Recreational marijuana legalization in Colorado continues to reverberate across metro Denver’s industrial market, according to new research from CBRE Group. Marijuana has not been for sale legally all that long (just over three years), but the local industrial market has adapted quickly.
CBRE Research found industrial warehouse space being used for marijuana grow operations is commanding lease rates two to three times higher than the average for comparable properties. The company also found these operations are concentrated within four submarkets and the marijuana industrial footprint in Denver is stabilizing post-legalization.
In May 2016, the City of Denver put a cap on the number of cultivation and retail locations in the city. While metro Denver’s marijuana industrial footprint has grown 14% — or 525K SF — since CBRE last gathered data in Q2 2015, most of that expansion occurred before the cap.
Since then, the market size has remained stable. Denver’s marijuana industrial footprint is 4.2M SF, representing 2.9% of Denver’s total warehouse inventory, CBRE reports.
“Consolidation and stabilization are two key themes to describe the Denver marijuana industry over the last six quarters,” CBRE Head of Research in the Americas Spencer Levy said.
Since May 2016, operators have primarily expanded their business through acquisitions, and efficiency has increased across the local industry, he said.
More than 96% of the area’s marijuana industry is within four submarkets: Airport, South Central, North Central and Boulder.
Among these, the industry’s presence is strongest in the Airport submarket, where 38.7% of the marijuana footprint resides. Marijuana grow operations in Denver are located solely in Class-B and C industrial space. Despite being in Class-B and C space, marijuana facilities are commanding high lease rates.
Based on a sample size of 25 leases signed between 2014 and 2016, CBRE Research found the average effective lease rate for marijuana grow houses was $14.19/SF, or two to three times higher than the average warehouse lease rates in the top four cultivation submarkets.
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