CREJ - Retail Properties Quarterly - August 2017
Craft brewing is by no means a new trend, but one that has gained exponential popularity over the last decade – and Colorado has been a leader of the movement. It’s no secret that Americans love beer, and as the foodie culture has grown, so has the taste for quality, innovative brews. Today’s beer enthusiasts are aficionados going through beer flights like a wine connoisseur would do in Napa. The current consumer culture has become more environmentally conscious, fostering an interest in how things are made and where ingredients are sourced. To that end, the premium price craft beer enthusiasts are willing to pay for quality is driving the increased demand for production – and small, independent breweries are opening across the U.S. at a rapid pace. According to the Brewers Association, the number of craft breweries in the U.S. has more than tripled during the last 10 years, and Colorado is right in line with this trend. In fact, from 2011 to 2016 the number of craft breweries in the state grew from 126 to 334, counting only those that fall into the brewpub, microbrewery or regional categories. Colorado ranks third in the nation for breweries per capita. The highest concentrations are in Denver (58), Boulder (43) and Larimer County (34). Microbreweries – which are categorized as selling less than 15,000 barrels per year – are growing at a faster clip than brewpubs – which are categorized as restaurants that brew and sell beer on site (with an outside distribution of less than 75 percent). In Colorado, microbreweries outnumber brewpubs more than 1.5 to 1. Among the microbrewery field there is a subcategory of small, local neighborhood breweries that are holding their own against the larger-scale brewers. Since it seems tough to compare the production sizes, perhaps the term “nano-brewery” (which has no official definition, but typically refers to production of 2,000 barrels or less) needs to gain more traction, particularly in markets like Denver. It’s an important distinction because these nano-brewers are starting to take over taps in local restaurants and bars. In the interest of constantly offering something new to their customers, bars and restaurants often have rotating tap handles, which in turn offers nanobreweries, like Bruz Beer in Denver, the chance to expand distribution and increase recognition. Similar to how “big beer” felt the craft beer disruption seven or eight years ago when the microbreweries started taking their taps at local restaurant and bars, the microbreweries are feeling the disruption now from the nanos. As the number of brewers multiplies and distribution channels become more congested, craft breweries are able to create their own “shelf space” by opening taprooms and selling their product one pint or growler at a time. There is an added advantage to selling on site because none of the money is shared with distributors or third-party retailers. As the business evolves, breweries are putting a larger emphasis on front-of-house retail as a way to grow business. According to a recent study done by the Brewers Association, data suggests that sales for microbreweries with tasting rooms grew faster in 2016 than those without. Look to the larger microbreweries to start searching for places to expand their taprooms, with and without food. The next wave we’ll see in Denver is the craft beer tap house – but not brewery. In some cases, these are expansions from existing craft brands that want to expand into new markets or neighborhoods and, in other cases, it can be a third-party opening a collaborative taproom where beer enthusiasts can taste what microbreweries and nano-breweries from a wider geography have to offer. Developers are looking to anchor their properties with experiential retail, and well-known craft breweries and taprooms offer that draw. Craft breweries are starting to define their local areas. While “creating an experience” is paramount in retail across the board, it is even more important in the craft brewing space because millennials remain the core consumer here. Breweries without an interesting atmosphere, no matter how many taps they have, will feel just like any other bar or restaurant. Breweries that incorporate open spaces for various activities, like live music, backyard-style games or even yoga classes create a fun environment that attracts both beer drinkers and nondrinkers to enjoy a collective social setting. It is not uncommon for a craft brewery in Denver to have as many dogs and kids playing as adults drinking beer. Craft brewing hits on multiple cylinders for the local economy. Craft breweries work as economic engines, creating jobs and attracting tourism. In fact, per the Travelocity.com Beer Tourism Index, Denver and Colorado Springs both fall into the top 10 beer destinations, ranking second and sixth, respectively, among larger metros. Meanwhile Boulder and Fort Collins land at numbers two and three, respectively, on the list among smaller metros. The commercial real estate impact of the craft-brewing trend has profoundly impacted both the retail and industrial sectors, particularly when it comes to redevelopment. Breweries can make great use of retail spaces that are hard to backfill. Of course, there are certain requirements for production, which include high ceilings for kettles – usually 12 feet or higher – and slabon-grade to accommodate kettles that can weigh as much as 15 tons, depending on the brew system. Real estate deals for microbreweries are special in that the brewers need to obtain approvals based on their production and distribution, but they need to have a lease in place (with appropriate contingencies) before they can set up their systems. Deals usually require four to six months of free rent as the brewer sets up operations and navigates the approval process. While the craft brewing trend is in a new phase of maturity, there are still many opportunities for growth. According to a list of upcoming breweries compiled by COBeerGeek, there are 190 in various stages from conceptual plans to current construction across the state of Colorado. In metro Denver, the trend might slow down due to the sheer number of breweries that have opened in the last few years, but we feel growth across Colorado will continue booming for years to come.