by more than a body of water, the Rio Grande; they are also divided by the United States-Mexico border. And that border, connected by four bridges, has become one of the busiest crossings in the world.
Much of the commercial traffic over the Rio Grande is driven by the growing light-assembly sector in Juárez, which is now absorbing more new industrial real estate space than any other North American city, according to the El Paso Regional Economic Development Corporation. Approximately five million new square feet a year are being added by existing or newly located corporations engaged in assembling products like computers, mobile phones, appliances, auto parts and medical devices.
“The two cities function symbiotically,” said Bob Cook, president of the nonprofit economic development corporation. “And that is a reflection of the two countries functioning symbiotically. In 2006, we had $55 billion of U.S.-Mexico trade crossing through this border, 18 percent of all U.S.-Mexico trade. There are 267,000 people employed in manufacturing in the El Paso- Juárez region.”
Production sharing in the El Paso-Juárez region, while nothing new, has become increasingly complex. High-tech parts are manufactured in the United States and abroad, then shipped to Juárez for assembly and trucked across the border to El Paso, which has 55 million square feet of distribution space, before being dispersed throughout the United States.
Many international corporations — based in Europe, North America, Japan and, increasingly, China and Taiwan — build their own plants. For instance, Electrolux, a Swedish appliance manufacturer, is expanding its Juárez campus by more than a million square feet to assemble refrigerators.
But job growth and the availability of land in what had previously been thought of as the middle of nowhere have also drawn commercial real estate developers from the United States. Verde Corporate Realty Services, based in El Paso, has invested along the entire United States-Mexico border from Tijuana to Monterrey over the last five years, but most heavily in Juárez .
The company buys land and builds industrial spaces on speculation (that is, without a committed leaseholder). To date, Verde has completed two million square feet and owns enough land to build almost three million more.
Because building in Mexico is considered riskier, investors require a higher rate of return, which makes for higher rents. A building similar to one that Verde leases for about $5 a square foot in Juárez would bring about $3.80 in El Paso.
The main reason to build in Juárez, of course, is the low cost of labor, not construction costs. At $38 to $42 per square foot to construct, Verde spends more to build in Juárez than it would in El Paso.
These new light assembly buildings are not the cheap, polluting maquiladoras of popular imagination, but modern high-tech buildings that would not be out of place in suburban Dallas. For instance, Verde recently completed a 217,000-square-foot building and leased it to the Visteon Corporation, an auto parts supplier that has more than 170 facilities in 24 countries.
“When a company from the U.S. goes to China, 10 percent of the components come from the U.S.,” said Christopher Lyons, director of capital markets for Verde. “But when a company relocates to Juárez , even a Chinese company, many of the components come from the United States. As globalization continues, by working with Mexico, we can keep some of that manufacturing in the U.S.”
In addition to the low cost of labor, there are a number of other reasons that multinational corporations are putting their light assembly in Juárez. In the case of China, in addition to being close to the United States consumer market, it is a hedge against possible protectionist measures.
For other companies, like Electrolux, shipping large appliances over long distances is cumbersome, and port security is getting tougher. When it comes to time-sensitive products, like computers and mobile phones, Mexico offers the advantage of getting the goods to market more quickly than if they had to be shipped across an ocean.