The Denver industrial market continued to fly high at the
end of 2013. As we mention quarterly, the medicinal and recreational marijuana
business continues to bolster the industrial sector. As dispensaries scramble
to keep up with the surging demand for legal marijuana, I-B zoned properties in
the City and County of Denver are being absorbed at a feverish pace.
The market is ripe with investors, users and tenants
alike trying to secure properties for indoor grow facilities. Over the past few
years the focus has shifted from 5,000-15,000 SF facilities to lease,
preferably with an option to purchase, to almost anything for sale or lease
over 50,000 SF.
As a result, several properties that we've considered
overpriced for the typical industrial user have finally traded after
languishing on the market for months. For example an 80,000 SF building had
been on the market for 5+ years priced at $64 PSF, a number so high it received
very little interest. In December it
traded for $62 PSF to a grower who plans to mezzanine the entire building! This is a trend we are hearing more of as
growers are trying to maximize their footprint.
However, the marijuana industry still lacks access to the
banking industry which had made large acquisitions a challenge for even well
capitalized companies. As a result, properties continually fall out of contract
just before closing due to financial reasons.
The trickle-down effect of the marijuana industry has
been great for a number of industries as well as evidenced by the solid market
numbers this quarter (vacancy decreasing to 5.7%, quarterly absorption at 1.1M,
and increased rental rates). Mechanical, electrical,
plumbing, architecture firms and general contractors have all seen increased
business if they were willing to work with the industry. With well over 1.5
million square feet of real estate attributed to the industry, the positive
impact on the industrial real estate market in Denver is undeniable.
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