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Impact of Marijuana on Denver Commercial Real Estate

3/13/2015

8 Comments

 
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One of the hottest topics in Colorado is marijuana and the impact that the legalization's had on the local economy and the commercial real estate industry. In short, it has been a complete game-changer for both the retail and industrial real estate markets especially in Denver. The pot industry is definitely to thank for an industrial vacancy rate hovering around 4% and both lease rates and sale prices on the rise.

PictureRecreational & Medicinal Marijuana Retal Locations in Denver
It's estimated that the recreational and medical marijuana industry now occupies 3.5 - 4.5 million square feet of industrial and retail space in Denver. While that sounds like a lot, when you factor in just how many properties that includes the magnitude is staggering.  To the right is a map of just the retail locations for recreational and medicinal marijuana in Denver. 

This does not take into account the staggering number of indoor grow facilities that supply product to these dispensaries. These grow facilities can range from as small as 5,000 SF to over 80,000 SF. We are also seeing a large demand for commercial kitchens to produce Medical Infused Products (MIP's).  It is estimated that over 1,600 properties in Colorado are related to the marijuana industry!


Not only has the industry absorbed a tremendous amount of Class B & C, it has been a boom for a myriad of the construction industry trades like electricians, plumbers, general contractors, architects, fire suppression companies and HVAC companies. A ripple effect of the increase in tenant finish related projects for the marijuana industry coupled with a resurgence of new construction of Class A mixed-use projects throughout the metro area, has been major delays in the permitting and planning departments at the city. Simple build-out projects in industrial spaces can easily take over 100 days to complete. 

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Marijuana grow facilities are prolific in industrial real estate areas in Denver. Not only are they easy to smell, they are several tell-tale signs of the nondescript grow facility - loading doors are cinder blocked shut for security, extensive security cameras and fencing, evidence of recent power upgrades with large electrical service panels, and typically only a few vehicles parked in front.

The legalization of marijuana in Colorado was a windfall for the Denver commercial real estate industry during one of the worst economic recessions. Older obsolete industrial facilities and worn down retail locations were ideal properties for the marijuana industry to absorb! Now that the Denver industrial vacancy rate is hovering around 4%, we are even starting to see new construction of grow facilities. Below is an example of greenhouse that were just constructed near downtown Denver. With utilities being by far the largest operational expense for pot growers, greenhouses are in high demand!

PictureGreenhouse Grow Facility in Central Denver
The positive impact of the marijuana industry hasn't been limited to Denver. Pueblo County, in Southern Colorado, has embraced the industry and even allows for outdoor cultivation. Long known as a town of steel workers and farmers, Pueblo has a very able and willing workforce, cheap land prices and abundant water. Just in the last 12 months in Pueblo County, industrial sale prices have surged from $13/SF to $36/SF and the vacancy rate has plummeted from 20% to 5%.  In addition to that, 36% of all current construction in Pueblo County is related to the marijuana industry. 

Last week I attended a conference held by the Urban Land Institute that was titled "Cannabis and Real Estate: Is Colorado the New Amsterdam?". Never in my wildest dreams that I think I would attend a 5 hour conference on pot and how its impacting my industry.  The cannabis business is here to stay and it's going to be fun to see how all of this plays out and how long the Pot Rush can continue before we see a market correction. Even the marijuana industry will have cycles, it can't stay high forever... or can it? 

Please contact Sherpa Commercial Real Estate if you would like to discuss in the industry in more detail!

8 Comments

    Author

    Brady Welsh is a Commercial Real Estate Professional in Denver, CO and the President of Sherpa Commercial Real Estate. In addition to industrial & office brokerage & development, he enjoys tracking the local and national CRE markets and sharing his thoughts and updates on the industry with this Blog. 


    Please feel free to contact him at Brady@creSherpa.com or 303.949.6443.

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