Industrial Real Estate Market Gets Boost With Marijuana Legalization

Legal marijuana operations are finding space to grow and store their product by paying premium rents for warehouse space.
Industrial Real Estate Market Gets Boost With Marijuana Legalization
Image credit: kickers | Getty Images
  • ---Shares

As marijuana legalization spreads across the country, the financial impact has extended throughout some areas of the economy. One sector seeing a big benefit is industrial warehouses.

Because large facilities are needed to grow and store marijuana -- and because local laws often limit where such businesses can be located -- industrial warehouse owners have seen rental rates spike in areas where medical and recreational marijuana is legal.

The burgeoning marijuana real estate market already has sent ripples through public policy in California, where voters approved legalization of recreational marijuana just last month. In early December, the Lynwood City Council voted to license up to five cannabis companies to operate in the town’s large cluster of warehouses. Lynwood is in southeast Los Angeles County.

Related: Top 25 Tech Gadgets to Give This Holiday Season

Lynwood will become “one of the first large-scale cultivation and manufacturing opportunities in L.A. County,” Aaron Herzberg, who helps marijuana businesses find real estate through his company CalCann Holdings, told L.A. Weekly.

“We see this as a new industry, and we want to be at the forefront,” said Aide Castro, mayor pro-tem of Lynwood.

Leasing property to marijuana businesses shows such promise that the first marijuana industry-related business to get listed on the New York Stock Exchange, San Diego-based Innovative Industrial Properties (IIPR), is a real estate investment trust that leases large warehouses to medical marijuana growers.

Charging a premium.

Marijuana grower Chris Abbott told Bloomberg News it took him six months of searching to find a suitable space for his cannabis operation in the Portland, Ore., area. His ultimate choice was a 10,000-square-foot building on the outskirts of the city. Abbott owns Botanica, an edible marijuana company. He wants to expand into Oregon from his base in adjacent Washington.

Related: New Customers Drive Innovation in Legal Marijuana Products

While most companies can rent warehouse space for about $5 per square foot in Portland, according to Bloomberg, cannabis companies routinely get charged in the $12 to $18 range. Part of the reason is a tight supply of suitable space. Local laws on where cannabis companies can operate limit the options for rental.

Industrial real estate in California also has seen an increase in value. A property owner in Santa Barbara, Calif., recently got an offer of $1 million for a 2.5-acre parcel in Desert Hot Springs. The owner, Adrian Sedrin, told Bloomberg he purchased the property just last year for $360,000. He credited the Nov. 8 passage of Proposition 64, which allows the recreational use of marijuana in California, for the steep increase in price.

“If you have the right parcel with utilities in the right jurisdiction, your land will definitely appreciate as a result of Prop 64,” he said.

Related: How Inefficient Processes Are Hurting Your Company

Colorado Real Estate

The impact of marijuana on industrial real estate already has played out in Colorado, where voters approved recreational use of marijuana in 2012. Sales began in 2014.

The burgeoning real estate market tied to marijuana also has led to companies specializing in listing commercial property that can be used for the cannabis industry. The marijuana industry also now uses one in 11 buildings in central Denver, according to the Denver Post, and uses 3.7 million square feet of space in the Denver area.

The marijuana business “really kicked-started” the recovery of the Denver industrial real estate market, Jessica Ostermick, director of research and analysis at commercial real estate firm CBRE, told the Post.