Log In Sign Up
How Legalized Marijuana is Impacting the Colorado Real Estate Market

How Legalized Marijuana is Impacting the Colorado Real Estate Market

4 min read
Anson Young

As a Guest you have free article(s) left

Join BiggerPockets (for free!) and get access to real estate investing tips, market updates, and exclusive email content.

Sign in Already a member?

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.

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.

start-commercial-real-estate

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).

denver

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!