By AEBOV Industrial Real Estate Brokerage
NEW JERSEY — 2023 marked an active growth year for the NJ cannabis real estate market. While the number of conditional licenses granted by the CRC, the state’s cannabis agency, was down from 910 in 2022 to 413 in 2023, the number of annual licenses issued soared over 800% year-over-year. As site control is a requirement in order to receive an annual license, 2023 yielded a much larger sample size of real estate transactions.
We are happy to share some of the data from these transactions as well as more details on the 2023 conditional licenses, which may offer a glimpse into where demand is heading:
• Retail: Of the 413 adult personal-use conditional cannabis licenses approved in 2023, approximately 61% of these were class 5 retail licenses - as it pertains to real estate, retail awardees require storefronts, shopping plazas, or other properties suitable for or convertible to retail use.
• Cultivation: Approximately 20% of these licenses were for cultivation - generally, cultivation licensees require warehouses to accommodate indoor growing however there have been some transactions for land and greenhouses as well.
• Manufacturing: Roughly 18% of the conditional licenses issued were for manufacturing - manufacturing operators also require industrial properties, albeit the industrial properties utilized for manufacturing are typically smaller with lower ceiling heights and less power service than their counterparts utilized for cultivation.
• Wholesale, Distribution, and Delivery: Wholesale, distribution, and delivery licenses each accounted for less than 1% of the conditional licenses issued in 2023.
Retail Trends:
• Over the period from 2022-2023, the average NJ recreational dispensary lease was for 3,587 s/f, a decrease of approximately 14% from the prior years’ average of 4,175 s/f.
• The average lease rate in 2022-2023 was $26/SF/year. Value appeared to be closely correlated to the number of retail locations allowed by the township where the property was located, as opposed to any particular attributes of the real estate, such as traffic count, condition, etc. Specifically, in townships that allow several retail locations or have no limit on approvals altogether, the average rent was $22/SF/year. By contrast, in townships that will only issue one retail approval - thereby ensuring that the license recipient will operate the only dispensary in the town - deals were inked at an average of $48/SF/year, over double the average rate for space in towns that allow multiple dispensaries.
• Approximately 84% of dispensaries leased spaces with on-site parking over 2022-2023, marking a slight increase from prior years.
Industrial Trends:
• Contrary to retail deals, which were spread somewhat evenly throughout the state, cultivator and manufacturer deals for industrial properties were mostly located in the southern part of the state. A few possible reasons include the lower real estate acquisition costs, lower labor and supply costs, and greater labor availability in those regions. Since operators will be selling product into a statewide market with fixed prices, there is logic to operating in a region of the state with lower operating costs and a larger labor pool.
• Industrial rents for cultivation and manufacturing properties varied based on size, power service, and clear height. Rents averaged in the mid-teens psf and were trending higher as of the writing of this report. The market for viable, existing warehouses that can accommodate cannabis as a use continues to be supply constrained.
• Land sold for an average of $75K/acre. Generally, there was less demand for land than built facilities. This could be due to a number of reasons, including the lengthier timeline associated with developing a ground-up project as well as a challenging financing environment as most lenders still perceive both the cannabis use as well as development projects as higher risk.
“Despite market challenges, including a limited supply of viable properties and apprehensive commercial landlords, we are fortunate to have a wonderful roster of clients who are both capable and tenacious enough to close these complicated deals,” said Daniel Tropp,founder of AEBOV.
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