\n
![](\"https:\/\/fortune.com\/img-assets\/wp-content\/uploads\/2024\/06\/GettyImages-1930304835.jpg?w=2048\")
<\/p>\n [ad_1]
\n<\/p>\n
For the nearly 3,000 unlicensed cannabis dispensaries operating across New York City, it was fun while it lasted.\u00a0<\/p>\n
Since the city received the go-ahead from the state last month to crack down on illegal weed shops<\/a>, hundreds have been shut down by law enforcement, while other sellers are seeing the writing on the wall and packing up voluntarily. And those thousands of departed stores could mean thousands of vacant retail properties across the city.\u00a0<\/p>\n Real estate brokerage Meridian has received daily inquiries from landlords who formerly had been leasing to cannabis stores, according to Jordan Langer, an associate at the firm.<\/p>\n \u201cThere had been this demand across every sort of neighborhood,\u201d Langer told Fortune<\/em>. \u201cIt\u2019s not specifically one neighborhood in Manhattan. Every single neighborhood has multiple shops on every block.\u201d<\/p>\n One of those properties Meridian is now representing is 738 Broadway, a building near New York University and Washington Square Park that used to be the home of Roll Up Nation. According to Langer, who\u2019s managing the listing, the smoke shop was paying $50,000 a month to rent the space, $15,000 more than Meridian is asking for now.\u00a0<\/p>\n \u201cThey were willing to pay anything,\u201d he said of the now-shuttered smoke shops. \u201cThe majority of these smoke shops are in some of the most prime locations in Manhattan. And they were comfortable paying well over ask.\u201d<\/p>\n \u201cThey sell a high-margin product and don\u2019t pay sales tax on it,\u201d said Steven Soutendijk, a commercial broker at Cushman and Wakefield. That\u2019s why, even despite hefty fines, many dispensaries were able to continue operating in Manhattan\u2019s most expensive corridors. \u201cAnd they were able to convince landlords that they were just smoke shops\u2014that they weren\u2019t selling marijuana or cannabis,\u201d he added.<\/p>\n New York\u2019s crackdown comes after years of fits and starts. The state legalized recreational marijuana in 2021, but it struggled with the rollout of licensed businesses, while a proliferation of smoke shops selling the product illegally abounded<\/a>, leading the preeminent advocate of legalization to lament the \u201cWild West\u201d<\/a> the retail market had become.<\/p>\n In 2023, new state legislation gave the Office of Cannabis Management new latitude to conduct inspections and issue fines of illegal sellers<\/a>, but it didn\u2019t move the needle. For some shops, like the one at 738 Broadway, business was so profitable that \u201cthey were comfortably paying these fines so they could continue operating,\u201d Langer said.<\/p>\n It wasn\u2019t until April of this year that the state passed regulations<\/a> enabling local officials to immediately padlock unlicensed weed sellers, leading mayor Eric Adams\u2019 administration to kick off \u201cOperation Padlock to Protect\u201d at the start of May. Since then, more than 3,000 shops have been swept up, according to a recent article by the Commercial Observer<\/em><\/a>.\u00a0<\/p>\n Losing those high-paying unlicensed dispensary tenants was by no means \u201ca win for landlords,\u201d Langer said, but it wasn\u2019t a loss, either. The flourishing of smoke shops over the past few years is just the latest swing in the eternal boom-bust cycle of retail. In the early 2010s, it was frozen yogurt. In the late 2010s poke bowls were all the rage, and more recently, Smashburger have taken over. Regardless, the boom-and-bust nature of the cycle always replaces the last craze with something new.\u00a0<\/p>\n \u201cThe last trend happened to be illegal smoke shops, but there will be another one, and there\u2019s going to be another tenant who\u2019s going to be willing to pay top dollar in rent,\u201d he said.\u00a0<\/p>\n Retail space in New York City\u2014and Manhattan in particular\u2014is notoriously some of the most expensive in the world. The average cost of renting retail space in Manhattan is over $100 per square foot, according to PropertyShark<\/a>, while the average cost in Boston is just $16<\/a>. A report from Cushman and Wakefield<\/a> listed upper Fifth Avenue as the most expensive retail area in the world, with asking prices around $2,000 per square foot\u2014nearly $250 more than Milan\u2019s luxury-shopping mecca Via Monte Napoeone<\/a>, the runner-up.<\/p>\n Soutendijk agreed that the turnover from dispensaries wouldn\u2019t upend the city\u2019s retail market, although former smoke shops landlords might have to settle for slightly less in rent.\u00a0<\/p>\n \u201cI don\u2019t think we\u2019re talking about 50% of the rent,\u201d he said. \u201cI think we\u2019re talking about 10% less rent, or 15% less rent, and that comes with the territory of being a landlord.\u201d<\/p>\n Across the board, commercial real estate in the city has struggled post-pandemic, heightening concerns about an economic \u201cdoom loop<\/a>\u201d in which once-bustling downtowns stay empty as suburbanites work from home and starve the businesses that used to depend on their foot traffic. Offices in the city\u2019s major business districts\u2014Brooklyn, midtown, downtown, and midtown south\u2013had vacancy rates between 22 and 24% in the fourth quarter of 2023, according to a report from Cushman and Wakefield<\/a>. By comparison, Boston had a vacancy rate of 15.1%. New York Gov. Kathy Hochul cited the city\u2019s commercial vacancy rate as proof of its unsteady recovery in her surprise decision to scrap the state\u2019s congestion pricing plan<\/a> last week.\u00a0<\/p>\n\u2018Willing to pay anything\u2019<\/h2>\n
Retail booms\u2014and busts<\/h2>\n