Smokin' market

Legalizing drugs isn't a subject that comes up at commercial real estate conferences very often.

But warehouse owners and brokers are buzzing about the possibility of Florida voters approving the medicinal use of marijuana in November.

Consider what's happened in Denver since the use of recreational marijuana was approved there. “They're scarfing up space like crazy for grow houses,” says Jim Boback, executive managing partner and broker of iCore Global - Fort Myers, speaking at the CCIM Real Estate Outlook Conference in Fort Myers recently.

The Denver Business Journal recently reported that marijuana growers in that city leased 1 million square feet or more of industrial space to grow weed. That's enough space to fill 17 football fields. What's more, these tenants are paying 30% more than asking rents, often in cash.

Already, industrial warehouse space in Southwest Florida is becoming more scarce. That's because construction-related trades such as roofers and cabinetmakers are filling up space as a result of the rebound in homebuilding.

Indeed, the vacancy rate for warehouse space in Collier County stood at just 3.2% and in Lee County at 8.3%, according to the latest data from market tracker CoStar Group. In the three-county area that includes Charlotte, Collier and Lee, tenants absorbed more than 1.2 million square feet of industrial space in 2013.

Boback says falling vacancy rates and rising rental rates in industrial warehouse space will make it worthwhile for developers to start building them again, especially in the 5,000- to 10,000-square-foot range that is seeing the most demand. “I think we're almost there,” he says.

On the residential side, new-home construction has rebounded as foreclosures dwindle and the supply of existing homes shrinks. “We're getting back to the development of lots,” says Mike Timmerman, senior associate with Fishkind & Associates in Naples, speaking to a gathering of the Urban Land Institute in Bonita Springs recently.

New-home absorption in Southwest Florida communities Timmerman tracks has risen 60% in 2013 compared with the prior year, pushing prices up 14% annually for the last few years.

Timmerman says he's not worried that the resurgence of homebuilding may lead to another residential real estate bubble because banks aren't financing speculators. “We don't have banks giving money out for free,” Timmerman says. “There's totally different fundamentals this time.”

For this and other reasons, Timmerman cautions that new-home pricing can't continue to grow at the double-digit percentage annual rates. “It just can't,” he says, noting that new-home price increases may moderate to around 5%.

Prices of existing homes in Lee County have risen at twice the rate of new homes. Speaking at the CCIM conference, Brett Ellis with Re/Max says the median price of an existing home in Lee rose 28% last year. “Thank goodness more inventory has come on the market,” he says. “I'm not expecting a 28% increase again.”