Corporacion Inmobiliaria Vesta SAB de CV

BMV:VESTA

Earnings Call Transcript 2022-Q3

[Operator]

Greetings, ladies and gentlemen, and welcome to the Vesta Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Fernanda Bettinger, Investor Relations Officer. Please go ahead.

[Fernanda Bettinger, executive]

Good morning, everyone, and thank you for joining our third quarter results call. With me today are Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, Chief Financial Officer. Before we get started, I'd like to remind you that our remarks today will include forward-looking statements, including our long-term objectives and forecasts as well as our expectations regarding our business assets, product, strategy, demand and markets. These statements are subject to risks and uncertainties that could cause actual results to differ materially. They also based on assumptions as of today, and we undertake no obligation to update them as a result of new information or future events. Finally, note that all figures include CR were prepared in accordance with IFRS and are stated in normal U.S. dollars unless otherwise noted. And with that, I'll turn the cover over to Lorenzo.

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Fernanda, and everyone's on today's call. Our team continued its strong performance, delivering another outstanding third quarter on the first 9 months of the year. I'll discuss our successes in more detail shortly, but let me first update you on the overall strength of Mexico's industrial real estate market. Global markets have been extremely volatile. As company leaders worried that major economies will be pushed firmly into recession before inflation is came from current multi-decade highs. We're seeing major issues facing financial systems, deterioration of economic outlook for many regions and persistent geopolitical risks.

From a manufacturing perspective, President Xi Jinping has just made clear that he has bigger worries than his flagging economy. He opened the twice a decade Company's Party Congress on Sunday with a speech more focused on national security and stability than in the past. That means the companies are now balancing Beijing's objectives with market risk and potential sanctions. Companies are realizing they need a new playbook if they plan to meet increasing demand. As the advantages erode for global manufacturers operations in Asian countries, interest in reshoring and nearshoring continues to climb, evidence investors' results. Mexico has deepened its role as a key exporter to the United States, marking what could be a major shift as the U.S.-China trade war while the pandemic and Russia sanctions disrupt supply chains.

The pandemic highlighted the global rate on the dependency on Asia as 35% of the manufacturing production is located in the Chinese territory. Mexico has become not only an option in the course to change this trend, but an opportunity. The notably shorter and easier to manage supply chains in product communication, reduced probability for disruption and improve efficiencies, lowered by operational costs. Tight selection will not only be dependent on infrastructure, but also on labor pools. According to Bank of America, U.S. imports of Mexican manufactured goods reached an all-time high in August 2022 with a more than 70% increase over prepandemic levels in dollar terms as indirect evidence of today's near-shoring explosion. According to a UBS Evidence Lab survey, 90% of executives of companies with production in China intend to relocate or have already begun.

In Latin America, the e-commerce industry remains on an upward trend when pandemic shopping frenzy drove an increasing number of shoppers to flock to online sales channels. Consumers who became first-time online buyers during the global pandemic, which is particularly the case in Latin America, are expected to continue their online shopping habits. We're seeing a related push for last mile warehousing by the same companies and e-commerce marketplaces that are closing their U.S. facilities such as Amazon and Mercado Libre, which have been increasing their investment in the construction and expansion of logistics centers. e-commerce giants are investing billions of dollars in the country to further strengthen their position in the Mexican e-commerce industry.

North America will, therefore, benefit that Mexico, particularly Vesta will continue to be at the center. The need for high-quality moving ready warehouse space will only grow as manufacturers seek out premium markets with good labor fundamentals and convenient access to major transportation networks. We continue to significantly increase rents across our portfolio with in-place rents reaching over 11%, which enable an 11% year-on-year revenue increase to $45 million for the third quarter. Vacancy rates further declined, driven by the growing tailwinds of nearshoring and e-commerce in the third quarter Vesta's total portfolio reached record high 96.1% occupancy but stabilized occupancy increased to just under 97% and save store occupancy to 96.4%. Today, we're seeing truly unprecedented leasing activity and renewals.

We signed 3.8 million square feet in GLA during the third quarter, $1 million from new leases with leading companies such as OXO, Home Depot and DSV logistics. Importantly, with Mexico industrial real estate vacancies at all-time lows, we're signing leases for buildings still under construction. -- which was the case for Home Depot in Tijuana and DSV in Guadalajara. Renewals reached a historical high at 2.8 million square feet for the quarter with later average lease terms of 7 years, underscoring intents commitment to a long-term presence in Mexico, while leasing spreads remained positive at a weighted average of 6.1%, it is important to note that Vesta's contracts are linked to inflation, which means the catch-up to market rent, pricing is normally compressed when doing the lease.

During the quarter, we renewed with Nestle, our largest tenant for a 5-year term that matures in December 2028, further strengthening our maturity profile with great tenants. Manufacturers flight to quality means today's competition for available land will only escalate, and developers are now forced to put much more thought behind choosing locations that are attractive to these types of tenants. Site selection factors are also playing a strong role in which regions are most impacted by the overwhelming industrial demand. I'm pleased to share that during the quarter, Vesta increased its presence within a key metropolitan area. In August, we acquired 8 acres of land in Central Mexico City. This property is a landmark asset for our company and one of the last remaining parcels of land available inside of the metropolitan Mexico City.

Such a unique intercity location is a highly desirable for global e-commerce and logistics companies with a densely populated metro area with a considerable labor pool and excellent connectivity to highways and major roads. We will continue to build our presence throughout Mexico's urban centers, including Guadalajara and Monterrey aligned with the Level 3 strategy. We want to ensure a strong balance sheet to fund our growth plans. As Juan will describe, we closed a $200 million sustainability-linked revolving credit facility on September 1.

This was yet another significant milestone for our company and a step to further integrate ESG into the core of our business aligned with our Level 3 strategic plan while strengthening our company's financial position with balance sheet flexibility. Finally, along single alliance, we're delivering on our green certification targets. Vesta achieved lease certification for the Vesta Park Guadalajara, Mercado Libre building and lead Stieber certification for the Vesta Park Puebla Pepsico building. With that, let me turn it over to Juan, and I will return for some brief closing remarks.

[Juan Felipe Sottil Achuttegui, executive]

Thank you, Lorenzo. Let me pick up our results for the quarter. We continue to deliver strong financial results, supported by our outstanding operational performance, as Loren has noted. Starting with our top line, total revenue increased 11% to $45.5 million in the third quarter of 2022. This was due to a 4.9% increase from new revenue-generating contracts and 2.5% increase related to inflationary adjustments on rented property during the quarter that was partially offset by a $2.1 million decrease in the -- to the property sold at the end of 2021. As a reminder, all of our lease contracts are indexed to inflation. Therefore, we continue to benefit and the favorable effect of higher-than-expected inflation on our top line results.

In terms of the currency mix, 82% of Vesta's third quarter revenue was denominated in U.S. dollars, decreasing from 83.9% in the last year comparable period, mainly reflected high other income, which is recorded in Mexican pesos. Turning to our cost structure. Total operating costs reached $2.9 million in the third quarter of 2022 from $2.8 million in the third quarter 2021. This was mainly due to an increase in cost from vacant properties, which was partially offset by a decrease in costs from occupied properties. Net operating income increased 12% to $43.2 million year-over-year, driven by higher rental revenues, while the margin increased 88 basis points to 94.9%, mainly due to lower cost from occupied properties.

Again, this quarter, the increase in administrative expense is mainly explained by higher employee benefits resulting from the creation of a pension fund requirement reserve as well as an increase in the company's long-term incentive plan. In turn, EBITDA totaled $38.7 million in the third quarter of this year and a 12.5% increase compared to the prior year's quarter with a margin expansion of 115 basis points, reaching 85%, mainly due to higher gross profit. Moving down the P&L. Total other income reached $52.1 million compared to $15.6 million in the third quarter of 2021. This increase was mainly due to a higher property revaluation gain.

As a result, we closed the quarter with a pretax income of $88.7 million compared to $47.3 million in the third quarter of 2021, while the pretax FFO increased 18.3% to $26.9 million and NAV increased 10.6% to $2.79 per share from $2.53 per share in the same quarter of last year. Now turning to our CapEx and portfolio composition. We invested $739.6 million during the quarter, mainly in the construction of new buildings in the Northern and Bajio region and land acquisitions. At the end of the third quarter, the total value of the portfolio was $2.58 billion, comprised of 194 high-quality industrial [indiscernible] assets with a total GLA of 32.3 million square feet. Year-over-year, our stabilized portfolio increased 3% to $312.1 million square feet with occupancy increasing to from 96.6% from 93.1% in the third quarter of last year.

We ended the quarter with a land bank of 40.8 million square feet and projects under construction of 3.2 million square feet, equivalent to an investment of approximately $189 million with an estimated return on cost of 10%. Turning to our balance sheet. We closed the quarter with a total debt of $931 million and our cash position stood at $271 million. Net debt to EBITDA was 4.7x and our loan-to-value ratio was 33%. In addition, we paid a cash dividend for the third quarter on October 14, subsequent to the quarter end, equivalent to 42%. pesos -- in ordinary shares.

Finally, to further strengthen our balance sheet during the quarter, we closed $200 million sustainability-linked revolver credit line at Lorenzo noted. With an interest rate of sulfur plus 160 basis points, this facility contains a sustainability performance targets related to the number of green building certifications associated with the company's gross leasable area. Keeping a strong balance sheet will enable us to continue funding our growth strategy while maintaining a prudent capital structure. With that, we conclude our third quarter review. Operator, please open the floor for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Alejandro Chavelas with Credit Suisse.

[Alejandro Chavelas, analyst]

I guess the only thing that surprised me a bit about the report, and I'm nitpicking here a little bit because it was a great report. It was the slow pace of deliveries. I think you had scheduled to deliver a big building inventory that was delayed to April 23. And I also think recon and 2 were delayed, I think since the last quarter. So I know it's not perfectly predictable to delivery times varies. But more generally, I think your peers have mentioned that construction permitting times have been taking longer than expected, particularly in the north. So I was wondering if this explains the pushing back some of the projects. That's my first question.

[Lorenzo Dominique Berho Carranza, executive]

Thank you very much, Alejandro, for being on the call. Yes, we are currently very active in terms of development. As you might know, during the year and in some cases last year, we were able to anticipate for future demand of industrial space, and we acquired larger parcels of land to develop Vesta parks. And the 2 particular cases that you mentioned is Tijuana and Monterrey, -- both of them are multibuilding projects which -- where we are incredibly active in terms of being able to develop not only the infrastructure of the park as well as several buildings at different phases. And in some cases, 1 or 2 buildings might have some changes in terms of delivery times, mostly coming from either adjustments to the construction phase because of the natural process of it or because we are negotiating with certain clients.

These minor adjustments are absolutely nothing to do with the permits and any other measures. This actually have to do mostly with particular negotiations we are leading with certain clients. I will use the example of Tijuana, where it took us -- we had some -- some changes to our timing for the first buildings. One of them, we were able to lease already to Home Depot, the first building. They were -- they are now our anchor tenant, but we are currently developing 4 more buildings -- I'm sorry, 3 more buildings, and we're soon to start the last 2 buildings of that project. That's why sometimes we will -- we can have some changes.

However, that doesn't change our estimation in terms of collecting rents and collecting income. Demand is so high that even with certain adjustments in construction, we can still be able to collect rent in time and have positive effects to our rental income in the short term. So we're confident on our development pipeline. We are happy to see very strong demand. We're glad to see that we can not only lease before finishing in construction, but that enables us to start construction of new space buildings in great reserves that we have been able to acquire in advance and gives us a competitive advantage.

[Operator]

Our next question comes from the line of Alejandra Obregon with Morgan Stanley.

[Alejandra Obregon, analyst]

Congratulations on the numbers. My question is regarding your strategy. I guess, with all the moving parts, geopolitical and the manufacturing revival, I guess, we have seen a stronger market a lot -- I mean, way ahead of expectations, right? So my question is whether the current environment has led to change- to changes in your strategy? Or do you think that the $1.1 billion plan that you announced in your Investor Day is still a good reflection of where you think the market is going? Do you see any additions? Do you see any shifts from a regional perspective. What is it that you're seeing on the ground? And where do you see that you could be adding more value versus what you already have today?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Alejandra, for being on the call. As you well noted, we presented our new pipeline and strategy at the Investor Day, where we are investing $1.1 billion throughout Mexico in the main markets, including several Vesta parks. And actually, it's only a result of the strong demand that we are seeing in the market. We are confident on the strategy. We see very limited supply, strong demand, stronger tailwinds. However, we are also cautious on what's happening in terms of geopolitical adjustments. But on the ground, we believe that Vesta has a greater advantage by being able to have great urban land parcels that we are currently developing.

Interestingly is that even with some higher construction costs that we have already discussed in the past, we're seeing rents increasing dramatically in many of the markets -- and we are able to still achieve double-digit return on cost for our development pipeline, 10% and sometimes even 11%. This, we believe, is a great -- this is a great signal that we should continue investing heavily in these markets in comparison to the acquisition front, which is highly competitive. On a positive side, we're seeing that certain investors are acquiring assets today at 5.8%, 5.9% cap rates. That's a huge spread opportunity for Vesta where if we continue to see investors acquiring at 6% and we develop a 10%, it's all about spread investment. And that's why we believe that Vesta's current strategy. It's not even -- it's not only strong, but it's definitely a big differentiator to the rest of the industrial sector in Mexico.

[Alejandra Obregon, analyst]

And if I can follow up on that last comment that you said on the spreads. Can you provide some color on where are you seeing these type of spreads? Is that something that you're seeing from a regional perspective, from a sector perspective? Is that something that can be grouped by any type of tenant? Where do you see the greater spreads in the space?

[Lorenzo Dominique Berho Carranza, executive]

You're absolutely -- we're seeing those spreads in most of the markets where vacancy rates are at historic lows. And currently, we're seeing pretty much all of the markets have historic low vacancy rates and increasing rents. A good example for that is Guadalajara, which is a strong market where we have -- we're developing the second phase of the Vesta Park Guadalajara, and we recently leased to DSB Logistics, a building that is under construction. And we recently started 2 new buildings, spec-buildings that we are already marketing very strong demand and that are -- that we're aiming at development yields close to 10%.

That's only an example of the good market environment that we're perceiving, and this is a highly -- it's a highly demanded market also from an investor perspective. So that's why we believe that being able to anticipate while acquiring land is giving us a major advantage. But if you just have a look at our supplemental package, we're developing currently in Tijuana, Monterrey, Sea Juarez, Guadalajara, Queretaro, which spreads are well above the double digits and where spreads are still in the 300, 400 basis points to stabilize acquisition cap rates.

[Operator]

Our next question comes from the line of Pablo Monsivais with Barclays.

[Pablo Monsivais, analyst]

Just a quick and easy one. In order to better assess the strength of the demand, when was the last time in investors life that you have seen such a strong demand pace? I don't know if you can point out something in time that tells us really how strong demand is.

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Pablo. I think this is a good question. And this is something that we are evaluate internally very often. I think that what is interesting about this time is that these are definitely unprecedented times. And probably this type of economic cycles and adjustments only happen every couple of decades, probably. And we're living one of those moments where this definitely relates to the change in world order. The change in the, let's say, economic and trade relationships from the major market, which is the U.S. and the positioning of certain long-term trends that have been not only have been harvesting for the last 20 years or so.

I think that we have only seen this type of adjustments probably 30 years ago in terms of what happened when the open economy- when certain economies started to open. And right now, we're seeing that Mexico is benefiting from all those adjustments. And clearly, what we're seeing in Salovesta, even with certain complexity, we think that the demand of industrial space for the 2 main reasons being new shoring and e-commerce will continue to be strong for the foreseeable future.

[Operator]

Our next question comes from the line of Francisco Suarez with Scotiabank.

[Francisco Suarez, analyst]

The question that I have is actually on the capital deployment, given that you already bought land in Mexico City. The question that I have is that I have no doubt that the overall spreads all over the place are what you are aiming for. But given the complexities of Mexico City, how the overall cost structure is in Mexico City, the price of land, of course, among other factors, do you think that you will be able to earn the similar excess spreads that you earn elsewhere in Mexico?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Francisco, for being on the call. This is -- I appreciate your question. This is a good moment to elaborate further on our acquisition and our strategy in Mexico City. As you might be aware, we have a long term -- we have a long term view from Mexico City. It is part of our [indiscernible] strategy. It has taken us a war to identify good locations of land where we can deploy smartly and attract final global e-commerce players. We're very happy to say that we recently acquired a piece of land next to the Basilica de Guadalupe. For those of you Mexicans or for those of you that have to come to Mexico, you know how important the Basilica de Guadalupe and how well located, it is in Mexico City.

This is the heart of Mexico City. We were able to acquire a great piece of land. And not only that, we will develop the best warehouse in Mexico City. This will be- no other developer has this type of location, and this would be a premium type asset that currently, there's actually no comparison to it. So that's why we believe that we are going to be able to attract premium rents that will definitely have an attractive risk-adjusted return to our investors. And I think this clearly opens up our strategy to keep on acquiring good assets in Mexico City, develop great buildings, premium buildings and attract good companies in this particular sector that we believe we keep on driving throughout Mexico. I can anticipate that we're going to be acquiring more land parcels and develop in this area and develop premium buildings, state-of-the-art facilities with lead certifications and probably properties that nobody has ever developed inside of Mexico City.

[Francisco Suarez, analyst]

A great location indeed, it's wonderful to know, but -- but given that location, that unique location that you are entering a do you expect to earn the typical 200 basis points in excess returns that you can have?

[Lorenzo Dominique Berho Carranza, executive]

Absolutely. I think that this is in line with the risk adjustment returns that we have been delivering. As you might know, this is a highly desirable location for investors and spreads are clearly high. Rents are very, very much higher in this area. The class C buildings are currently being leased at above 12% [indiscernible] hours per square foot. So a pre-location could easily lease higher than that. And therefore, being we can be able to lease up at a really attractive spread opportunities. So we will continue with the strategy. We think long term will be great return for our shareholders, and we will continue to have a strong leadership in the region where cap rates are even in an environment where rates -- interest rates are -- have been increasing. There is so much demand that institutional players are paying below 6% CapEx in these regions.

[Operator]

Our next question comes from the line of Juan Ponce with Bradesco.

[Juan Ponce, analyst]

I have a question on margins. You mentioned that lower costs in occupied properties explain the expansion. But how should we think about the fourth quarter? And also, do you think that the full year guidance of 94% NOI is conservative?

[Juan Felipe Sottil Achuttegui, executive]

No, this is -- let me tell you, thank you for the question. We are always on top of controlling expenses. We are keen on -- we're very strict on budgeting for the following year, and we're keen on keeping the budget throughout the year. I think that our NOI and EBITDA margin will continue to benefit in the last quarter of this year as well as in the following years with this prudent approach. We -- I think that the very high growth in rents allow us to be optimistic on this front and we'll be on top. We also take measures when we need to. In the past, you have seen as being very conservative on bad accounts reserves. The bad accounts of the company over the last 5 or 6 quarters have been incredibly low. You can see my accounts receivable, we provide very detailed information to our shareholders on accounts receivables, and they are very low. Clients are paying on time. So while that is happening, my margins are going to continue to expand. So I am very optimistic indeed.

[Juan Ponce, analyst]

So it's safe to say that the guidance is conservative, right?

[Juan Felipe Sottil Achuttegui, executive]

Well, look, we'd rather be conservative on the guidance. Sometimes at the beginning of the year, when we provide guidance, please bear in mind that we have large buildings and sometimes we have maturities of large buildings that we couldn't roll over with the policy of rolling over buildings 9 months in advance, sometimes clients take more time to make up their minds. And such large buildings will provide issues on guidance calling. And if a building is not go over, then I have to be prudent. This particular year, for example, we have 2 buildings that rather large that were- the clients did not make up their minds. Two very good stories, one of them roll over in the nick of time just great. The other one asked to leave and we were able to lease that building to another client within a month. So that is in the Toluca market. That gives you a sense of how strong the markets are. But at the outset of the year- at a higher rent, of course, and the outset of the year, well, we didn't know I have to be prudent on guidance.

[Operator]

Next question comes from the line of Gordon Lee with BTG.

[Gordon Lee, analyst]

Two quick questions, both on the development side. Given what we're seeing in occupancies and given what we're seeing in rents and leasing spreads, et cetera, I was wondering if you could give us sort of conceptually broad brush when you underwrite ability, let's say, your development CapEx is 10%. What assumptions do you make for occupancy and for the trajectory of future rents? And the second question is given the situation that you're seeing where spec buildings are being leased out while they're still under construction, -- do you see a potential change in mix more towards build-to-suit or suit to spec to suit rather, as clients sort of are forced to anticipate their decisions and no longer assume that there will be spec space available. Could that shift- would that shift a little bit the development cap rates that you're looking at and what you're underwriting now?

[Lorenzo Dominique Berho Carranza, executive]

Thank you, Gordon, for your participation and for the questions. When we underwrite, we're very conservative on our underwriting approach since many of the buildings are spec buildings, and we need to make some quick assumptions or some general assumptions on absorption which we're conservative. We underline -- we underwrite depending on the market, a downtime of 6 to 12 months approximately. We estimate market rents at the moment. And if we need to make any assumptions for the future, we'd rather be on the conservative side.

And we believe that our spec building strategy has been not only very well taken by the market in terms of lease-up where they will take the buildings as they are and clients will invest very heavily inside of the buildings. But also from us, from an investor perspective, we think that having a generic building, where we don't have to do any major investment in tenant improvements, we believe that helps to have a better risk-adjusted return in long term. So that has been the strategy for a while, and I think that we are keeping the strategy probably reinforcing it when the markets -- when the local markets have very little supply and vacancies are so low, and we can have a better competitive advantage. We cannot really change our strategy.

We keep on doing build-to-suit projects, expansions of existing buildings. We recently started one for Safran in the aerospace arena as well as OXO. -- and build-to-suits take a bit longer to negotiate. We have a good pipeline at the moment. So whenever we close any transactions, we think that will add up to our current pipeline. In the future, part of our $1.1 billion investment plan is clearly still going to be a combination of build-to-suit projects and spec buildings, mainly inside of Vesta Parks that we have already started developing, we have acquired the land. So we have a good visibility on more than what type of buildings we develop, where we develop and what type of, let's say, returns we might be achieving in each of the projects.

[Operator]

Our next question comes from the line of Jorel Guilloty with Goldman Sachs.

[Wilfredo Jorel Guilloty, analyst]

I just wanted to touch base on the dynamics within the regions. Obviously, you're sold out on sort out in agencies in that year. in dynamic we saw was actually sequentially that your rents went up more than divisions. So I'm wondering here, how are you thinking about the yield in terms of general trends? Is it -- are we at a point where given that you're sold out on the mark, you have -- and in general, the industry slow out or not, you're seeing more interest or demand to go into cities in the Bajio? And if so, do you have a time frame in which you can see the gaps closing vacancy is going down?

[Lorenzo Dominique Berho Carranza, executive]

Yes. Great. Thank you, Jorel, for your question. It kind of break a little bit, but I think I got part of most part of your question. I will elaborate a little bit on Bajio. So, one of the good things about the Bajio is that we are seeing over the last quarters an increase in demand and better conditions in the market. We believe that this is a result of the same dynamic that we're seeing overall in Mexico and now is positively one region that was lagging in the last years and was probably slower. As you can see, we have increased our occupancy of some of the spec buildings that were vacant for a while. And with this, we -- hopefully, we are going to be seeing increasing rents probably in the next period, probably next year. And the reason that we see that rents might rise is for 2 reasons.

The first one being higher construction costs. That's one of the main reasons that new developers need to make returns. Secondly -- and of course, it's actually a totaling cost, which is based on rent -- I'm sorry, on construction as well as land prices. Land prices have increased dramatically just because land inside of industrial parks in the Bajio region is scarce. There's a lot of land in the Bajio but not necessarilya lot of land inside the parks. And that's why a good infrastructure is well paid, and that's where we're seeing an important increase in land prices. And that's a good reason of why we see that rents might increase soon. And the other reason is, of course, inflation.

Inflation has been affecting everywhere, and that's another good reason that as long as we can keep on increasing the occupancy in the market with strong demand coming from suppliers in the auto sector, in the logistics sector, it is incredible to see also [indiscernible] investment outcoming in the Bajio for data centers. That was recently by one of our peers, a new announcement of a $1 billion investment on a data center, which is great news because this will represent further investment in infrastructure in the area, and therefore, companies are going to be making stronger debts in this particular region, which has strong competitive advantages.

[Operator]

Our next question comes from the line of [ Juan Marcelo with GBM ].

[Unknown Analyst]

My only question is regarding the Mexico City New land bank. You said it is a premium location, but I was wondering if you have plans for it for it to be a build-to-suit or a speculative project? Or is there no color on that yet?

[Lorenzo Dominique Berho Carranza, executive]

Great. Thank you for your question. We -- one of the attributes of acquiring these type of assets is that we can have the flexibility to do good spec building and then take advantage of our market conditions or we could be closing a build-to-suit project if a potential tenant would close some time. We have currently -- we're currently in that process. We hope to be starting soon the construction of that particular building, probably early next year.

And in the meantime, we're already marketing the transaction. This was recently acquired. And the good thing is that we have good relationships already with strong tenants in the e-commerce sector, very strong clients. And also the broker community in the Mexico City area that can help us to attract potential tenants that are willing to have a premium location and a premium asset. Additionally, this is a smaller project compared to the larger projection we had in the city. So we are hoping to close on some other acquisitions. So it's going to be a multi-location marketing strategy towards the Mexico City area, where we're going to be able to do, for sure, spec buildings as well as build-to-suits and some things we could even consider them expect to suit projects.

[Operator]

Our next question comes from the line of Andre Mazini with Citigroup.

[André Mazini, analyst]

So 2 quick ones. The first one on maybe a solar program. I don't know if you guys already have that rolled out because comparing to the field, of course, I think you guys have more leeway, to invest in solar to FIBRA. There is an understanding that solar would not be real estate, so they could not invest directly. They would have to be more creative in how they monetize the roof of the building. So do you guys can do it directly, do you think you have an advantage, right, not being constrained by the fiber structure to invest in solar?

And if that's something that the tenants are wanting for energy security reasons and also for ESG concerns. So that's the question number one. And then just a question number 2 -- what do you think will be the best demand going forward into 2023, either e-commerce or near shoring, right, which are the 2 main drivers. Of course, e-commerce now some people having a little bit of concern that there will be a scale back as people go back to their old ways, brick-and-mortar and spending on experiences. So is e-commerce going to be less of a driver vis-a-vis your shoring for anytime do you think? Those are the 2 questions.

[Lorenzo Dominique Berho Carranza, executive]

Great. Thank you, Andre, for your questions. I think that our -- I don't know exactly the strategy is that all the ... follow. I think that many of them actually, they do not develop. So I don't know what their strategy is towards sustainability development projects, we -- we definitely are -- have analyzed different alternatives in order to find the best sustainability solutions and for our buildings and, of course, for our tenants. In the cases where we have been able to increase solar panels, it has been in line with our tenants. Many of our clients have also very high standards and objectives in terms of sustainability. And in some cases, we have seen that having solar panels either on using the roofs of the buildings as well, as using for example, the parking lots has been a good solution.

This is -- this has not been incredibly large in terms of size. But I think it's a good example that things could somehow be done. We are looking at different alternatives. As you might know, the renewable energies or clean energy alternatives in Mexico are not very accessible for the moment. However, we're always trying to dig deeper into alternatives that we might be able to find and when the opportunities arise, I'm sure that we're going to be -- we're going to be tapping those. In terms of your demand question, we -- if you look at the absorption numbers just in this quarter, you can clearly see a strong -- we're seeing record high numbers in the market absorptions and net absorptions in different regions and in different industries.

This is coming strongly from the nearshoring trends and also e-commerce. But more interestingly is the size of transactions that we are seeing. In the past cycle, we have seen many of these companies doing, let's say, medium-sized projects in the 100,000 square foot range. And right now, we're analyzing and we have a strong pipeline and transactions in the 300-300,000-plus square feet range. This is interesting because this reflects how big is the best from global companies is in Mexico. So they're not doing short-term solutions for their business and for their business cases. They are making long-term bets within Mexico at a larger scale to provide those alternatives to their productions in either Asia or Eastern Europe. So I think that we're going to keep on seeing more of that, Andre, in the next year. And I think that our e-commerce situation is pretty much similar since demand still increasing in this market.

[Operator]

Our next question comes from the line of [ Fatima Benitez with Compass Group ].

[Unknown Analyst]

I just have one quick question. You said that your late trend was up -- can you get the numbers for me?

[Lorenzo Dominique Berho Carranza, executive]

Can you repeat the question please Fatima, we kind of break up a little bit.

[Unknown Analyst]

Yes. What was your lease rent for the quarter?

[Lorenzo Dominique Berho Carranza, executive]

So we saw an increase in rents for the year-over-year in the quarter of -- in excess of 11% for a total portfolio. This is -- clearly, this is the absolute number on the total portfolio. We have seen in different markets ranges between, I would say, 8% and 20% or above in basis of 20% in some regions, too. So this is interesting. I think that this is a good -- clearly a result from high demand, low supply and our ability to increase inflation or increase -- adjust to inflation our existing... in terms of our portfolio. So looking forward, we are seeing a similar dynamic where there's still little supply. There's good demand and inflation. We see that for the next year, we see that inflation is going to keep on kicking in even despite all the support that the different governments are giving to their economies.

[Operator]

There are no further questions at this time. I'd like to turn the call back over to Mr. Berho for closing remarks.

[Lorenzo Dominique Berho Carranza, executive]

Thank you. We're focused on executing our Level 3 strategy and we demonstrated progress on the updated development strategy we unveiled in June. Mexico's industrial market is strong. Investa's 3.2 million square foot pipeline reflects what we believe is only the beginning of a long and gravel near-shoring migration trend triggered in 2019. I'd like to conclude by inviting everyone to our early vested challenge, cycling raise, which will take place at our Vesta Park in Queretaro on November 5. Many of you have participated in the past. It's a great event with all proceeds we will use to fund our social programs. Also a deep felt thank you to the entire Vesta team for your hard work and many successes. As together, we continue to drive significant long-term shareholder value. Thank you, and talk to you next quarter.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.