❗Help close the gap: We still need to raise $40,000 by the end of March. Donate now

Legal marijuana creates Denver warehouse shortage

Nova Safo Apr 14, 2014
HTML EMBED:
COPY

Legal marijuana creates Denver warehouse shortage

Nova Safo Apr 14, 2014
HTML EMBED:
COPY

Business is booming for recreational marijuana dispensaries in Colorado, the first of their kind in the nation. Their success has tightened the commercial real estate market and raised warehouse rental rates, in what may be a sign of things to come for other states.

The shortage of warehouse space is particularly acute in the Denver region, where the vacancy rate has dropped from 6.1 percent to 4.2 percent in 2013. Since January, when Colorado became the first state to legalize recreational pot, dispensaries have been gobbling up warehouses to meet strong demand. So strong, in fact, that some dispensaries have been forced to ration their supplies. 

“We used to see approximately 100 people through our store every day. Now, we’re seeing approximately 300 people through our store every day,” says Luke Ramirez, co-owner of the Walking Raven dispensary – one of the first medical marijuana shops in Colorado to start selling recreational pot. 

Dispensaries can’t buy pot from outside providers, so they need warehouses to grow all of their own supply. 

“We have seen a dramatic increase in people who are looking for warehouse space, and a dramatic decrease in the amount of available warehouse space in Colorado, and especially in the metro Denver area,” says Taylor West, a spokesperson for the National Cannabis Industry Association. “Warehouse space that for some amount of time may have been difficult to sell, or harder to lease, are now in high demand in the area.” 

Landlords have been asking for increasingly higher rents. Ramirez, who pegs the current rent for one of his two warehouses at $20 per square foot — the national average is $5 per square foot —  has been shopping for a third warehouse. He has seen more than a dozen properties. But so far, he says his insistence on due diligence, to have properties inspected and assessed, means he has been slower than his competition and lost out. In other instances, Ramirez found the landlord’s demands simply too expensive. 

“They want too much sometimes. They want a right to our profit sharing. It can become a much more complicated deal than just simply a tenant, landlord lease,” Ramirez says. 

The rise in warehouse rental rates is not uniform across the Denver industrial real estate market. It has been particularly acute for Colorado’s marijuana industry, because of its needs for particular kinds of warehouses that have the proper zoning, location, and potential to meet the high electricity demands of a pot growing operation. But, as prices have risen and supplies dwindled, other industries that require warehouses have begun to feel the impacts. Denver’s commercial real estate agents report a very tight market and rising rents for all kinds of warehouses. 

“Everything I’ve read and heard from realtors is, it’s not only about fully leased, but also leasing at a little bit higher rates than in our history,” says Kelly Brough, CEO of the Denver Metro Chamber of Commerce. 

Alaskan voters will decide in a ballot measure this summer whether to become the next state to legalize recreational marijuana. Taylor West expects to see a similar story for the commercial real estate industry there, and in other states that have legalized pot. 

“Each state is handling the regulations around growing slightly differently. So, it depends on the cultivation rules that are being put in place,” West says. “And in some of these cases, either the state is involved in the growing or is pinpointing the areas where the grows can happen, but regardless, it’s going to be an area that continues to need more space.” 

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.