Areas of the country with legalized marijuana are seeing a major impact on their real estate. More than two dozen states now have legalized pot for recreational or medical use and are reporting a spike in demand for factories, warehouses, and self-storage facilities to cultivate and process marijuana plants and products. Suburban strip malls are being retrofitted to distribute pot.
Landlords are charging a premium to new tenants working in the cannabis business, too.
Commercial developers from Monterey, Calif., to Portland, Maine, told The New York Times that they’ve never seen a change so swift in so many places at once. For example, some Denver neighborhoods have seen average asking lease prices for warehouse space skyrocket more than 50 percent from 2010 to 2016, according to a report by CBRE Industrial Services. There are five times more retail pot stores now than standalone Starbucks shops, The New York Times notes.
“This is a new segment of the industrial real estate market that is being created in front of our eyes,” says George M. Stone, a real estate executive with the Witkoff Group. “It’s a huge industry and only getting bigger.”
Colorado legalized marijuana for recreational use in 2012, resulting in hundreds of stores opening. Legal marijuana sales reached $1 billion in the state last year. From 2009 to 2014, 36 percent of new industrial tenants were in the marijuana business, according to CBRE Research. Warehouse vacancy rates have plummeted from 7.5 percent in 2010 to now just 3.7 percent. Landlords are finding they can charge two to three times market rates for spaces used for cultivation or marijuana sales.
“It’s a tax these guys are used to paying because it’s still federally illegal,” Brian Vicente, a partner at Vicente Sederberg, a Denver law firm specializing in marijuana issues, told The New York Times.
But some housing experts caution about a bubble that could be brewing. Millions of dollars are being allocated to making older warehouses suitable for cannabis production. However, as the industry evolves, some executives warn that tenants and investors may find themselves underwater, if growers ever turn to less expensive greenhouses.
Source: “A Real Estate Boom, Powered by Pot,” The New York Times (April 1, 2017)