Will The Tight Industrial Market Kill the Craft Beer Industry?

Craft breweries are popping up throughout Southern California, but no market is as prolific in the industry as San Diego, which has become the craft beer hub of the region. San Diego County has 160 licensed breweries and 173 beer manufacturing facilities, according to research from JLL. From 2012 to 2017, San Diego’s craft beer licensing has grown by 358%, and the industry has spread to Orange County, Los Angeles and even more secondary markets, like the Inland Empire. It also is a significant driver of industrial leasing activity, with companies generally occupying facilities in the 1,000 to 10,000-sqaure-foot range.

“Longevity is a major reason that San Diego has become California’s beer hub,” Damon Melda, EVP at JLL, tells GlobeSt.com. “It hit a grand slam with name brands like Stone Brewing Co., Ballast Point, Karl Strauss and Ale Smith who have grown to have a national presence and household name.  These four alone each poured their first pint over 20 years ago and have experienced explosive growth.  Early settlers in the beer business have attributed to San Diego’s craft beer boom.”

The craft beer industry isn’t the only user of industrial real estate. San Diego has a dynamic and growing industrial user base, and it is driving historically low vacancy rates. The tight market is putting pressure on craft breweries, especially those looking to expand, especially in Miramar, Vista and Escondido. “What will be interesting to see is who can weather the storm and get to the next level or die on the vine.  The industry is more competitive than ever and if they can’t differentiate then we will see more space come back to the market,” says Melda. “Also it will be interesting to see is how landlords reposition built out breweries.  Will other breweries be able to backfill or will landlords need to spend capital and tear out all those costly improvements.”

In San Diego, the industry is responsible for significant economic activity, from driving tourism—generating $10.8 billion in 2017, a 29% year-over-year increase—to employing 4,500 people and produces over $850 million in sales in the county. “The San Diego craft beer industry has impact the San Diego economy in a positive way, specifically in the areas of tourism and jobs,’ says Melda. “I bet a healthy amount of those sales come from out-of-towners hopping on beer tour buses or dropping into several of the over 163 craft breweries in town.”