The industrial markets of Tijuana, Mexico and Otay Mesa, California, have long demonstrated a compelling symbiotic relationship driven by cross-border demand. Over the years, as the need for manufacturing and assembly space has surged in Tijuana, logistics facilities have become increasingly critical in Otay Mesa. This dynamic has led to a parallel rise in land demand on both sides of the border, attracting developers eager to seize prime parcels to meet this growing demand.
However, with developable land in Tijuana becoming scarcer and land values soaring, developers and investors are now eyeing other locations in Baja California. Mexicali and its neighboring Californian counterpart, Calexico, are prime examples of this shift. While their cross-border relationship has historically revolved around agriculture and food processing, both markets are evolving. Much like Tijuana in the early 2000s, Mexicali is stepping into the spotlight as a hub for nearshoring manufacturing and assembly operations with a clear focus on North American customers. This development is spurring notable industrial activity in Calexico, reminiscent of Otay Mesa's transformation over the past two decades. Could this emerging partnership develop into a cross-border powerhouse akin to Tijuana and Otay Mesa?
A History of Growth in Tijuana and Otay Mesa
The Rise of Industrial Expansion in Tijuana
Tijuana’s industrial market has witnessed remarkable growth in the past decade, driven largely by nearshoring trends and a shift of investor interest. In addition to institutional capital that was already present in Tijuana, around 2020, investors who had historically funded and developed office buildings and multifamily projects in Mexico City shifted their interest toward warehouse and logistics space in Tijuana to capture heightened industrial demand in the wake of Mexico City’s vertical construction moratoriums. Overseas manufacturers aiming to streamline operations and better serve North American markets have fueled the demand for manufacturing and assembly space. Since 2019, the total industrial space in Tijuana has expanded by over 20.6%, climbing from 96.1 million square feet (msf) to 118.4 msf by 2024, a compound annual growth rate (CAGR) of 4.3%.
Despite this inventory boom, the market's vacancy rate remains low at 4.6%, underpinned by strong tenant demand. Class A buildings are particularly sought after, with a vacancy rate at just 2.8%, showcasing the growing preference for state-of-the-art industrial facilities. Tijuana also leads Mexico in Class A industrial rental rate appreciation, which has averaged 12.6% annual growth from 2020 to 2023. This has since tapered to a more sustainable 1.3% growth rate from 2023 to 2024, highlighting stable demand. The city’s industrial real estate continues to achieve lower cap rates compared to any other Mexican market, solidifying its position as an attractive hub for tenants and investors alike.
Otay Mesa’s Steady Climb
The industrial market in Otay Mesa has also expanded significantly over the past five years, fueled by its proximity to Tijuana and similar nearshoring trends. Inventory in Otay Mesa increased from 15.8 msf in 2019 to 24.4 msf in 2024, representing a CAGR of 5%. The average facility size has also grown, rising by over 32% to 78,000 square feet per property.
Otay Mesa’s vacancy rate currently sits at 13.2%, a 940-basis point climb from the 2019 rate due to an influx of new developments. Over 8.5 msf of industrial inventory was added during this period, equivalent to a third of the market’s current total stock. Despite this, rental rates remain resilient, reaching $1.25 per square foot (psf)—more than twice the rate recorded in 2016.
Otay Mesa recently had a period of heightened interest in land following the land acquisition and warehouse development by the top e-commerce company in the world. As a result, industrial land values quickly rose from $16.93 psf in 2019 to $35.94 psf in 2024. The growth trajectory of both Tijuana and Otay Mesa reflects the success of their symbiotic relationship, but with limited land and rising land values, stakeholders are considering new opportunities.
Mexicali and Calexico’s Moment in the Spotlight
Mexicali’s Evolving Landscape
Mexicali’s industrial market has grown substantially in recent years, transforming into an emerging alternative for developers and occupiers. Since 2018, Mexicali’s industrial space has expanded from approximately 25 msf to over 40 msf—a reflection of growing interest from multinational companies seeking cost-effective, nearshoring operations.
Industrial rental rates in Mexicali have similarly skyrocketed. While rates stood at $0.31 psf shortly before the pandemic, the mix of surging global demand, supply chain disruptions and already low vacancy caused rental rates to soar to $0.56 psf by Q4 2024. Vacancy rates have remained low, dipping as low as 1.7% in early 2022 before rising to 4.5% in Q4 2024. Although new deliveries have eased some pressure, investor confidence remains high, with all signs pointing to persistent demand.
Calexico’s Emerging Role
On the U.S. side of the border, Calexico’s industrial market is much smaller and more volatile but has also shown promising growth, much in the same way that Otay Mesa has in the past. Over the past decade, industrial lease rates in Calexico have steadily risen, climbing from $0.46 psf in 2014 to $0.83 psf in 2024. While vacancy rates remain somewhat unpredictable—jumping from 12.3% to 22.2% in the past year—this volatility reflects the market’s smaller size and early stage of development.1
Nevertheless, Calexico is taking advantage of its strategic location near Mexicali’s industrial inventory surge. This proximity has attracted tenants and investors interested in industrial real estate and development land near the Calexico East Port of Entry.
Land Dynamics and the Future of Cross-Border Development
A critical driver of these markets’ transformations lies in the dynamics of land value appreciation. Tijuana and Otay Mesa have already set a precedent, with rapid increases in land prices as industrial demand rose. Mexicali and Calexico are now witnessing similar trends. Rising demand for industrial land in Mexicali signals the market’s evolution into a key nearshoring destination, while Calexico offers a prime manufacturing and warehousing location to complement this growth.
Calexico and Mexicali’s Potential as a Cross-Border Powerhouse
While the growth in Calexico and Mexicali has not yet reached the heights of Tijuana and Otay Mesa, the evolution of these markets holds promise. Demand for industrial space is already intensifying, driven by nearshoring activity and a North American focus on supply chain resilience.
For now, Calexico and Mexicali may appear to be following in the footsteps of their western neighbors, but they have the potential to carve out their own unique space as a key cross-border industrial corridor. With continued investment and development, the partnership between these two markets could very well echo the mutual success seen in Tijuana and Otay Mesa, heralding a new era of cross-border collaboration.
Contributors: Melanie Haynes, Regan Tully, Juan Carlos Rodriguez, Leticia Valenzuela, Manuel Balderrabano, Carlos Olson, Mauricio Coste, Morrow Botros, Jack Vite, and Ivana De La Garza
