Portland Faces Shortage of Industrial Space as Marijuana Businesses Claim Vacancies

Mar 22, 2018

Industrial space has become almost impossible to lease or buy in the greater Portland area, after cash-rich marijuana growers snapped up existing warehouses. That's helped to force vacancy rates way down and prices way up, just as conventional businesses are ready to expand.

A few years ago Steve Arnold, who owns marinas in Yarmouth and Naples, had his pick of heated warehouses where he could store clients' boats in the winter. Then medical-marijuana growers started to compete for the same spaces. One moved into the 120,000 square foot facility where he was storing close to 200 boats.

That created some new challenges, such as the way the odor of high-quality marijuana can work its way into a boat's upholstery.

“And on the pontoon boats and some of the fiberglass boats; not a big deal. But some of the bigger boats, the cruisers 28 feet and above there was a very strong smell,” Arnold says.

Come spring, this created some extra boat cleaning. It also signaled more substantial changes to come.

Arnold says his landlord continued to put a squeeze on the square footage available for boats.

"One year he came to me and said 'hey I want the back area, I'm going to sublease it to marijuana growers.' And I was like 'all right.' So that was, call it 30 thousand of the warehouse. And then the following year he took another 20 thousand, so I saw the writing on the wall,” Arnold says.

Arnold figures the growers were able to offer maybe twice as much as he paid for the space. So he ran the numbers, bought properties near his marinas, and last year opened his second boat-storage facility. He's far from alone – these days, if you need industrial space in Greater Portland, good luck.

"We're out of space. We're down to one-percent vacancy now,” says Justin LaMontagne, a partner at the Dunham Group real estate company. LaMontagne recently presented to the Maine Real Estate & Development Association a market survey of more than 560 industrial spaces in greater Portland. In six years, he says, the vacancy rate has dropped from 8 percent to 1 percent, while lease rates have risen from less than $5 per square foot to nearly $7. Purchase prices in some cases have doubled, he says.

"I've got conventional businesses and folks that employ hundreds of people that can not find more space to grow any further or relocate,” he says. “So it's kind of a critical point right now in the industrial market."

There are more pressures at work than just what legalized marijuana brings to bear. Other industries, like light manufacturers and food processors are ready to expand.

"There's also the burgeoning brewery industry and distilleries, which have taken up a lot of space whether it be for warehousing, distribution or production,” says Drew Sigfridson, the managing director at CBRE the Boulos company.

Sigfridson says building new is a tough choice too: it's expensive and most of the land that is suitable for development in the area has already been developed.

“There hasn't been a lot of new construction to keep up with that demand."

Demand from would-be marijuana growers does seem to have eased in Maine over the last quarter or two, partly in response to the Legislature's glacial efforts to implement voter-approved legalization of recreational marijuana.

Hannah King is an attorney with a group called Maine Professionals for Regulating Marijuana. She says some cultivators and their investors recently abandoned Maine and set their sights instead on Massachusetts, where lawmakers are moving more quickly to implement legalization.

"Investors are saying look there's no certainty around either your medical or your adult programs in Maine right now, and we know that Massachusetts has essentially finalized their regulatory regime,” she says. “They are planning on first sales July of 2018, and while we'd like to participate in Maine's market, we want certainty."

King adds, though, that measures now moving through the Maine legislature would expand the medical marijuana market. That could justify some new investment in cultivation here, potentially meaning demand for scarce warehouse space could rise again.

Broker Justin LaMontagne does see one potential trend on the horizon that could ease the squeeze for both conventional and marijuana businesses – conversion of vacant big box retail space into light industrial and distribution facilities.