Migrant-Related Border Delays Could Spark Real Estate Fallout

Migrant-Related Border Delays Could Spark Real Estate Fallout

San Diego Brokers Watch for Effects on Retail, Industrial Properties

By Lou Hirsch (via CoStar Group)

Recent conflicts near the U.S. and Mexico border are reducing traffic to nearby businesses.

Recent conflicts near the U.S. and Mexico border are reducing traffic to nearby businesses.

Immigration crackdowns and closings at the U.S.-Mexico border in San Diego have already cost local businesses more than $5.3 million in lost sales. Local brokers are carefully gauging whether the situation creates deeper long-term regional difficulties for commercial real estate, particularly in the retail and industrial sectors.

The temporary shutdown of the San Ysidro crossing last week, due to clashes between border agents and hundreds of Central American migrants attempting to seek asylum in the United States, has raised concerns for nearby businesses. Between San Diego and the Mexican city of Tijuana, San Ysidro is the world’s busiest land port, with 14 million vehicles and 33 million pedestrians crossing annually.

The Trump Administration has threatened further shutdowns and tighter restrictions on border crossings going forward.

“Anything that slows down traffic or hinders access is not going to be good for retail sales,” said Mike Moser, partner in the San Diego-based brokerage firm Retail Insite. “It’s also going to make some potential property buyers in that area more cautious when you have uncertainty.”

The crossing has been plagued by long wait times for decades despite recent significant improvements. The complete shutdown of the crossing on November 25 lasted nearly six hours and led most nearby businesses to close for the day.

Most businesses had reopened the next day, but amid further tensions and heightened border-area security, what was supposed to be the peak post-Thanksgiving sales season was thrown into chaos for many businesses, including Simon Property Group’s Las Americas Premium Outlets, among the San Diego region’s most well-trafficked malls and a favorite bargain-hunting stop for shoppers from both sides of the border.

Las Americas Premium Outlets, owned by Simon Property Group, is among many businesses seeing reduced traffic attributed to recent border-area conflicts.

Jason Wells, executive director of the San Ysidro Chamber of Commerce, noted businesses in that community rely on 93 percent of their customers coming from Mexico, and a large majority of those small businesses depend on the period of Nov. 20 to Jan. 6 to make their profit for the entire year.

Moser said the full economic effects won’t be known until the end of the year. Depending on when migrant-related border traffic issues are resolved, the retail fallout could spread well beyond San Ysidro. Stores and restaurants in places such as Chula Vista, central San Diego and others well to the north traditionally derive large chunks of their holiday revenue from thousands of Mexican shoppers who won’t be heading into California this year because of the latest border logjams.

Brokers are also watching for long-term effects on the cross-border area’s industrial property fundamentals, which have long been buffeted by security and other macroeconomic factors. Driven primarily by manufacturing facilities on the Mexico side teamed with logistics facilities on the San Diego side, the cross-border economy accounts for $24.3 billion in annual foreign exports and 418,300 manufacturing jobs, according to a mid-year report from the San Diego Regional Economic Development Corp.

Linda Greenberg, principal in the San Diego office of brokerage firm Lee & Associates, said that before the recent border clashes, concerns were already being raised by industrial tenants and owners about the fate of trade accords between the U.S. and Mexico, along with tariffs on certain Mexican-produced goods still being considered by the White House.

Border slowdowns created by the recent migrant crisis could add a new layer of uncertainty to industries that have previously thrived in the cross-border region but rely on the efficient flow of goods between manufacturing and distribution sites. Those include makers of semiconductors, aerospace components, audio and video equipment and medical devices.

“Medical device makers especially can’t have delays in getting their products to consumers,” said Greenberg. “People have to wonder, how am I going to move my product north?”

While much of southern San Diego County, including the border-adjacent Otay Mesa area, has recently seen strong industrial occupancy growth and even the start of some speculative industrial development, a prolonged traffic slowdown related to migrant processing could spur some tenants to consider other locations.

In doing their own planning, Greenberg noted, industrial tenants often need to make decisions on lease renewals a year or more ahead of the actual expiration of those leases. The location decisions of industrial employers have the potential to impact where other types of properties, such as retail and apartments, get built.

“It’s going to keep some people up at night, because we don’t know how this ends,” Greenberg added.