The Effect of Legalized Marijuana on the Denver Warehouse Market
If you’re a Realtor in Denver you’ll inevitably get questions from clients about what effect legalization of marijuana has had on real estate. CNN Money recently did a piece reporting that marijuana has been a factor in the high demand for real estate in Denver. To what extent is debatable as there are several contributing factors creating demand, but one specific sector – warehouse, the effect is much clearer.
Dispensaries can’t buy marijuana from outside providers, so they need particular kinds of warehouses that have the proper zoning, location, and meet the high electricity demands to grow all of their own supply. However, other industries that also require warehouses are experiencing a very tight market and rising rents as a result. Warehouse space that at one time may have been difficult to sell or lease are now in high demand.
Industry experts are projecting Denver’s industrial vacancy rate to drop below 3% in 2015, the lowest in decades. Larger warehouses can accommodate plants worth millions of dollars, so dispensary owners in most cases find themselves in bidding wars against each other. The steady demand for marijuana from the general public has most dispensary owners willing to pay what the market demands.
Landlords are capitalizing on the competition by charging premium lease rates that are as much as four times the prices before Denver legalized recreational marijuana. Similar to what we’re seeing in some residential price brackets, tenants/buyers who are requiring due diligence, inspection, and/or appraisal are either too slow or deemed uncompetitive. In some cases landlords are marketing their warehouses for lease under a profit sharing agreement hoping to get a piece of the dispensary owner’s profits. There are also many dispensary owners and/or investors trying to get out in front of the next city or state to legalize marijuana in hopes of obtaining what would be considered desirable warehouse space one day.
The marijuana business is thriving in Denver. Its success has tightened the commercial real estate market and raised Denver warehouse rental rates. It’s an area that will continue to need more space, which has stakeholders here and in many municipalities preparing and investing in the next wave.
Zach Sloven – Broker