The Colorado real estate market doesn’t appear to be slowing its year-over-year record volume, lower cap rates, and prices per square foot. There are also interesting effects on the market, thanks to the legalization of cannabis. Here’s a look at the state of Colorado real estate and what we can expect in the near future.
Colorado retail real estate experienced the same economic expansion wave that the rest of the country has seen over the past decade. It saw over $687 million in retail investment volume with average cap rates of 8.7% back in 2009, which jumped to $1.75 billion, and average cap rates dropping to 7.4% in 2014. The growth has continued, and in 2018, retail investment volume tallied nearly $2.35 billion with average cap rates of 6.9%.
Popular Press Choice
Colorado saw net absorption of 35,424 square feet rising to 2.4 million by 2018. There has been robust retail growth, which can be attributed to new construction starts, including large power centers and outdoor malls, small multi-tenant retail, and single-tenant net-leased build-to-suit deals.
Denver and Colorado, in general, have been labeled markets to watch for financial outlets and commercial real estate forecasts. They have been dubbed one of the best markets for CRE investment for many years running, which has kept investors keen on the market.
Colorado also enjoys solid underlying fundamentals with strong economic diversity, not to mention consistent annual job growth.
According to Colorado Pot Guide, there are more marijuana dispensaries in Colorado than Starbucks, McDonald’s, and 7-Eleven locations combined. You also have to factor in the warehouse and commercial warehouse space that the industry demands. Denver County has certain industrial zoned areas for marijuana cultivation, which puts warehouse buildings at a premium.
As well, according to the National Association of Realtors® (NAR), there was a 34% rise in commercial demand for cannabis storage. Bigger Pockets noted that warehouse space jumped 50% from 2010 to 2015. Traditional warehouse buildings were going for an average $40 per square foot, while marijuana businesses paid up to $80. However, there is a fear that the market will see over-saturation, leading to an eventual downslide.
Cultivation is also influencing the market with land for marijuana seeing an 18% increase in demand and a 31% increase in storefront demand in states where marijuana is legal.
As growth continues, demand for knowledgeable title companies who can ensure all documentation aligns with state regulations for cannabis laws will also continue to rise. That’s just one way our Elite Closings services help real estate agents navigate the particulars of cannabis-related transactions.
In the past ten years, many of the buyers fueling the retail real estate market have come from out of state. They have sold assets in lower-cap-rate markets but have also sold other product type investment real estate in Colorado at lower cap rates. By trading into retail deals at higher cap rates, they have secured arbitrage.
It’s difficult to accurately forecast retail investment volume and cap rates in the near future. However, it is clear that Colorado offers investors an opportunity, especially in the commercial real estate sector.
As the demand for cannabis retail, commercial, and cultivation properties rise, investors are flocking to Colorado like never before. Real estate investors interested in the market may find the cannabis laws a little overwhelming.
New Home National Title is a client-focused title company that provides new and veteran investors, attorneys, developers and agents across Colorado with an Elite Closings experience.