Real Estate News & Commentary

How Legalized Marijuana is Impacting the Colorado Real Estate Market

Expertise: Real Estate News & Commentary
20 Articles Written

Lately, when traveling out of state, I inevitably get the question of where I’m from. When I say Colorado, the questions come. They’re not usually about our 14,000 mountains or legendary ski resorts. Instead, they usually boil down to something marijuana-related. It’s kind of what we are known for these days, for better or worse. Economically, it’s easy to say that marijuana has had a huge impact here.

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Can we connect our real estate boom with recreational marijuana becoming legalized? The answers are mixed at best. The industry isn't very old, and many eyes are on Denver, California, and Oregon for this marijuana experiment. Let's take a look at commercial and residential real estate and break down how the marijuana industry has correlated to their growth.

Impact on Commercial Real Estate

The impact on commercial real estate is very easy to see. When dispensaries alone outnumber Starbucks, 7-Elevens, and McDonalds combined, you don’t need to drive far to run into a handful of retail commercial real estate taken up by the weed industry. Now there are even 5% more dispensary locations than liquor stores. Add in the warehouse space needed for growing and cultivating and other commercial kitchen space needed for making marijuana edibles, and you are talking a “green-rush” for space.


Related: The Legal Marijuana Market Could Reach $11B Within Years: Is Now the Time to Invest?

Since Denver County designated only certain industrial zoned areas for marijuana cultivation, you can bet there is a large premium for those warehouse buildings. Commercial giant CBRE says that warehouse space jumped 50% from 2010 to 2015, with vacancies dropping dramatically. When traditional warehouse buildings would sell for $40 per square foot, marijuana businesses paid up to $80 per square foot. Even my cabinet and counter distributor sold his space in North Denver to the dispensary leasing half of his space. The premium was too good to pass up. With this kind of commercial boom that helped us out of the recession, there will be an eventual downside with over-saturation.

Effects on Residential Real Estate

It is much harder to connect the dots on how the marijuana industry has affected the residential side of real estate. The Denver area is still experiencing strong growth, ranking at #7 in the nation for percentage growth according to the last census. So many factors go into this growth, from fast growing companies across a spectrum of sectors to people moving for recreation and lifestyle. While it wasn’t on the list of major reasons people are moving here, the marijuana industry did provide 18,000 jobs alone in 2015, which results in a strong impact to our local economy. More people moving here, with strong employers hiring those people, means many are buying or renting with confidence.

Couple growth with low inventory and skyrocketing demand for housing, and you have bidding wars and offers well over list price all over town. A “typical,” healthy Denver market should have 24,000 properties on the market, which would be around 6 months of active inventory. As of April 2017, we have 4,900 active properties, or 1.2 months of inventory. Direct impact on the rental market was also tough to gauge with hard numbers. Anecdotally, many landlords I’ve talked to have said that the main issue is with tenants wanting to smoke inside their units. Many people who did move to town to work in the industry jumped in the renter pool, straining the already low historical vacancy rates here. In all my research, I could only find flimsy correlation that links marijuana to residential real estate growth; some people are moving here just because it’s legal, some are moving for medicinal purposes with options they can’t find in their home state, and a handful are moving here for the “green boom” as contractors in a beneficial trade (electricians, for example).

Another factor I couldn’t get data on was how people felt about the proximity of their home to a dispensary—whether that made them feel unsafe enough to move away from that location or whether they’d consider moving closer to dispensaries due to convenience. Denver residents who have a room or unit on their property to rent out on Airbnb have advertised and seen strong results from short-term pot tourism as well, so there is another small impact to add to the rolling snowball.

Related: Denver Market Ranks Among the Best in the Nation for Real Estate Investors

The next 2-3 years will be interesting to watch as we wrestle with the following three factors:

  • Possible cooling or correction of the residential real estate market: My crystal ball is broken, but the word from experts is that in 2019, we should see a "leveling off" of our ever-increasing appreciation. If growth slows down or inventory levels rise, it will ease the pressure on buyers, and prices will correct in response.
  • Over-saturation of dispensaries and limited warehouse space: When the bigger companies consolidate and push out some of the smaller companies, it will get interesting. There is only so much warehouse space to operate a business here. When that runs out or landlords increase prices due to demand, only the biggest players will be able to pay for it.
  • More states coming online with medicinal or recreational marijuana: A number of states just passed marijuana bills, and our novelty will quickly wear off as a destination. We were the early adopters, and we saw large gains economically while many states watched and learned from our successes and failures. Twenty-nine states now have medicinal laws, with 13 more pending new legislation in 2017, while 9 states have recreational. Soon we will just be one of 50 states with more dispensaries than Starbucks.

Do you live in a state that’s legalized marijuana? What implications do you see this having for real estate?

Let me know your thoughts with a comment!

Anson Young is the owner of Anson Property Group based in Denver, Colorado, which specializes in distressed property purchases, and author of...
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    Christie Gahan Wholesaler from Hillsboro, Oregon
    Replied over 3 years ago
    Hello from Portland! I’ve never considered what growers need for space etc. Any special water requirements ? I know that security/theft is an issue here in Portland. Is it also like that in Colorado ? The caveat is that Federal law supersedes state law and a new administration could actually enforce these laws. Personally, I don’t see how Obama and his AG can follow the Constitution and pick and choose which laws they enforce. I think it is all about federal tax revenue. Our states are “guinea pigs”. I hate to think that our social security tab is going to be picked up by marijuana taxes!
    Replied over 3 years ago
    As a Canadian I think we are all watching Colorado to see what implications legalized marijuana has to the economy and real estate. While you may feel the effects in your city we wondering how it can impact a country. I have a feeling we too will become a destination for “pot tourism” and will spike with short term rentals across the country. Reply Report comment
    Replied over 3 years ago
    As a Canadian I think we are all watching Colorado to see what implications legalized marijuana has to the economy and real estate. While you may feel the effects in your city we wondering how it can impact a country. I have a feeling we too will become a destination for “pot tourism” and will spike with short term rentals across the country.
    Michael Baum from Olympia, Washington
    Replied over 3 years ago
    Washington State is right along with Colorado as an early adopter of legalized marijuana. What I see is all the “mom and pop” weed shops going under as large corporations get into the game and that will be accelerated by other states legalizing it. That being said, WA has seen a huge increase in teen use of weed as well as a leap in people driving high. Personally I see it as a negative and not a positive overall.
    John Murray from Portland, Oregon
    Replied over 3 years ago
    From Portland Oregon! A tenant of mine received one of the first rec growers permit and bought a grow warehouse in Sandy. He moved out and I raised the rent to $1950 per month from $1850 and retained his last month’s rent and had it rented out in a few hours after he left. My net gain was about $3900. The population in metro PDX is growing at a rate of about 125 per day. I would assume a small percentage are coming here for the cannabis industry and a far bit to get stoned legally. Travel junkets are available to go on micro brew, winery and dispensary crawl for tourists. Plenty of food cart and restaurants available for when the munchies hit. Keep Portland weird!