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How Will Recreational Marijuana Affect the Tucson Real Estate Market?

11/30/2020

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Expect Tucson industrial building lease rates and sale prices to increase dramatically.
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I have been watching the Coloardo, Nevada and California markets for the past few years and after recreational marijuana was passed, the industrial markets took off substantially. The increase in lease rates and sale prices has actually pushed a lot of conventional industrial businesses out of the market and into other markets like Arizona.

How HIGH can we expect prices and lease rates to rise? I think we can confidently expect prices and rates to increase by 10% at least in the 20,000 SF + warehouse markets. I don’t see the retail markets being affected too much by the new dispensaries, they will most likely backfill existing vacancies as I would expect to see more retail vacancies in 2021 as rent deferral programs become less sustainable by landlords. Of course a vaccine could change this trend. 
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With an increase in grow operations we can expect their suppliers to expand into the Tucson market. Think, lighting, hydroponics, packaging, etc. This demand increase will affect both the retail market and the industrial market.

There are already existing Tucson development projects (at least 600,000 SF) going on in efforts to develop needed grow facility space.
 
But where can we expect this demand to flow?
-Mid sized warehouses (20,000 – 40,000 SF)
-Large sized warehouses (40,000 SF +)
-Areas distanced from schools and churches for grow operations (AZ laws will most likely rule that grow operations and dispensaries will need to be a certain distance from schools and churches)
-Retail areas near venues and younger populated areas will see activity from dispensaries only. Think near the Casinos, University of Arizona, Downtown, and Pima College.
-Expect food production facility related buildings to be leased by edible manufacturers and some lower ceiling height warehouses to be converted to food production (floor drains, drop ceilings, air conditioned environments.
-We may even see more rural properties be developed from ground up and/or conversions of old dysfunctional rural manufacturing facilities be converted to grow facilities. 

The laws are not yet established in Arizona so there is a lot to be determined but this is a general thought based on other markets and the past is the best predictor of the future.
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    Max Fisher, Industrial Properties Broker

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