As visions of a green Christmas danced in their heads, cannabis companies scrambled to secure retail locations in Calgary during the lead up to legalization and the aftermath. While some might say “the more, the merrier,” others are left to wonder about the long-term impact of this increased demand on the city’s commercial real estate market.
“There have been three phases to this process,” says Bob Sheddy, a REALTOR® with Century 21 PowerRealty.ca who specializes in commercial properties. “In the period from one year to three months prior to Oct. 17, 2018, tons of landlords refused to do deals with cannabis retailers. Many inexperienced entrepreneurs were inquiring about spaces, while a handful of well-funded retailers hired professionals to find them quality spots.”
The widespread pushback during this phase also led some cannabis companies to make concessions to sweeten the deal.
“We found some aggressive cannabis retail deals being quoted, with prospective renters willing to take a larger space to solidify a deal immediately,” said Brendan Keen, senior associate with Colliers International in Calgary.
“Most brokers are still waiting and not sure what to expect.” – Brendan Keen, Colliers International
Phase two occurred in the three months preceding Oct. 17, where high demand for retail spaces drove up rental rates.
“Cannabis retailers were paying 20 per cent higher than market in some cases, putting up large deposits and paying bonus commissions to commercial real estate agents for the extra work involved,” said Sheddy.
In the frenzy to secure a spot, some prospective cannabis store owners were left high and dry, signing leases but failing to secure the necessary City approval to proceed.
“We have seen a few spaces vacant and held up in municipal appeals,” said Sheddy. “Other spots have come back on the market as subleases, where tenants are trying to unload any spaces that they are unable to occupy as a cannabis retail location.”
While there was massive demand for retail space in the lead up to legalization, that demand has dropped significantly since, as many prime spots are now occupied.
“Where brokers were receiving 20-30 calls a day on cannabis during the peak period, I might get one or two calls a week now,” said Keen. “It’s a quick conversation these days, though, as everything has been picked over in the main locations.”
Even so, Keen says there are cannabis deals to be done in other areas of the city, and some questions to be answered before those deals are signed.
“What is the City’s game plan over the next 60 days? Are they planning to give out a lot of approvals or wait and see?” said Keen. “Most brokers are still waiting and not sure what to expect.”