A pint of craft beer on tap at Anaheim Brewery | Courtesy Ryan Giron

Crafting New Business – November 2018

Carrie Rossenfeld Features

From SoCal Real Estate’s November 2018 issue:

Craft-beer breweries are taking off in SoCal.

By Carrie Rossenfeld

The craft-brewery sector is growing hotter throughout the country but has especially taken off in Southern California, particularly in San Diego and Orange County. The phenomenon has dramatically affected the retail, industrial, and flex property segments in these markets and only looks to grow stronger.

“Craft brewery began as a niche industry but has grown leaps and bounds over the last few years,” Jared Dienstag, research manager in JLL’s Orange County office, tells SoCal Real Estate. The firm recently released its “Craft Beer Guide Book to Real Estate.” “The community within the industry stretches from mom-and-pop breweries with small storefronts to those that occupy tens of thousands of square feet.”

Dienstag adds that the retail industry as a whole is going through a transformation, focusing on providing experiences to consumers, and that craft breweries are all about experience, making them an attractive tenant type for landlords. “Unlike most industries, breweries have the rare ability to be a good fit in multiple property types: retail, industrial, and flex, which provides them with multiple space options.”

Jared Dienstag, research manager, JLL | Courtesy a representative of JLL

The city of Anaheim, California, for one, is attracting a large number of craft breweries. According to representatives of the city of Anaheim, the submarket now houses 15 craft breweries, and this number will soon increase to 21. City representatives also say, “More Anaheim breweries opened in the past two years than in any other city in Orange County, and Anaheim now has half of all the breweries in Orange County, California.”

In a recent statement distributed by a representative of the city of Anaheim, John Woodhead, director of community and economic development for the city, said, “Anaheim is evolving into a hub for microbreweries, larger brewery developers, and for the tastemakers that propel industry trends. We are combining regulatory innovations with the power of breweries to drive economic revitalization. This includes very creative re-uses of historic buildings, infusing them with an authentic sense of place.”

The statement says that Woodhead estimates the reformed regulations can reduce upfront “soft” costs (such as permitting) from $100,000 in nearby cities to closer to $10,000 in Anaheim. “The approach joins retail developers with the top levels of the city, including Anaheim Mayor Tom Tait, who encourages the community identity brought to Anaheim by recognized beer artisans.”
Also in the statement, Mayor Tait says, “What the wine industry did for Napa, craft breweries can do for Anaheim.” City representatives say in 2014, Tait had announced the “Brew City” initiative in order to streamline the approval process for new craft breweries.

John Woodhead, director of community and economic development, City of Anaheim | Courtesy a representative of the city of Anaheim

According to the statement, the city plans to advance the craft-brewery narrative by allowing “by-right” brewery development — which reduces uncertainty, permitting time and overall permitting costs — in all commercial and industrial zones, reducing permitting time and costs; relaxing ordinances to better allow breweries to incorporate food services; strategically developing craft breweries in historic structures to boost revitalization; and establishing a “brewery concierge” planning expert to welcome the craft-beer industry and keep Anaheim on the cutting edge of trends.

The “Brew City ambassador”/senior planner Scott Koehm assists with issues ranging from permitted locations to tasting-room size and outdoor patios, the statement says. “Under Koehm’s leadership, Anaheim’s Brew City webpage describes how alcohol manufacturing dates back to the founding of the city in the 1800s, when ‘the climate for production of beer, wine, and distilled spirits was perfect for the city’s founding business leaders.’” In addition, the city has appointed a business-solutions specialist to serve as a single point of contact during the building plan-check and construction process.

The statement also lists the breweries planned for Anaheim as well as those that have opened. Set to open this fall are Electrica Craft Brewery, created by the owners of Urbana Mexican Gastronomy in the historic Packing House on Anaheim Boulevard. LAB Holding, creator of The Packing House and other innovative Anaheim projects, is redeveloping the building at 320 South Lemon Street, a former electrical switching station. And Unsung Brewery opened last year in LAB Holding’s Make building, a former marmalade factor adjacent to the Packing House. Also operating is Anaheim Brewery at 336 South Anaheim Boulevard, which describes itself on its website as “a revived pre-Prohibition brewery with a small tasting room and a large beer garden in the Anaheim Packing District.”

A bottled-beer display at Anaheim Brewery | Courtesy Ryan Giron

LAB Holding is also partnering with San Diego’s Modern Times Beer to open Leisuretown, a 32,000-square-foot craft-beer-centered complex at 554 South Anaheim Boulevard, a renovated Craftsman-styled residence and adjacent barrel-vault commercial building just south of The Packing House, according to the statement. The project, also set to open this fall, will include a coffee roaster and vegan Mexican restaurant surrounded by gardens and a swimming pool.

In the statement, LAB Holding’s creator and founder Shaheen Sadeghi describes Leisuretown as “the community’s backyard,” adding, “Brewers today are bringing neighbors together — much like the pubs of London or Ireland serve as neighborhood gathering spaces.”

Woodhead tells SoCal Real Estate that the craft-brewery sector is heating up in Anaheim largely because of Mayor Tait’s efforts. “Our mayor sponsored a regulatory-relief effort and task force for exploring ways Anaheim could relieve the regulatory burden we put on developers. We have always been a developer-friendly city, but from time to time we look at areas where we can relax regulations.”

Recently, in the course of this effort, and while seeing some of the first applicants for craft breweries, the city realized the sector was ripe for regulatory reform, Woodhead says. It relaxed the need for a conditional-use permit for craft breweries, allowing these establishments to open in all commercial and industrial sectors of the city.

“We also realized that the Orange County Health Care Agency was responsible for some of the regulations related to craft breweries — they were being treated similarly to restaurants, with racking requirements that didn’t apply to the brew scene,” Woodhead explains. “We were able to persuade them to give up their regulatory oversight there and transfer it to the city.”

In starting the “Brew City” initiative, Woodhead says the mayor wanted to entice as many craft breweries as possible into the city. “We now have a ‘Brew City ambassador’ to act as concierge to help them through the open-title process.”

In enabling craft brewers to set up shop more easily, Woodhead says a lot of interesting synergies were discovered between the breweries and the Disneyland Resort in Anaheim. “There are not a whole lot of places in the entire world where you have hundreds of millions of visitors coming to such a small area. A lot of folks traveling through the area, and there’s a large market for craft breweries here.”

Moving forward, Woodhead says the city will continue to pursue craft brewers for the market. “I don’t think you can have too many of them. Like what Sonoma and Napa did for the wine industry, you reach a critical mass that makes that aspect of the economy attractive to travelers.”

Dienstag notes that SoCal has witnessed a significant increase in small beer licenses, with each county experiencing a five-year increase ranging from 321 percent to 660 percent. But the hottest markets within the region seem to be Orange County and San Diego. He says from 2012 to 2017, the number of small beer licenses has increased 450 percent in Orange County, with Anaheim recording the highest number of them, and 358 percent in San Diego, which continues to be one of the largest craft-brewery markets in the nation.

“Most breweries [in San Diego] are located in San Marcos/Vista (26 breweries), Miramar/Sorrento Mesa and Valley (24), and Carlsbad/Oceanside (21), with a total of 167 breweries throughout the San Diego market,” Dienstag says. “Craft brewery has become a significant driver for the San Diego tourism industry, attracting vacationers and beer connoisseurs.”

According to the city of Anaheim’s statement, another benefit to the craft-brewery craze is that these tenants can use both small and large spaces, with the smaller spaces being used as tasting rooms for all sizes of microbreweries. “These establishments have a national presence and include Karl Strauss, Golden Road, and Noble Ale Works in the Platinum Triangle near Angel Stadium,” the statement says, adding that Brewheim is the next brewery planned for this neighborhood.

Going forward, Dienstag says he sees even more craft brewers throwing their hats into the ring in SoCal, and with more players comes increased competition. “While the more-established breweries have large and loyal customer bases, higher saturation puts pressure on the smaller breweries to find ways to differentiate themselves from the competition. Overall popularity of craft breweries is expected to remain strong while we pay attention to the growth rate of new openings.”

Leisuretown will be located in a renovated Craftsman-styled residence and adjacent barrel-vault commercial building just south of The Packing House. The project will include a coffee roaster and vegan Mexican restaurant surrounded by gardens and a swimming pool. | Courtesy LAB Holding