October 1, 2021 by Mike Phillips

Film Studios: Explosion In Content Creation Fuels Demand

Photo: Netflix

Film studios have existed for as long as cinema itself, but until very recently the physical real estate where films and TV shows were shot and produced was usually owned by major production companies or by a small group of very specialist investors. 

But the explosion of content being created by companies like Netflix, Amazon and Disney to feed the online streaming platforms they have created has changed the game. 

As a society, our consumption of content is growing rapidly: Data from software platform DoubleVerify showed that global content consumption doubled in 2020. Admittedly, that was a year when people were stuck at home, but it is part of a long-term increase. 

The sheer volume of films and TV being made to feed this habit requires more space and it requires production companies to rent that space in a different manner. The top five streaming companies invested a huge $25B  in new productions in 2019 alone, CBRE said in a report on the sector last year. That has attracted the interest of more generalist real estate investors — in markets where TV and film production is a significant industry, the real estate required will in turn become a significant asset class.  

“In the context of markets like LA, New York or London, where major film and TV production is concentrated, we believe the studio sector will be one that investors will be increasingly aware of and have appetite to gain exposure to,” Blackstone Head of European Real Estate James Seppala told Bisnow.

In June last year Blackstone bought a 49% stake in a $2B U.S. film studio portfolio owned by Hudson Pacific Properties, and in August this year the duo committed to building a £700M studio facility to the north of London. 

Photo: Courtesy of Blackstone and Hudson Pacific Properties

For Seppala, the key appeal of the sector is a classic mismatch between supply and demand, For instance, JLL said last month the pressure for new studio floorspace in and around London is growing because existing studios are seriously oversubscribed. Today, the UK capital's 3.4M SF of permanent soundstage space is reported to be 95% to 100% occupied for the next 12 months. Hence, the need to build. 

In the U.S., occupancy of the country’s more than 11M SF of soundstage space has been at more than 90% for more than a decade, CBRE said. 

But the nature of content creation is also changing. Until the advent of streaming increased the volume of shows being created, production companies would typically rent space on a production-by-production basis, for weeks or months at a time. Now, a need for certainty there will be space to make shows means long-term leases are increasingly the norm. 

Last month, Netflix signed a long-term lease on a 72-acre studio site to the west of London owned by pension fund Aviva Investors. That prompted Aviva to buy back a chunk of the site for £45M that had been earmarked for homes to be built, with plans to build more studio space there.

In that sense, while many real estate sectors like offices and retail are seeing leases get shorter and income become less certain, film studios are going the other way, potentially increasing the appeal to investors.

“Broadly, the appeal of the sector is driven by the significant mismatch between the demand for high-quality studio facilities in the right locations and their supply, just like in everything we do,” Seppala said. “But we are also watching the potential for the sector to continue to rerate. We will have to see if that is part of a long-term shift in the way production companies utilise and commit to such facilities.”