Streaming War-Era Leasing Changes Offer A Buffer For Studio Landlords As Hollywood Strikes Shut Down Productions

The now-concurrent strikes of two national unions representing writers and actors for major entertainment producers like Paramount and Netflix have the potential to dramatically alter the way Hollywood works and are squeezing media companies at a time when they are under increasing pressure to perform and be profitable.

The strikes are likely to have a major economic impact. But, from a real estate perspective, owners of soundstages in Los Angeles and filming hubs across the country seem insulated from the brunt of it.

Because of a recent streaming war-fueled trend of securing long-term leases for scarce space, many tenants are locked into their leases. And although many producers want to cut costs, real estate typically makes up a relatively small sliver of filming budgets — an estimated 5% to 10% — indicating that those producers will continue to pay for their space, allowing them to get back to business quickly when the strikes are over.

“This is a very temporary phenomenon. We’re talking about months or quarters, not years,” Moody’s Senior Analyst Neil Begley said. “I would think that they don't want to lose the [soundstage space] footprint they have, that they're going to need that when this strike is over. They want to hit the ground running.”   

The impact of the strikes has been noticeable on filming, even before the writers strike began. The strikes of both writers and actors affect major feature films and scripted television for cable, TV and streaming platforms. 

A March 2023 report from FilmLA, a Los Angeles nonprofit that tracks filming permits, said as of Q4 2022, soundstage production shoots were down 19.5% year-over-year. The nonprofit attributed the drop to “corporate restructuring and [then] impending union negotiations which have caused many productions to pause.”

While FilmLA doesn’t have current numbers on how much of a decline soundstage shoots are experiencing now, “we would imagine that they're pretty much at a standstill given what is still allowed to film under the union agreements,” FilmLA President Paul Audley said. 

The streaming boom that began before the pandemic and was accelerated by it spurred a shift in the way that soundstage space is leased in Los Angeles — moving from the more volatile short-term lease that might only be for the weeks it would take to film a show to longer-term leases of five to 10 years. That shift is working in studio landlords’ favor even now, as so many stages are dark.

It’s hard to be certain how many active leases across all certified soundstages are long-term versus short-term. Major players like AMP studios and household names like NBC Universal, Paramount, Hulu and Amazon, own 35.5% of certified stage space in Greater LA, per FilmLA research, leaving the remainder independently owned and available for lease. Audely said there is also a lot of inter-studio leasing. For example, a CBS show might film at a Fox soundstage. 

Of all the independent studio owners, Hudson Pacific Properties owns most of the independent stages in LA, Audley said. HPP CEO Victor Coleman said in the firm’s first-quarter earnings call that 70% of its Sunset Studios space is locked in to multiyear leases with guaranteed minimums. But HPP also owns Quixote, a production services company it bought last year for $360M. In its earnings call, HPP said that its funds from operations fell year-over-year “mostly due to lower production activity impacting Quixote and the lead-up to the writers strike.”

But filming isn’t just a Hollywood thing anymore. Georgia has about 3M SF of certified soundstage space to LA’s 6.2M SF, FilmLA found. New York has about 2.8M SF.

Unlike LA, most of the occupiers at Cinelease Studios-Three Ring Studio in suburban Atlanta have short-term commitments for space. Woodvale Managing Partner Rahim Charania told Bisnow in May that space was leased through September but not beyond. Woodvale is the asset manager for Cinelease-Three Ring.

Although the stages are seeing a slowdown in use, no one has backed out of their commitments for space, Charania said. 

“We also haven't been able to identify potential new business around the corner yet because nobody's quite shopping yet,” Charania said. “It’s a matter of timing to get people out to the site and get some more tenancy in place.”

Reports on the status of the strikes suggest that discussions are not yet close to a conclusion, but once a resolution seems close, Begley said he expects to see a lot of activity around studios and soundstages as productions get their ducks in a row to go back to work.

“If you don't have all your locations under lease with everything in place, that's gonna be very disruptive,” Bagley said. 

Like many industry counterparts in Los Angeles, Charania is confident in the long-term need for his soundstage space.

“The business viability is not in question,” Charania said. “The market and the demand for content on a global scale is projected to increase significantly for years to come, and the need for soundstages for content producers is going to be growing.”

There’s a lot of new space in the LA pipeline alone betting that he’s right. The rise of streaming media companies meant that suddenly, there were new entrants into the field of possible soundstage tenants. That created a scarcity of soundstage space that has led developers to propose 135 new soundstage projects in the greater LA area, which would create about 3M SF of new space, according to FilmLA. 

The strikes are not just stopping the workers on the picket lines from working. The last writers strike, in 2008, was estimated to have cost Los Angeles’ economy more than $2B.

“It's a huge ecosystem,” Project Management Advisors General Manager and Vice President Sonnet Hui said. “Every day that there's no production, there's a whole impact on all the ancillary services. Everything from lighting and grip to catering. The whole ecosystem that supports the film industry is being impacted.” 

From Los Angeles to New York, those ancillary businesses have also ground to a halt. A New York prop house owner who specializes in art told The New York Times that she had signed a lease for a new, larger warehouse about a month before the first of the strikes ground production to a halt. Now, she is hoping to sublease some of the space to stay afloat. 

Many experts who spoke with Bisnow said that they anticipated a rush back to soundstages once the strike is resolved, but several noted that the strike, if resolved in a way that means more pay for actors and writers, could alter the economics of the business in a way that translates to shifts in spending on real estate. 

“It is probably fair to assume that there will be some sort of bounce back, though I don't know if it's going to be as strong as it was out of Covid,” Green Street analyst Dylan Burzinski said. “We were in the free money era, and there was tons of investment in terms of the growth of streaming budgets growing, and therefore, a significant amount of production taking place.” 

The pressure to be profitable has pushed many major studio players to make cuts, looking for cost reductions wherever they can. Sometimes, that means moving production outside of Hollywood to locations where tax credits and other benefits make them attractive filming spots. It could also mean less money to spend on developing new content, Burzinski said. 

“There may be a potential scenario where streaming dollars slow down, and therefore, you're producing less and you might need less real estate space,” Burzinski said. 

“Again, it's not a clear one-to-one relationship, but it’s one of the things we're looking at,” Burzinski said.

To learn more about studio real estate in the Los Angeles area, attend Bisnow's Los Angeles Studio Real Estate Conference Sept. 12.