Warehouses In Short Supply While Demand For Legal Weed Surges

Dated: July 4 2015

Views: 4804

Legal marijuana is delivering a powerful buzz to the typically unglamorous Denver industrial real estate market.Booming sales of cannabis have pot merchants scrambling to find enough vacant warehouses suitable for growing their product.

Not every municipality in Colorado allows marijuana cultivation, and in Denver, where it is OK, very little space is available. Denver's industrial vacancy rate of 3.1 percent is abnormally low — the lowest in decades, according to brokerage firm Colliers International.

Commercial real estate tracker Xceligent Inc. estimates that marijuana cultivation and manufacturing facilities in the city occupy about 4.5 million square feet — the equivalent of 78 football fields."This industry has come on so fast that initially I was uneasy — it seemed like a fad," said Brad Calbert, president of the Colliers International brokerage in Denver. "But what's making it sustainable is supply, demand and capital.

Supply is deficient, demand is excessive, and capital is abundant."Rabid demand for warehouses is pitting pot dispensary against pot dispensary, while landlords capitalize by charging premium lease rates.Industrial brokers report instances of warehouse space leasing for as much as four times the prices paid before medical marijuana sales began to boom in 2009.

The newest wave of impact in the industrial market is occurring as recreational pot sales, which began Jan. 1, are robust. State budget officials are projecting sales of $613 million over the next year — more than 50 percent higher than previous projections. That's on top of an estimated $345 million in medical dispensary sales. January sales tax figures released Monday suggest that the market may be smaller than those projections.
Some recreational stores have been forced to curtail sales because strong demand from customers has outpaced supply.

"Nobody is growing enough marijuana," said Jason Thomas of Avalon Realty Advisors, a firm that specializes in finding warehouse space for cannabis cultivation. "Activity is off the charts, but we're still not meeting demand."Thomas said that almost all owners of dispensaries and recreational stores are looking for more grow space, either to serve their own customers or to sell wholesale to other undersupplied merchants.

At a nondescript, unsigned warehouse near Interstate 70 in northeast Denver, master grower Evan Schick has to tiptoe gingerly among a green expanse of 750 marijuana plants. Growing space is so valuable that it's a waste to create aisles between the rows of cannabis that supply Walking Raven dispensary in Denver.With each plant producing an average of 2 ounces of smokeable buds, the retail value warehouse's inventory at any given time is worth about $500,000. And that's in a 3,000-square-foot building — small by comparison with other cultivation facilities.

Larger warehouses can accommodate plants worth millions of dollars.Numbers of that magnitude explain why pot-shop owners are generally reluctant to talk about the location and size of their growing operations.Yet the facilities are pervasive throughout Denver. Hot spots include the I-70 and I-25 corridors, South Santa Fe Drive, Brighton Boulevard and the Platte Valley west of downtown.Capital in the industry often comes in the form of cash.

 Marijuana's illegal status under federal law limits the ability of dispensary owners and grow-house landlords to hold bank accounts and use conventional commercial loans.
Calbert related an anecdote told to him recently by the owner of a Denver warehouse. The owner was negotiating a lease with a cannabis cultivation operator and sought assurance that the grower was a good credit risk. The grower walked out to the parking lot, opened his car's trunk, and showed the landlord a suitcase filled with $1 million in cash.

Brokers say the competition for warehouses by cash-rich growers and dispensary owners is problematic for traditional warehouse tenants, such as supply and distribution companies. They're faced with a choice of paying sharply higher rents or finding facilities in less convenient suburban locations.Industrial space in the city of Denver leases at an average rate of $4.74 per square foot, an increase of 21 percent over the past two years, according to Colliers International. But examples are plentiful of marijuana businesses willingly agreeing to far higher rates — $17 per square foot or more — in order to secure space.

"The cost to play here is really tough if you don't have adequate capital," said Elliott Klug, co-founder and CEO of the Pink House Blooms chain of marijuana shops. "I thought $17 was the going rate for class C office space. It looks like they're charging me the same rate (for warehouses) that some oil and gas companies are paying for offices."Walking Raven dispensary co-owner Luke Ramirez is searching for additional grow space.

The rates he's being quoted make him feel fortunate to be paying just $18 per square foot for one of his two current warehouses.But unwavering consumer demand for recreational marijuana make him and other owners willing to pay what the industrial market demands."We cannot grow as much as we could sell right now," Ramirez said. "Nobody can."He has found a building he's interested in leasing, but won't disclose its location."I can't say where," he said. "There are a lot of other people out there looking, ready to come in and make a higher offer."

Michael Steffen Denver, Colorado Realtor-

Michael is a motivated realtor specializing with investors and new home buyers located in the following areas;DenverArvadaAuroraBennettByersCastle PinesCastle RockCentennialCherry Hills VillageColumbine ValleyDeer TrailDenverElbertEnglewoodFranktownGreenwood VillageHighlands RanchLarkspurLittletonLone TreeParkerSedaliaSheridanStrasburgWatkins, Wheat Ridge, Lakewood, Castle Rock, Thornton, Westminster, Evergreen, Golden. Michael Steffen uses advanced internet marketing to insure your property gets maximum exposure and holds a high value of ethics in his work to ensure the ideal scenario for everyone! 

Blog author image

Generation Property Group

My name is Michael Ross Steffen. I’m an Exit Realty Cherry Creek Agent in the Denver metro area and Team Leader For Generation Property Group! We specialize in advanced Internet marketing, buying, s....

Latest Blog Posts

Should I Sell My Home in the Winter???

Is selling your home in the Winter a good idea? With interest rates keeping consitently low, buyers are more inclinded to buy reguardless of the season. Most people think the best time to sell is

Read More

Get Those Bugs Off My Tree!!!!!

One of the best parts about Christmas at Generation Property Group is going on the hunt for the perfect LIVE Christmas tree.We have the best memories of strapping a tree to the top of our subaru and

Read More

Who doesn't love Christmas Lights?!

One thing we've learned about 2020 is to be creative with activties! While a lot has changed in our daily lives, we have used our creativity to plan healthy and safe things to do while social

Read More

Make Ahead Thanksgiving Recipes!

We know 2020 has been a CRAZY year! Here are some easy make ahead Thanksgiving recipies to help make this year's Thanksgiving a little less crazy! Test out one of these RECIEPIES in your new Denver

Read More