Cannabis Legalization Sends Sacramento Warehouse Prices Skyrocketing

Gold Tower Bridge, in Sacramento California during blue sunset with downtown and goose

Though regulated sales aren’t set to begin until January, adult-use legalization in California is already making waves in cities across the state as entrepreneurs gear up to grab a piece of the green rush. In Sacramento, warehouse rents are ballooning as would-be operators seek places to set up shop.

Warehouses and light-industrial buildings are selling for nearly twice the usual asking prices, the Sacramento Bee reports, Rents have climbed even more drastically, with costs rising in some industrial areas to four to five times the norm.

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What’s fueling the frenzy? For one thing, certainty. Sacramento is one of the few major cities in the state that has adopted cannabis-cultivating ordinances and made it clear that the adult-use cannabis industry is welcome.

Now, as people scramble to nab legal locations to begin cultivation, that sought-after space carries a premium. According to the Bee, spaces that were renting for $0.50 per square foot in the city’s industrial area now are renting for as much as $2.50 per square foot. Making things more difficult for would-be renters, some landlords are refusing to lease space to cannabis growers.

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Michael Luca, an industrial real estate broker with CBRE in Sacramento said that the disruption in prices could create pressure on existing tenants in the city by driving market rates upward.

“The cannabis industry in the Sacramento market has been disruptive to the traditional industrial market,” Luca told the SacBee. “It could turn out to be a benefit to the market and drive rates higher, but it is upending and causing confusion for traditional industrial occupiers – small businesses that employ a reasonable number of people.” Those businesses include construction firms, landscaping outfits, and others. As of July, more than a hundred businesses were already seeking special permits from the city to run indoor cannabis growing operations. City officials believe that the number should rise to around 200 by the turn of the year.

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Sacramento is far from the only place in the country that has seen real estate prices increase as a result of cannabis legalization. Beyond industry rents, even housing costs have gone up in some locations. In Denver, for example, a recent study by the University of Wisconsin found that single family residences within 0.1 miles of retail cannabis establishments saw an 8.4% increase in value, compared to residences located just a little further away—between 0.1 miles and 0.25 miles—from a store.