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: The streaming wars have a winner — in this real estate sector

Hollywood was running out of studio space even before the pandemic hit.

Now after a stay-at-home year, appetite for streamed entertainment, including original content, is surging. So, too, is demand for high-quality soundstages, creative labs and production offices.

How much are consumers bingeing? COVID-19 fueled a 74% year-over-year increase in streaming-video demand, according to an October report from CBRE Americas Research, a commercial-real-estate services firm.

Netflix Inc. NFLX, +0.13%, Apple Inc. AAPL, +2.02%, Amazon.com Inc. AMZN, +2.21%, the Walt Disney Co. DIS, +0.30% and its Disney+ and Hulu platforms, and other streaming companies that also create their own shows — not to mention legacy film studios, network television and advertising interests — have needed every last inch and more of an estimated 11 million square feet of production space in a handful of North American cities. 

“Content is king,” said Spencer Levy, senior economic advisor at CBRE. “It’s only getting more important and getting more diverse.”

Viewing habits may ease up once consumers venture back into restaurants and sports arenas, but the 24/7 streaming trend, with watching on the go and across multiple devices, is expected to stick.

Here we are now, entertain us

The push to produce comes after years of studios operating at greater than 90% capacity, per CBRE, and as U.S. media companies plan to dramatically increase their production budgets for original content, after spending an estimated $ 121 billion in 2019, according to data from Variety Intelligence Platform. The unique nature of the stay-at-home economic slump only reinforced entertainment’s recession resiliency, which draws investors for the long term.

With so much money on the table, Los Angeles and other filming hubs have been scrambling to attract new business, and they hope to keep the backlogged productions sidelined by COVID-19 from moving out of town.

“Entertainment is an extremely important part of the California economy,” said Colleen Bell, executive director of the California Film Commission, adding that production had ramped up in the state through summer, fall and winter, following the implementation of new health and safety precautions. 

“California’s ability to bring production back after shutdowns from COVID-19 has resulted in fast-impact expenditures that have helped quick-start the economy,” Bell said.

California offers $ 330 million in annual tax-credit funding to film and television companies, but media companies also could be entitled to further funding under Gov. Gavin Newsom’s pandemic budget proposal.

Speaking from another large film hub, Lee Thomas, deputy commissioner of the Georgia Film, Music and Digital Entertainment Office, said that production began to return to the state in September following the shutdowns, but that by January the state had 12 features and 39 television series in different stages of production. “That’s busy for us,” Lee said.

Entertainment companies had historically rented soundstages on an as-needed basis. Netflix snapped that trend when it began routinely taking on multiyear leases to keep its production pipeline in full swing. Content rivals have followed Netflix’s lead, and so have real estate investors.

Still, the ongoing real estate allure of this creative sector is not a foregone conclusion. There’s at least one burgeoning competitor from outside the entertainment business. Warehouse demand tied to the jump in online shopping and shipping also requires industrial-sized footprints. Building a soundstage comes at roughly four to five times the cost of building a distribution warehouse.

Landlord to the stars

The niche market already has a blockbuster deal as a yardstick. As Los Angeles was resuming studio production in June after a near-three-month halt, real estate behemoth Blackstone was wrapping up its plans to take a splashy 49% stake in Hudson Pacific Properties’ Sunset Studios, one of Hollywood’s largest studio operations.

The deal included 2.2 million square feet of studio space and nearby office properties valued at $ 1.65 billion, alongside rights to build another 1.1 million square feet at the three-studio complex.

“Today, it is one of our highest-conviction themes,” said Nadeem Meghji, head of real estate in the private-equity firm’s Americas region, referring to ownership of studio space for creating film, television and digital content. 

Meghji said the lack of available land in Los Angeles County has meant almost no new studio supply being created in the past 20 years. “Fundamentally, this is a real estate play, and critical infrastructure for the production of TV shows and film.”

“We think we are uniquely positioned to grow our studio footprint, both in L.A. and a small handful of markets in the U.S. and globally,” Meghji told MarketWatch. That’s reported to include other known film hubs including New York, London and Vancouver.

“What we love about this,” the Blackstone executive said, “is the strong demand, and also very limited supply.” 

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