How Cannabis Is Shaking Up San Diego’s Industrial Market

The cannabis industry is shaking up the San Diego real estate market. According to a new report from Newmark Knight Frank, industrial properties planned or zoned for cannabis usage are selling for a 27% premium. Now local cities in the San Diego market are beginning to regulate production and sales of cannabis product, which will ultimately will change cannabis operations and investment.

“The cannabis industry has had a strong effect on the industrial market in San Diego. Specific changes brought upon by the recent introduction of dispensaries and cultivation/manufacturing plants have introduced new pricing trends, demand for certain zoned properties, acquisitions and dispositions, as well as relocation pursuits by neighbors and property owners alike who share opposition to the cannabis industry,” Paul Britvar, a director at NKF, tells GlobeSt.com.

For industrial investors, cannabis users are an ideal tenant in terms of requirements and building function. “Cannabis related uses cause a surprisingly low impact to industrial buildings from an occupancy standpoint. For 10,000 square feet or more, they don’t require much parking,” Britvar says. “Most cannabis manufacturing and dispensary operators maintain as low a profile as possible to minimize conflict or concerns by the Southern California city and state regulation departments, and cannabis type uses have minimal trucking, distribution, traffic or personnel issues. Therefore they have had surprisingly easy and low maintenance implications.”

While the cannabis market made a splash, there is some evidence that the market will be slowing down. After the initial surge of activity, which also include regulations on where cannabis product could go, operators are now shifting their strategies. “We have now seen that in the past six months the cannabis market has cooled off. This is because manufacturers and cultivators are looking to more economical alternatives such as large-scale outdoor grow houses and cultivation operations in more economical markets,” says Britvar .

This is already happening, an operator in Central San Diego, for example, is moving to Otay Mesa in search of cheaper rents. “This is necessary as more competition is entering the market forcing existing players to consider reducing their occupancy costs as one primary option to improve profit margins,” adds Britvar. “It is our observation that while the cannabis market has spurred some radical changes in the past 12 to 18 months, there is now very clear signs of a slower growth trajectory—which is now strongly focused toward the most economical options in the market—not just any option that is available.