The industrial real estate market in the Baltimore region has gotten a bit of a buzz.
Would-be members of Maryland's nascent medical marijuana industry have inundated brokers with calls about warehouses over the past year, many securing real estate with options payments or other deals, as they prepared to compete for the licenses to be awarded by the state.
"I would have to say anybody that had a warehouse listed for lease or for sale in Maryland probably was at least contacted by one of the companies that are interested in opening a medical marijuana facility," said Jonathan Green, a senior associate at NAI KLNB, a commercial real estate firm headquartered in Towson.
With regulators poised to weed out hundreds of applications before awarding a limited number of licenses, it's a temporary high.
But brokers said they're encouraged by other signs of demand, as traditional tenants strengthen and new users such as breweries, trampoline parks and go-kart racing tracks emerge to occupy the older, smaller spaces that typically are harder to lease.
"Tenant flow for a number of years was very slow," said Kenneth Griffin, vice president at the Lanham-based real estate firm NAI Michael, whose recent deals include representing a client in the medical marijuana industry that agreed to payment of "over six figures" to secure a space. "But particularly in the past months, there's been a real uptick in activity."
The Baltimore region is poised to exceed historic absorption rates for industrial properties in 2015 — topping 1.7 million square feet, according to a recent market report by JLL, a Chicago-based national commercial real estate firm.
As developers respond and start building again, there's been little overall change in vacancy rates, which have hovered around 10 percent this year, depending on which firm does the calculations. Rental rates have held fairly steady, too.
While retail and medical marijuana uses are likely to remain a small portion of the industrial tenant base, those clients are more likely to consider properties in older industrial areas, so their role is important, said Kate Jordan, vice president in the Chesapeake region office of Lee & Associates, a national commercial real estate firm.
"During the downturn, there was a flight to quality … which left some of the functionally obsolete B and C buildings vacant," Jordan said.
Retail uses like gyms and pet day care, and medical marijuana growers and processors offer one answer to the "question of who is going to go in those," she added.
The state received more than 1,080 medical marijuana applications — including 290 for growing or processing operations, which will require larger amounts of space than the dispensaries.
The state has said it will award a maximum of 15 grower licenses and an unlimited number of licenses to processors, which turn the drug into oils, tinctures or other products.
Mitchell Trellis of Maryland Wellness Access LLC said the firm has been paying rent since last year, after signing an agreement for a 70,000-square-foot space in Columbia. Trellis said if the company wins a license, it expects to invest about $5 million in the property, which is older but well-located.
"It put us a leg up," he said. Space "is the most important thing and it's going to be difficult and critical to a lot of people to deal with this issue."
Medical marijuana users appear to care less than traditional industrial tenants about having high ceilings, masses of truck parking and easy highway access, brokers said.
They're also largely locked out of the many properties in the region owned by institutional investors, big firms that buy the properties to help balance portfolios for major pension funds and other groups but have been leery of working with an industry that isn't approved by the federal government.
Matthew Laraway, partner at developer Chesapeake Real Estate Group, said the Hanover-based firm, which often works with institutional investors on projects, turned away the several inquiries a week it received from people tied to medical marijuana.
But the company is still benefiting from the interest, as tenants crowded out by those users come to them for space, he added.
"They're definitely having an impact on our market," Laraway said.
Older industrial areas also are seeing demand from firms that cater to consumer uses.
It's a transition from industrial to retail that has been underway for years, but some said it has accelerated as the economy improves and households have more money to spend on recreation and other activities.
The real estate research firm CoStar Group has removed at least 900,000 square feet from its inventory of industrial space in Southeast Baltimore — including Canton and Brewers Hill — due to redevelopment since 2010, said market analyst Elsa Cardin.
In Columbia, the evolution is most evident in areas such as Snowden River Parkway and Dobbin Road, which have more than 1.8 million square feet of retail space, according to a 2014 study by the Columbia Association. (About 4.3 million square feet remained industrial.)
Launch Trampoline Park, which is preparing to open its first Maryland location in Columbia next year, looked at both retail and industrial areas as it searched for about 30,000 square feet with high ceilings and open floors. It eventually settled on an industrial property, drawn in part by lower rents, said co-owner William Garrett.
And distinguishing between the two kinds of areas is not always easy, he said, pointing to his neighbors at 9315 Snowden River Parkway — a swim school and a planned brewery.
"We did look at [retail]. Obviously the price point there tends to be the big difference," he said. "For us, it made a lot of sense given that our space is really — it might be technically industrial but it really feels like retail."
Some of the changes also reflect broader trends toward mixed-use development, as in the case of a new lease signed by Random Stimulus LLC, which manufactures flavors for electronic cigarettes from a complex in Curtis Bay.
The firm plans to open its second Vaper's Knoll retail store in Columbia, but it sought out industrial space in order to combine the shop with a brewery and tasting center. The company signed a lease for 10,000 square feet on Berger Road in February and has been working with county officials to get permissions.
"It's kind of a fun thing we're trying to do," said CEO Richard "Rich" Gue, who said the company is hoping the combination of vaping and Hysteria Brewing beer will set the establishment apart.
Retail uses are likely to remain a small portion of the industrial market as new construction continues, brokers said. And while marijuana has transformed some markets — such as Colorado, where it's legal for recreational use — in Maryland, they said the effects will be more limited.
"Is it going to dramatically change the market?" said James Caronna, principal at NAI KLNB of the medical marijuana demand. "I don't know that it's dramatic, but it is a cycle that will pass through the area."