Why Tijuana And San Diego Are Really One Market

The image of Tijuana as a tourist town across the border is an old one that deserves to die. The city is a rising star economically and culturally speaking, according to the speakers at Bisnow's Cross-Border Real Estate: Tijuana and San Diego event. More than that, Tijuana is an integral part of the region, a twin city to San Diego.

The event's Transnational Investment and Development panelists said the best way to think about Tijuana as a real estate market — and as a local economy — is not to think of it as separate from San Diego. There is a border between them, of course, but for all practical purposes, the two cities have evolved into one market.

The Tijuana side of the market is coming of age as an urban area, as part of an internationally oriented regional economy, the speakers said.

Commercial development in Tijuana meets international standards, with major  international companies locating here, many of which are related to aerospace and medical device industries. Architects and engineering firms from both sides of the border work on commercial projects in Tijuana. 

Also, the speakers said, the first industrial plan under the maquiladora system was built in Tijuana (back in the 1960s), so most of the construction companies in Mexico are from Tijuana. Maquiladoras are factories that operate in Mexico under a specific tariff agreement with the U.S. to encourage cross-border manufacturing. That continues to be important to the local economy.

There has been considerable improvement in the local infrastructure, with "NAFTA highways" and industrial parks on the Mexican side of the border in Tijuana. But there is still a lot of room for improvement, the speakers said, especially as the city grows to the east and commercial and residential development occurs in the Tijuana-Mexicali corridor.

Part of the recent growth in Tijuana is cultural and mostly involves private projects that are creating a new sense of place and belonging for the city. The new spaces being developed in Tijuana aren't for tourists, but rather for locals — that is, people from Tijuana, but also San Diego and farther north in California.

Tijuana has grown from a town into a city, with a culinary scene and breweries and other cultural aspects, but also residential development, the speakers said. Major residential projects in Tijuana used to be second homes for people from California, at least before the recession. 

That has changed. There have been 70 or so condo projects in recent years, with units selling from $100K to $200K. Families from San Diego are buying or renting in Tijuana to escape high prices in San Diego, but much of the market for those properties is entirely local, the speakers said.

Tijuana-San Diego is a microcosm of the relationship between Mexico and the United States, according to speakers on the Future of the Cross-Border Relationship panel. The links are incredibly deep, with much of the growth over the last 25 years facilitated by NAFTA.

The speakers offered a few numbers to illustrate that: Trade between the NAFTA partners is about $3.6B daily, or $1.3 trillion annually, with 14 million jobs in the U.S. related to this trade. Mexico is California's largest destination for exports, or about $26B annually. There are 1.4 million northbound trucks per year crossing at Tijuana.

The speakers all agreed that fundamental change to NAFTA isn't necessary, though some updates probably are. Such updates might be about data transfer, intellectual property, environmental regulations and other matters, since the world isn't the same as it was when the agreement went into effect in 1994.

A lot of the updating would have been taken care of by the Trans-Pacific Partnership, but that was undone when the United States walked away from it.

Mexico's new president steps into office Nov. 30, so ideally there will be some kind of NAFTA agreement before then, but it would still be doable afterward, the speakers said. In any case, there have been a lot of stops and starts in the NAFTA negotiations, and the situation is fluid.

No NAFTA in the future would be hard to imagine, but in that case, World Trade Organization rules would kick in. The U.S. has hinted at leaving the WTO — at least there have been reports along those lines — which would, in terms of economic dislocation, be a leg fracture compared to the stubbing of a toe with Brexit, as one speaker put it. 

But the end of NAFTA seems unlikely, because there is too much money involved. After all, the U.S. is the second-largest manufacturer in the world, with a lot of material sourced from its NAFTA partners. Without NAFTA, the U.S. manufacturing economy would take an enormous hit.

The relationship in North America is more than just trade, the speakers said. It is about making things together. Many goods cross the border several times before they are finished, with intermediate inputs along the way on each side. Then those goods are exported all over the world. San Diego-Tijuana, for that reason, very much functions as a single regional economy. 

The links between the three NAFTA countries are strong and deep, moreso than any prevailing political rhetoric, the speakers said. There is a storm right now, but storms pass, and the underlying relationship will remain.