The Rise of Craft Breweries and Specialty Beverage Production Facilities

Published: 03-21-24    Category: General CRE

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

A flight of beer sits on a bar.

Beer has been a favorite beverage for millions of Americans, even before our country declared its independence.

And, while you may think that beer originated in Europe, it's believed that the first brews appeared around 4,000 BC, as a depiction of Sumerian villagers sharing a bowl of beer was discovered carved into stone.

Today, more investors are looking at craft breweries and specialty beverage production facilities as more consumers shift from the grocery store six-pack to small-batch beer, regional whiskies and bourbons, and similar beverages.

Recently, the number of operating craft beer breweries reached an all-time high of 9,552. This included related businesses such as brewpubs, taprooms, and regional breweries.

While breweries and distilleries offer investors a variety of financial price points, combined with the opportunity to be personally involved in production, identifying the right type of commercial building (CRE) may be a challenge.

Read on to learn about the facility requirements for breweries and production facilities, investors' options for mixed-use development, and related information.

Locating Real Estate for Beverage Production

Craft breweries and distilleries have specific real estate needs depending on their business model and scale of operation.

Therefore, your first decision as an investor is to decide if you prefer the production-only route or a combination of production and retail.

Production-Only Facilities

If you and any investment partners have decided on a facility solely for production, the following types of CRE may be suitable.

Small to Medium-Sized Warehouses

These facilities offer large open spaces and high ceilings, which allow the installation and maintenance of brewing or distilling equipment. Loading docks facilitate deliveries of raw materials and shipping of finished products.

Older, smaller warehouses may be available at a competitive lease rate since many of today's major retailers require larger facilities with computerized storage and shipping equipment.

Historic Buildings and Farm Facilities

Other buildings to consider may contribute to the finished product. For example, a Kentucky distillery produces a truly unique product by incorporating local limestone spring water into their distillery process.

Locating a building close to a preferred water source could be challenging, but well-worth the additional effort.

Other, more established distilleries have set up business in rustic barns and similar buildings. While commercial loans for these may be difficult to secure, the lower prices of these buildings open up more financing options.

If you're planning to open and manage a combined production and retail facility, your options are considerably wider, together with your potential locations, although zoning requirements must allow both manufacturing and retailing.

Combined Production and Retail Facilities

Now, let's take a look at some combined production and retail facilities for specialty beverages.

Retail Storefronts

Retail storefronts often feature high ceilings and large windows that display the actual brewing equipment for the craft beers served, drawing higher numbers of patrons.

The ideal storefront will offer high visibility, simple access, and adequate parking.

Plumbing and electrical systems may have to be upgraded to support the brewing equipment.

Mixed-Use CRE

These may combine production space and a retail/taproom/bar area. Generally, these are suitable for smaller-scale operations or urban locations.

Local code may require separate entrances and utilities for the brewery production and public areas.

Historic Buildings

Historic buildings offer truly historic features that may complement your finished product and help build a new beverage brand.

Repurposing a closed mill, bank, firehouse, or even a funeral home has been successful for other breweries.

Significant renovations may be required, although there is a potential for federal and state tax incentives. Zoning will need to allow for a change of use to manufacturing and/or retail.

After you've located a suitable location for your craft brewery or distillery, you'll need to decide on an overall strategy. This may require the services of a consultant with specialized knowledge, even if you've already created a craft brew of your own.

Hiring the Right Brewing Consultant

While a consultant may have his or her own recipes for a winning craft beer, this isn't a mandatory requirement.

Instead, look for the following:

  • At least a decade of experience in a similar industry, either a neighborhood brewery or regional or national producer.
  • A formal degree in brewing science or fermentation science is preferable (yes, they exist!). This means the consultant you hire can directly advise you on technical brewing issues.
  • Additional skills may include earned certificates in specialized brewing, fermentation, or distillation techniques.

After you've chosen and leased a home for your brewery or taproom with the assistance of a consultant, you have an important task ahead: your marketing strategy.

Introducing Your Brewery to the Public

While a production facility may or may not require a series of press releases to draw media interest, a craft brewery that also operates as a bar and/or restaurant will require the same due diligence as other types of retail businesses.

If you're planning to open for business in an area with competition, even if it doesn't offer a craft brewery experience, here are two strategies to consider.

The Gastro Brewery

This type of establishment goes further than other restaurants, offering menu items that emphasize quality.

Also known as gastropubs, these establishments often recommend certain craft beers to be consumed with certain menu items.

For example, some establishments have created Irish menu items and recommend that a craft beer “inspired” by Irish stouts be enjoyed during the meal.

The Brewhouse/Distillery Tour

Even if you've chosen to concentrate on production and are operating without a tasting room that's open to the public, you can design and offer paid tours featuring exhibits that teach visitors the stages of the production process.

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