"[I]t has become clear that Mexico offers significant potential as a fast-growing industrial market," said Rich Thompson, managing director and head of JLL's supply chain and logistics business. "There has been more than $200bn invested in Mexico's supply chain infrastructure since 2006, and double-digit growth in cross-border rail traffic between Mexico and the U.S. is expected to continue for years to come. Also, economic conditions in Mexico are more stable than in many other Latin American countries."

Other advantages to locating in Mexico include ample developable land at affordable prices and shorter shipping times compared to Asian markets, says Gerardo Ramirez, national director for JLL's Mexico Industrial & Logistics group. "However, investors interested in Mexico are encouraged to begin evaluating opportunities sooner rather than later, because heightened demand for land and facilities is beginning to drive up prices."

According to the report, Five reasons to consider Mexico for manufacturing and logistics, Central and Bajio region cities such as Mexico City, Guanajuato, Guadalajara and San Luis Potosi are peaking, while the majority of other nearby manufacturing centers are ranked as rising markets. Some markets near the U.S. border, including Chihuahua, are falling in price, largely due to the stagnant U.S. economy and negative impacts of crime.

The Jones Lang LaSalle report, which also ranks the Top 10 Mexican markets for manufacturing and logistics, highlights five key reasons investors should look closely at Mexico's industrial opportunities.

1. Mexico is not China - and that's a good thing

A number of factors have combined to take the bloom off China as the world's premier manufacturing location: The labor pool in China is becoming shallower due to the country's one-child per family policy, labor costs are rising as workers demand higher wages, and manufacturing costs are increasing as land and energy prices escalate.

China also suffers from lengthy lead times needed to ship cargo to U.S. ports - 15 to 20 days compared with two to three days from Mexico to the U.S. via highways. These issues, along with the bureaucratic difficulties of doing business in China, place Mexico in a position to gain from China's current manufacturing and labor challenges.

2. Mexico's economy is strengthening; impact of crime is not significant in most markets

Mexico's economy has shifted into high gear in 2012, thanks largely to its manufacturing sector. Mexico is now the seventh-leading auto manufacturer in the world and the second-largest supplier of electronic products to the U.S. market.

"Mexico's economy experiences mild inflation compared to other Latin American countries," said Thompson. "Its economic indicators are largely favorable and the country's growing foreign reserves reflect heightened investor confidence."

The country's ratio of debt to GDP is a low 27 percent, foreign reserves have hit a record high of $150bn and the peso, formerly a perpetually shrinking currency, rose 7 percent against the U.S. dollar during the first quarter.

Crime, particularly drug-related violence, is less of an issue than commonly perceived. Although violence related to drug trafficking and organized crime rose by 11 percent in 2011, the problem is mainly a regional one. Mexico City and the country's fastest-growing logistics centers are not strongly impacted.

3. Mexico's low-cost but high-skilled workforce

While Mexico's labor costs are lower than many of its global competitors, the skills of its workforce are rising. The pool of working-age individuals is approaching 62 million, and workers are becoming increasingly affluent and well educated, with the literacy rate now more than 93 percent.

Although its workforce is becoming more highly skilled and educated, labor costs are lower than the majority of the world's industrialized countries. According to a 2010 U.S. Department of Labor Survey, hourly manufacturing pay was $4.30 in Mexico, which is half of the rate in Taiwan and Brazil, one-third of the Republic of Korea, and one-eighth of the U.S. and Canada.

4. Supply chain improvements magnify Mexico's geographic advantages

Investment in supply-chain infrastructure, spurred by the privatization of the country's major industries, has resulted in $226bn in rail, roadway and port improvements since 2006, a 50-percent increase over the previous six years.

Mexico's rail shipments as a percentage of overall freight shipments have risen from 8 percent in the 1990s to about 20 percent today, and U.S. rail companies are investing in infrastructure improvements to capitalize on burgeoning trade volumes at major ports such as the West Coast port of Lazaro Cardenas, now the fastest-growing port in North America. Kansas City Southern de Mexico (wholly owned by Kansas City Southern Railroad) has invested more than $275m to improve the rail corridor between the port of Lazaro Cardenas and Houston. APM Terminals is also building a $900m container facility at the port to compete for Asian imports bound for U.S. and Mexican markets.

Truck shipments, which rose by 11.4 percent in 2011, still eclipse freight volume by approximately 300 percent, and the Mexican government is investing in improvements to its major highways and border crossings to speed up delivery times.

"Logistics companies are capitalizing on the combined benefits of Mexico's geographic advantages and supply chain improvements by using multiple trucking operations to move products to U.S. markets," said Ramirez. "Goods can be shipped from Central Mexico to Chicago in about three days, compared to the three weeks it takes to ship products from China to the U.S."

5. Mexico: An eager business partner

Investors are increasingly benefiting from Mexico's trade agreements, export programs and overall movement toward operational transparency. Mexico now has free-trade agreements with 43 nations, compared to 20 in China and 15 in the U.S.

In a move to encourage foreign investment, Mexico has created export promotion programs to reduce or eliminate import, value-added and customs operation taxes. It has also implemented the Strategic Tax Zone Regime, which allows for the tax-free storage and repair of goods.

Mexico's economic initiatives have paid off: According to Jones Lang LaSalle's Global Transparency Index, Mexico's rate of improvement in overall transparency ranks second in the Americas and third globally.

Source: Jones Lang LaSalle