Good evening, ladies and gentlemen, and welcome to the Vesta Third Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. 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.
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, products, strategy, demand, and market. These statements are subject to risks and uncertainties that could cause actual results to differ materially. They also base 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 included herein were prepared in accordance with IFRS and are stated in nominal US dollars unless otherwise noted. With that, I'll turn the call over to Lorenzo.
Thank you, Fernanda, and everyone on today's call. Our team continued its strong performance, delivering another outstanding third quarter and first nine 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 worry that major economies will be pushed firmly into recession before inflation is tamed from current multi-decade highs. We're seeing major issues facing financial systems, deterioration of economic outlooks 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 Communist Party Congress on Sunday with a speech more focused on national security and stability than in the past.
That means that companies are now balancing Beijing's objectives with market risks and potential sanctions. Companies are realizing they need a new playbook if they're trying to meet increasing demand. As the advantages erode for global manufacturers' operations in Asian countries, interest in reshoring and nearshoring continues to climb, evident in Vesta's 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 Russian sanctions disrupt supply chains. The pandemic highlighted the global risk 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, improved communication, reduced probability for disruption and improved efficiencies lowered by operational costs. Site 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 pre-pandemic levels in dollar terms as indirect evidence of today's nearshoring 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 in the country to further strengthen their position in the Mexican e-commerce industry. North America will therefore benefit, and Mexico, particularly Vesta, will continue to be at the center. The need for high-quality, move-in 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 of Vesta's total portfolio, which record-high 96.1% occupancy, while stabilized occupancy increased to just under 97% and same-store occupancy to 96.4%. Today, we're seeing truly unprecedented leasing activity and renewals. We signed 3.8 million sq ft in GLA during the third quarter. One million from new leases with leading companies such as OXXO, Home Depot, and DSV. Importantly, with Mexican 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 sq ft for the quarter, with weighted average lease terms of seven years, underscoring Vesta's existing tenants' commitment to a long-term presence in Mexico. While leasing spreads remain positive at a weighted average of 6.1%, it is important to note that Vesta's contracts are linked to inflation, which means they catch up to market rent. Pricing is normally compressed when renewing the lease. During the quarter, we renewed with Nestlé, our largest tenant, for a five-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 inner-city location is 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 first. 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 Strategy, while strengthening our company's financial position with balance sheet flexibility. Finally, along similar lines, we're delivering on our green certification targets. Vesta achieved LEED certification for the Vesta Park Guadalajara Mercado Libre building and LEED Silver certification for the Vesta Park Puebla PepsiCo building. With that, let me turn it over to Juan, and I'll return for some brief closing remarks.
Thank you, Lorenzo. Let me recap our results for the quarter. We continue to deliver strong financial results supported by our outstanding operational performance, as Lorenzo 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 properties during the quarter that was partially offset by a $2.1 million decrease 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 from the favorable effect of higher than expected inflation on our top-line results.
In terms of the currency mix, 82% of Vesta third quarter revenue was denominated in US dollars, decreasing from 83.9% in the last year comparable period. Mainly reflected higher 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 cost 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 costs 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 increase in the company long-term incentive plan. In turn, EBITDA totaled $38.7 million in the third quarter of this year, 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 pre-tax income of $88.7 million, compared to $47.3 million in the third quarter of 2021. While the pre-tax FFO increased 18.3% to $26.9 million, and NAV per share increased 10.6% to $2.79 dollars per share from $2.53 per share in the same quarter of last year. Now turning to our CapEx and portfolio composition. We invested $73.96 million during the quarter, mainly in the construction of new buildings in the northern and Bajío region and land acquisitions. At the end of the third quarter, the total value of the portfolio was $2.558 billion, comprised of 194 high quality industrial assets with a total GLA of 32.3 million sq ft.
Year over year, our stabilized portfolio increased 3% to 31.21 million sq ft, with occupancy increasing to 96.6% from 93.1% in the third quarter of last year. We ended the quarter with a land bank of 40.8 million sq ft and projects under construction of 3.2 million sq ft, 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 14th, subsequent to the quarter end, equivalent to Ps. 42.00 per share in ordinary shares. Finally, to further strengthen our balance sheet during the quarter, we closed a $200 million sustainability-linked revolving credit line as Lorenzo noted. With an interest rate of SOFR plus 160 basis points, this facility contains a sustainability performance target 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.
Thank you. Ladies and gentlemen, at this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Alejandro Chavelas with Credit Suisse. Please proceed with your question.
Hi, thanks for taking the question. I guess the only thing that surprised me a bit about the report, and that's me nitpicking here a little bit, obviously, because it was pre-announced report, it was a slow pace of deliveries. I think you had scheduled to deliver a big building in Monterrey that was delayed to April 2023. I also think Vesta Park Mega Region 1 and 2 were delayed, I think, since the last quarter. I know it's not perfectly predictable, the delivery times are revised. But more generally, I think your peers have mentioned that construction permitting times have been taking longer than expected, particularly in the north. I was wondering if this explains the pushing back some of the projects. That's my first question.
Great. Thank you. Thank you very much, Alejandro, for being on the call. Yes, we are currently very active in terms of development. As you may 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. The two particular cases that you mentioned is Tijuana and Monterrey. Both of them are
Multi-building projects 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. In some cases, one or two 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 are minor adjustments, are absolutely nothing to do with permits and any other measures. This actually had 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 changes to our timing for the first buildings. One of them we were able to lease already to Home Depot, the first building. They are now our anchor tenant. We are currently developing four more buildings. I'm sorry, three more buildings, and we're soon to start the last two buildings of that project. That's why sometimes we can have some changes. However, that doesn't change our estimation in terms of collecting rent and collecting income. Demand is so high that even with certain adjustments in construction, we can say we can still be able to collect rent in time and have positive effects to our rental income in the short term.
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 spec buildings in great reserves that we have been able to acquire in advance, and give us a competitive advantage.
Great. Thanks so much for the color.
Our next question comes from the line of Alejandra Obregón with Morgan Stanley. Please proceed with your question.
Hi. Good morning, Vesta team. Thank you for taking my question and 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 lot stronger market, I mean, way ahead of expectations, right? My question is whether the current environment has led 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? Thank you.
Thank you, Alejandra. Thank you for being on the call. As you well noted, we presented our new pipeline and strategy at Investor Day, where we are investing $1.1 billion throughout Mexico in the main markets, including several Vesta Parks. 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, strong tailwinds. However, we are also cautious on what's happening in terms of geopolitical adjustments. On the ground, we believe that Vesta has a greater advantage by being able to have great urban land parcels that we're currently developing.
It's interesting 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. We are able to still achieve double-digit return on cost for our development pipeline, 10% and sometimes even 11%. 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 at 10%, it's all about spread investing.
That's why we believe that Vesta's current strategy, it's not only strong, but it's definitely a big differentiator to the rest of the industrial sector in Mexico.
Thank you. 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?
Sure, absolutely. We're seeing those spreads in most of the markets where vacancy rates are at historic lows. 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're developing the second phase of the Vesta Park Guadalajara, and we recently leased to DSV a building that is under construction. We recently started two new buildings, spec buildings, that we are already marketing with strong demand and that we're aiming at developing deals close to 10%. That's only an example of the good market environment that we're perceiving. This is a highly demanded market also from an investor perspective.
That's why we believe that being able to anticipate to acquiring land is giving us a major advantage. If you just have a look at our supplemental package, we're developing currently in Tijuana, Monterrey, Ciudad Juárez, Guadalajara, Querétaro, which spreads are well above the double digits and where spreads are still in the 300-400 basis points to stabilize acquisition cap rates.
Thank you. That was very clear. Congratulations again.
Thank you.
Our next question comes from the line of Pablo Monsivais with Barclays. Please proceed with your question.
Hi, guys. Thanks for taking my question. 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 at something in time that tells us really how strong demand is. Thank you.
Thank you, Pablo. I think this is a good question, and this is something that we evaluate internally very often. I think that what is interesting about these times is that these are definitely unprecedented times. Probably these type of economic cycles and adjustments only happen every couple decades, probably. 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 harvesting for the last 20 years or so.
I think we have only seen these type of adjustments probably 30 years ago in terms of what happened when certain economies started to open. Right now we're seeing that Mexico is benefiting from all those adjustments. Clearly what we're seeing inside of Vesta, even with certain complexity, we think that the demand of industrial space for the two main reasons, being nearshoring and e-commerce, will continue to be strong for the foreseeable future.
Well, thank you very much.
Our next question comes from the line of Francisco Suarez with Scotiabank. Please proceed with your question.
Thank you for the call. Good morning, and congrats for the results and for a superb execution on capital deployment. It really makes sense. 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? Thank you.
Thank you. Thank you, Francisco, for being on the call. 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 view for Mexico City. It is part of our Level 3 Strategy. It has taken us a while 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 Basílica de Guadalupe.
For those of you Mexicans or those of you that have come to Mexico, you know how important the Basílica de Guadalupe is 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. 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 will be a premium type asset.
That currently there's actually no comparison to it. That's why we believe that we are gonna be able to attract premium rents that will definitely have an attractive risk-adjusted return to our investors. 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 will keep on thriving throughout Mexico. I can anticipate that we're gonna be acquiring more land parcels and develop in this area and develop premium buildings, state-of-the-art facilities with LEED certifications and probably properties that nobody has ever developed inside of Mexico City.
A great location indeed. It's wonderful to know. Given that location, that unique location that you are entering at, do you expect to earn the typical 200 basis points in excess returns that you can have?
No, absolutely. I think that this is in line with the risk-adjusted returns that we have been delivering. As you might know, this is a highly desirable location for investors, and spreads are really high. Rents are very, very much higher in this area.
Yes.
Class C buildings are currently being leased at above $12 per sq ft. A premium location could easily be leased higher than that, and therefore we can be able to lease up at really attractive spread opportunities. 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 interest rates have been increasing, there's so much demand that institutional players are paying below 6% cap rates in these regions.
Great. Thank you so much. Congrats again.
Gracias.
Our next question comes from the line of Juan Ponce with Bradesco. Please proceed with your question.
Hi. Good morning, everyone, and congrats on the results. I have a question on margins. You mentioned that lower costs in occupied properties explain the expansion. How should we think about the fourth quarter, and also, do you think that the full year guidance of 94% NOI is conservative? Thank you.
Let me tell you, thank you for the question. We are always on top of controlling expenses. 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 margins will continue to benefit in the last quarter of this year, as well as in the following years with this prudent approach. I think that the very high growth in rents allow us to be optimistic on this front. We'll be on top. We also take measures when we need to.
In the past, you have seen us being very conservative on bad accounts receivable. The bad accounts of the company over the last five or six quarters have been incredibly low. You can see my accounts receivables. We provide very detailed information to our shareholders on account receivables, and they are very low. Clients are paying on time. While that is happening, my margins are gonna continue to expand. I am very optimistic indeed.
It's safe to say that the guidance is conservative, right?
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 nine months in advance. Sometimes clients take more time to make up their minds. Such large buildings, well, provide issues on guidance calling. If a building is not rolled over, then I have to be prudent. This particular year, for example, we have two buildings that are rather large that the clients did not make up their minds.
Two very good stories. One of them rolled 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. That's in the Toluca market. That gives you a sense of how strong the markets are. At the outset of the year, at a higher rent, of course. At the outset of the year, well, we didn't know, so I have to be prudent on guidance.
Great. Gracias, Juan.
Next question comes from the line of Gordon Lee with BTG Pactual. Please proceed with your question.
Hi, good morning. Thank you very much for the call. 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 a sort of conceptually broad brush. When you underwrite a building, let's say, your development CapEx is 10%, what assumptions do you make for occupancy and for the trajectory of future rents?
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 or 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? Thank you.
Thank you. 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 key assumptions or some general assumptions on absorption, which we're conservative. We underwrite, depending on the market, a downtime of 6-12 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.
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 long term. That has been the strategy for a while, and I think that we are keeping the strategy, probably reinforcing it when the local markets have very little supply and vacancies are so low, and we can have a better competitive advantage. We have not really changed 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 OXXO. Build to suits take a bit longer to negotiate. We have a good pipeline at the moment. Whenever we close any transactions, we think that that will add up to our current pipeline. In the future, part of our $1.1 billion investment plan is clearly still gonna 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.
Perfect. Thank you very much.
Gracias.
Our next question comes from the line of Jorel Guilloty with Goldman Sachs. Please proceed with your question.
One. Thank you for taking my questions. I just wanted to touch base on the dynamics within the regions. Obviously you're sold out in the north, and you're sold out but you have vacancies in the Bajío. Interesting dynamic itself was actually sequentially Bajío rents went up more than the regions. I'm wondering here, how are you thinking about Bajío in terms of general trends? Is it? Are we at a point where given that you're sold out in the north, you have, I mean, in general, the industry is sold out in the north, you're seeing more interest or demand to go into cities in the Bajío.
If so, do you have a timeframe in which you can see the gaps closing, vacancy rate going down? Thank you very much.
Great. Thank you, Jorel, for your question. It kind of broke a little bit, but I think I got most of your question. I will elaborate a little bit on the Bajío. One of the good things about the Bajío 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 impacting 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.
With this, we hopefully are gonna be seeing an increase in rents. Probably in the next period, probably next year. The reason that we see that rents might rise is for two 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 total cost, which is based on, I'm sorry, construction as well as land prices. Land prices have increased dramatically just because land inside of industrial parks in the Bajío region is scarce. There's a lot of land in Bajío, but not necessarily a lot of land inside of parks.
That's why a good infrastructure is well-paid, and that's where we're seeing an important increase in land prices. That's a good reason why we see that rents might increase soon. 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's incredible to see also the amount of investment now coming in the Bajío for data centers. There 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.
Therefore, companies are gonna be making strong bets in this particular region, which has strong competitive advantages.
Thank you very much.
Our next question comes from the line of Juan Marcelo with GBM. Please proceed with your question.
Hi, and thanks for the call and congrats on the results. 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?
Great. Thank you. Thank you for your question. One of the attributes of acquiring this type of asset is that we can have the flexibility to do spec building and then take advantage of our market conditions. Or we could be closing a build-to-suit project if the potential tenant would close it sometime. We're currently in that process. We hope to be starting soon the construction of that particular building, probably early next year. In the meantime, we're already marketing the transaction. This was recently acquired. The good thing is that we have good relationship already with strong tenants in the e-commerce sector, very strong clients.
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 projections we have in the city. We are hoping to close soon some other acquisitions. It's gonna be a multi-location marketing strategy towards the Mexico City area, where we're gonna be able to do, for sure, spec buildings as well as build-to-suits and some things we could even consider them spec-to-suit projects.
Great. Thanks for the color and congrats on the results.
Muchas gracias.
As a reminder, it's star one to ask a question. Our next question comes from the line of Andre Mazini with Citigroup. Please proceed with your question.
Yeah, sure. Hello, Vicente. Thanks for the question. Two quick ones. The first one on, maybe, a solar program. I don't know if you guys already have that ruled out because compared to the FIBRAs, of course, I think you guys have more leeway, right, to invest in solar. The FIBRAs, there's 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, you know, the roofs of the building. Can you guys do it directly? Do you think you have an advantage, right, to not being constrained by the FIBRA structure to invest in solar, and if that's something that the tenants are wanting for energy security reasons and also for ESG concerns?
That's the question number one. Just a question number two, what do you think will be the best demand going forward into 2023, either e-commerce or nearshoring, right? Which are the two main drivers. Of course, e-commerce now, some people are 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. Is e-commerce gonna be less of a driver vis-à-vis nearshoring for 2023, do you think? Those are just two questions. Thank you.
Great. Thank you. Thank you, Andre Mazini, for your questions. I think that I don't know exactly the strategies that all the FIBRAs follow. I think that many of them actually they do not develop. I don't know what their strategy is towards sustainability development projects. We definitely 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.
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 has not been incredibly large in terms of size, but I think it's a good example that things could somehow be done. We're looking at different alternatives. As you might know, the renewable energies or clean energies alternatives in Mexico are not that very accessible for the moment. However, we're always trying to dig deeper into alternatives that we might be able to find when the opportunities arise. I'm sure that we're gonna be tapping those.
In terms of your demand question, if you look at the absorption numbers just in this quarter, you can clearly see we're seeing record high numbers in the market absorptions, net absorptions in different regions and a bit in different industries. This is coming strongly from the nearshoring trends and also e-commerce. 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 sq ft range. Right now we're analyzing, and we have a strong pipeline of transactions in the 300,000+ sq ft range. This is interesting because this reflects how big the bet from global companies is in Mexico.
They're not doing short-term solutions for their business for their business cases. They are making long-term bets within Mexico at a larger scales to provide those alternatives to their productions in either Asia or Eastern Europe. I think that we're gonna keep on seeing more of that, Andre, in the next year. I think that our e-commerce situation is pretty much similar since demand is still increasing in this market.
Very good, Lorenzo. Thank you.
Gracias.
Our next question comes from the line of Fatima Benitez with Compass Group. Please proceed with your question.
Hi. Good morning. Congratulations on the results. I just have one quick question. You said that your lease spread was up. Can you repeat the number for me?
Question? Can you repeat the question, please, Fatima? You can break up a little bit.
Oh, yeah. What was your lease spread for the quarter?
We saw an increase in rents for the year-over-year and quarter-over-quarter of in excess of 11% for total portfolio. This is clearly the absolute number on the total portfolio. We have seen in different markets ranges between, I would say, 8% and 20% or above in excess of 20% in some regions, too. This is interesting. I think that this is clearly a result from high demand, low supply, and our ability to increase inflation or increase adjust to inflation our existing rents of our portfolio. Looking forward, we're 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 gonna keep on kicking in, even despite all the support that the different governments are giving to their economies.
Okay, thanks.
There are no further questions at this time. I'd like to turn the call back over to Mr. Berho for closing remarks.
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. Vesta's 3.2 million sq ft pipeline reflects what we believe is only the beginning of a long and gradual nearshoring migration trend triggered in 2019. I'd like to conclude by inviting everyone to our annual Vesta Challenge cycling race, which will take place at our Vesta Park in Querétaro on November 15th. Many of you have participated in the past. It's a great event with all profits we'll use to fund our social programs. Also, a deeply 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.
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.