The legalization of marijuana is driving up the cost of commercial real estate in major cities all across the nation.
According to a report from Bloomberg News, marijuana startups hoping to secure retail space in highly populated areas in states that are working to launch recreational marijuana sales—like California and Massachusetts—can expect to shell out significantly more per square foot than what would have been required before legalization.
The report, which is based on the latest data provided by CoStar Group Inc, shows this inflation in rents is nothing that the cannabis industry hasn’t experienced before.
In fact, this real estate phenomenon rang true in places like Denver, Seattle and Portland shortly after Colorado, Washington and Oregon successfully brought down prohibition.
CoStar’s research shows that rental fees on Denver’s commercial real estate increased by around 33 percent between 2014 and 2017. Seattle and Portland experienced similar spikes during that time.
To put this in perspective, rents in other major cities—those without legal marijuana—saw less than a 20 percent increase.
Experts say the legalization of marijuana has and will likely continue to provide solid opportunities for the business community.
“It’s had a tremendous, positive impact on rents and property values for the markets where this has been legalized,” said Rene Circ, director of industrial research for CoStar. “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.”
The cannabis industry is also breathing new life into the commercial real estate market by creating a situation where hungry entrepreneurs are gobbling up the majority of the vacancies in legal jurisdictions. It seems that most of these people would rather lease some of the smaller, hard-to-rent spaces in order to gain more control over remodeling and design plans.
“This could have a positive impact for rent growth for that smaller, industrial product in new markets,” Circ said, adding that smaller spaces are often sought after as part of fire prevention. “Buildings that would have otherwise remained vacant longer, were—in many cases—occupied first.”
There are now eight states that have legalized recreational marijuana in a manner that allows retail outlets to sell cannabis products. Not only are these areas expected to experience a boon in real estate, a report published earlier this year by the Boston Globe indicates that the construction industry, especially electricians and heating and air conditioning professionals, will reap the financial benefits of legal weed long before the first seed is planted.
After all, those marijuana startups laying down cash for commercial real estate are going to need contractors to get their shops up and running—a situation that is destined to generate economic prosperity in legal jurisdictions by pouring money into local businesses that have absolutely nothing to do with the cultivation and sale of legal weed.