Industrial rents in already-expensive cities like Los Angeles and Boston are expected to get a boost because of weed startups, according to Bloomberg Markets.
Space in those cities will be snapped up as part of a wave of pot legalization that was set in motion when eight states voted to permit cannabis in some form. California and Massachusetts will begin allowing residents to purchase recreational pot — not just medicinal marijuana — making the states especially attractive to entrepreneurs.
Legal weed has already driven up rents in cities such as Denver, Seattle, and Portland, which had previously relaxed cannabis laws. In Denver, for example, rents rose 33 percent from the first quarter of 2014 through May 2017. Industrial rents in Seattle and Portland each rose 27 percent in the same period.
That trend is expected to continue in cities in California, Maine, Massachusetts and Nevada, all of which are now legalizing recreational weed.
Cannabis is the first industry in a long time to have such a clear impact, said Rene Circ, CoStar’s director of industrial research. In fact, he noted that in some urban areas, it’s been more pronounced than the effect of eCommerce.
“It’s had a tremendous, positive impact on rents and property values for the markets where this has been legalized,” Circ said. “Taking the experiences from the markets that have been at this for a few years, the suggestion is this will have a positive impact in these new markets.”
Cannabis industry sales reached more than $6 billion last year and are expected to hit $50 billion by 2026, according to Cowen & Co. And because the plant is still illegal at the federal level, it can’t cross state lines, and weed sold in any state must be grown there as well.
So it makes sense that vacancy rates have declined in legal weed cities, according to CoStar, particularly for smaller industrial buildings. And so-called ganjapreneurs have different needs than typical tenants. They often skip the nicest and largest spaces and pick smaller buildings that have traditionally been less desirable, partly because of the fire risks involved in growing marijuana.
“This could have a positive impact for rent growth for that smaller, industrial product in new markets,” Circ said.
In addition, because cannabis businesses aren’t welcome everywhere — many landlords won’t lease to companies that are federally banned — the ones that do can ask for more money.
“We have factors that limit supply, with a lot of demand,” Circ said. “So the rent growth is being pushed from both ends of the spectrum.”