crat beer The guidebok - JLL Real Views states have more than doubled their craft beer ... Evan...

The

guidebookcraft beer

to real estate

Summer 2017

What every brewery needs to know about real estate

2 | The craft beer guidebook to real estate

content

3

State of Craft Beer 4Number of breweries in the U.S. 4

Production trends across states 6

Key craft beer states 8

Local beer hubs 10

Expansions: industrial to retail 12

The Real Estate Process 14From leasing to brewing 14

Outlook 16

2006200520042003200220012000199919981997199619951994199319921991199019891988198719861985

National total craft beer production (barrels)


State of Craft Beer Most craft breweries in the U.S. on recordThirty-six states have more than doubled their craft beer

production from 2011 to 2016. Nearly half of those states tripled

their craft beer production. More production means there are more

market entrants and brewers expanding their production capacity.

Warehouses and retail properties benefit from a growing craft beer

industry that has more than doubled its total beer production since

2011. This is a nationwide trend that fills industrial and retail

vacancies and reinvigorates local markets. These trends translate

into a larger impact on the industry’s real estate footprint.

While overall beer sales remained virtually flat in 2016, craft beer

sales grew by 6.2 percent, accounting for 12.3 percent of the

market. This market share is significantly larger than the 5.7 percent

recorded in 2011. Despite rapid growth over the past five years,

the industry is expected to slowdown due to increased saturation.

There were fewer brewpub and micro brewery openings in 2016

than the previous two years, with a slight uptick in closings.

What is craft beer, and why does it matter?According to the Brewers Association’s definition, craft breweries

must satisfy three qualifications:

1. A craft brewer must produce no more than 6 million barrels per

year

2. Less than 25 percent of the company is owned by an entity that

is not a craft brewer

3. Traditional or innovative ingredients account for a majority of

beer alcohol volume and flavor (does not include flavored malt

beverages)

Craft breweries impact local economies with more jobs and

increased revenue from sales taxes, licensing fees and other fees.

According to the Brewers Association, the craft brewing industry

injected $55 billion into the U.S. economy in 2014 and created more

than 424,000 jobs. The industry had an economic impact of $2.2

billion in Illinois alone.

National total craft beer production

Source: Brewers Association

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

20162015201420132012201120102009200820072006

National total craft beer production (barrels) (barrels) What do you like most about the industry?

“

“

5

Beyond economics, craft brewers reflect the culture and character

of their local communities. Any visit to a local beer city, like Chicago

or San Diego, will illustrate that local brewers often name their beers

after local traditions and culture. Chicago’s Off Color Brewing teamed

up with the Field Museum to create the pilsner “Tooth & Claw.” San

Diego’s Karl Strauss Brewing produces the year-round “Tower 10 IPA,”

named after lifeguard Tower #10 in Mission Beach, where the brewery

founders started their business idea.

The craft beer guide This guidebook provides production and brewery data in states

across the country and identifies the latest trends in local

beer hubs. It is meant to educate those interested in the craft

brewing industry and provide information for brewers who are

interested in their impact on real estate.

Camaraderie—true, independent

local craft beer is unlike other

industries in that these breweries

collaborate with one another on raw

material shortages, brewery

configuration and beer releases.

– Matt Rattner, President of Karl Strauss Brewing Company


Production trends across statesCraft beer is booming across the country, especially in the South. Of

the top 20 states for annual barrel production growth from 2011 to

2016, 8 were in the South.

Alabama brewers opened up a market that was nearly nonexistent in

2011. The state increased production by over 6,000 percent, despite

failure to pass three bills that would have enabled brewers to self-

distribute and sell directly to consumers. The latter changed in 2016,

as Alabama brewers can now sell growlers and packs of beer to go.

7

Production growth by state (2011-2016)

Total craft beer production by state (2016)

Gallons produced per adult by state(21+ years of age)

0% 1000% 2000% 3000% 4000% 5000% 6000% 7000%

West Virginia

Illinois

Connecticut

Tennessee

Arkansas

North Carolina

District of Columbia

North Dakota

Florida

Alabama

Production growth by state (2011-2016)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Pennsylvania California Colorado Ohio North Carolina Florida Texas Oregon New York Wisconsin

Total craft beer production by state (2016)

0.0

5.0

10.0

15.0

20.0

25.0

Gallons Produced /21+ Adult

Source: JLL Research, Brewers Association


Key craft beer states

Production (2016): 1.2 million barrels

Breweries per capita (2016): 8.1

Notable breweries:

Deschutes, Full Sail Brewing

Production (2016): 337,582 barrels


Notable breweries:

Revolution Brewing, Two Brothers Brewing Co.



Notable breweries:

Sierra Nevada Brewing Co., Stone Brewing Co.



Notable breweries:

New Belgium Brewing Co., Oskar Blues Brewing Holding Co.

OREGON

ILLINOIS

COLORADO

CALIFORNIA

Source: JLL Research, Brewers Association

9



Notable breweries:

August Schell Brewing Co. , Summit Brewing Co.



Notable breweries:

Great Lake Brewing Co., Fat Head’s Brewery



Notable breweries:

Highland Brewing Co., Foothills Brewing Co.



Notable breweries:

Bell’s Brewery, Atwater Brewing Co.

MINNESOTA

OHIO

NORTH CAROLINA

MICHIGAN

Production

< 250,000250,000 - 500,000500,000 - 1,000,0001,000,000 +

Breweries per capita is the number of craft breweries

per 100,000 adults ages 21+


California408 microbreweries | 209 brewpubs | 26 regional breweries

North Carolina134 microbreweries | 57 brewpubs | 11 regional breweries

Miramar Corridor San DiegoThere are 14 craft breweries along the 2.5-mile stretch

of Miramar Road between I-15 and I-805. This is home

to Green Flash and AleSmith Brewing Company.

Downtown AshevilleThe craft beer industry is a driver of tourism for Asheville. Visitors

and locals can taste a pint from an abundant amount of breweries

within walking distance. The River Arts District is an up-and-coming

location for restaurants and breweries.

Burial Beer CompanyGreen Flash Brewing Company | Source: Jamie Lantzy

Sample flight: local beer hubs

11

Oregon134 microbreweries | 96 brewpubs | 9 regional breweries

Ohio101 microbreweries | 73 brewpubs | 7 regional breweries

Close-In PortlandBeer is synonymous with Portland. The Close-In area offers strong

walkability to more than 10 breweries within a 2-mile radius.

Beer drinkers can also take advantage of the bus tours

that hop from brewery to brewery.

Over-the-Rhine CincinnatiOver-the-Rhine is a diverse neighborhood in Cincinnati that once

served as a commercial and industrial hub for the city. Beer is

helping revitalize the neighborhood, which is now spotted with

music venues, retail, and business incubators.

Taft’s Ale House | Source: 5chw4r7zHair of the Dog Brewing Company | Source: Evan Lovely


Chicago, Illinois | Source: Brewbokeh, Half Acre

Half Acre built an additional production facility totaling 60,000 square feet in Chicago,

Illinois. The brewery opened its outdoor beer garden in September of 2017.

Asheville, North Carolina | Source: Authentic Asheville, Wedge

Wedge Brewing Company expanded into 7,500 square feet at the Foundation in the River

Arts District of Asheville, North Carolina. The space includes 1,500 square feet of event space.

expansions

Richmond, Virginia | Source: Stone Brewing - Richmond

Escondido’s Stone Brewing opened its 220,000-square-foot distribution center in

Richmond, Virginia in 2016. This facility will be supplemented by a restaurant on

the riverfront within the next couple of years.

Cincinnati, Ohio | Source: MadTree Brewing

MadTree Brewing opened its 50,000-square-foot facility in February 2017 at 3301

Madison Road in the Oakley neighborhood of Cincinnati. The space includes a

10,000-square-foot, dog-friendly beer garden and 64 taps.13

industrial to retailexpansions


From leasing to brewing

First contactContact a local market expert to start your

search for brewing space.

Milling and mashingWhile milling is the first step to ensuring

grains are ready to mash, many brewers

purchase milled grains. Milled grain is

placed in the mash tun and mixed with hot

water, which activates enzymes to convert

starches in the grain to sugar.

Identifying requirements How much space do you need to

accommodate your production?

What is your price point? What is

your logistics strategy?

LauteringThis step separates spent grain from the

sugary liquid, called wort. Water extracts

additional sugar from the grain.

Site SelectionAfter identifying requirements, use the latest

technology to find and tour available spaces

in the given geography.

BoilingWort is boiled for sterilization. Hops are

added during this process to add bitterness.

Hops added toward the end of the boil add

aroma and flavor.

15

Negotiate lease termsYou found the perfect spot to start brewing

your next delicious batch of beer. Now,

it’s time to start negotiating to maximize

your budget.

CoolingAfter the boil, the wort goes through a

whirlpool to collect undesirable matter. This

is immediately followed by cooling, as the

wort will start producing flavor.

Sign/Execute leaseNegotiation went well and you signed

your lease.

FermentingWort is sent to a stainless steel vat to begin

fermentation. Yeast is added to create

alcohol and additional flavors, depending

on the strain of yeast.

Build-out commencementThe lease is signed and commencement is

set. Follow up with details on moving into

the new space and building out your new

home.

ConditioningAfter the beer has matured, it is filtered,

carbonated and conditioned in a bright tank

to leave a clear and drinkable beer.

Start packaging and brewing!


outlookCraft brewers need to differentiate and educate as the market saturates and acquisitions increase.

The industry is becoming saturated. There were more breweries in the United States

in 2016 than in any other year going back to 1873. Increased competition is forcing

many brewers to market their product and differentiate with a diverse and high-

quality collection of beer styles. The increasing amount of unproven entrants may

cause fatigue for consumers and distributors.

Since craft beer is the engine behind recent overall beer growth, larger breweries

are making strategic acquisitions. Acquisitions cause confusion for consumers.

Consumers may think they are drinking craft beer, when it is really a brand for a

larger “macro” brewer. As a result, craft brewers need to invest and adapt to educate

their consumer base to maintain production and revenue growth in the long term.

A slowing craft beer industry has immediate effects for commercial real estate.

Absorption is expected to slow overall as demand dissipates from fewer new market

entrants. Other markets that have lifted production limits will continue to grow as

brewers meet demand for craft beer. On the other hand, regional breweries are in

position to expand their distribution and footprint across the Untied States.

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