Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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CCIM.COM September | October 2017 27 The legalization of marijuana is taking off in the U.S. with 26 states that currently have laws broadly legalizing cannabis in some form. Three other states will soon join them after recently pass- ing measures permitting use of medical marijuana. Seven states and the District of Columbia have adopted the most expansive laws, legalizing mari- juana for recreational use. The marijuana companies typically are look- ing for large industrial warehouses for growing facilities, as well as processing, storage, and dis- tribution. Companies are going into both new and existing facilities, as long as they have the correct zoning and are located the appropriate distance away from schools. Certain cities are more friendly toward the emerging marijuana industry, and those cities and landlords that are more receptive to its use will attract demand and higher rents from these types of users as early adopters, Ng notes. New Supply Construction ramped up during the last few years, and steady demand for development con- tinues in the pipeline, especially from e-com- merce, third-party logistics, and retail users. Almost half of the 167 msf of U.S. warehouse space under construction in the first quarter — 72 msf — is already precommitted to tenants, according to a CBRE report. The top three markets for warehouse space under construction include: • Inland Empire, Calif., at 24.4 msf • Dallas/Fort Worth at 14.7 msf • Atlanta at 14.2 msf Construction of speculative distribution facili- ties in Ohio markets has increased in each of the past three years and will approach record levels in 2017. "Spec development has increased expo- nentially just trying to keep up with the demand," DeFilippo says. Cincinnati has close to 2.5 msf of new space com- ing online in the second and third quarters, with no preleasing. However, demand is still outpacing supply and continuing to push rental rates higher. Investors also have an appetite to redevelop or repurpose obsolete buildings to create industrial facilities that are closer to the population for last- mile fulfillment. Much discussion has centered on whether vacant big-box retail stores, such as a Kmart or Sears, could be repurposed as industrial distribution and fulfillment centers. Top 10 Markets for Warehouse Space Under Construction Source: CBRE Research, 2017 Market Under Construction Space (sf) Precommitted Existing Space Availability Rate Inland Empire, Calif. 24,442,934 27.0% 6.8% Dallas/Ft. Worth 14,687,355 21.5% 9.1% Atlanta 14,174,507 39.4% 8.8% Pennsylvania I-78/I-81 Corridor 13,482,425 32.8% 8.7% Chicago 10,393,149 51.3% 8.4% New Jersey 9,169,747 43.3% 6.4% Kansas City, Mo. 7,183,755 54.0% 9.4% Los Angeles 5,796,992 26.9% 3.7% Indianapolis 4,168,823 50.6% 8.5% Denver 3,233,676 70.3% 9.3% Total 106,733,363 36.4% – Source: Real Capital Analytics, 2017 U.S. Industrial Volume & Pricing All closed U.S. sales; cap rates augmented by refinance data. 2017 YTD data through May 2017 Year # Props $ Volume Avg Cap Rates Avg PPSF 2001 1,659 16,354,332,714 9.1% $53 2002 1,634 13,398,166,970 8.8% $48 2003 1,801 15,995,405,859 8.6% $49 2004 2,631 25,214,317,846 8.0% $56 2005 5,285 49,754,205,198 7.6% $60 2006 5,564 52,457,053,562 7.1% $67 2007 5,757 60,881,884,484 6.8% $70 2008 3,112 26,222,292,662 7.5% $66 2009 1,376 10,324,862,181 8.2% $55 2010 2,382 21,222,639,760 8.3% $53 2011 4,123 35,251,524,420 7.8% $55 2012 4,142 37,466,592,214 7.5% $59 2013 4,564 46,690,966,912 7.5% $63 2014 5,587 50,534,342,898 7.1% $68 2015 7,544 78,301,973,152 6.8% $74 2016 5,823 60,064,781,120 6.8% $78 2017 (thru May) 2,175 22,527,963,315 6.9% $83