Streaming Studio Space-Hot Real Estate

Bloomberg Businessweek August 17, 2020 pp20-22. Finance | “The Streaming Wars Come to Real Estate” “Studio lots are a hot property as Blackstone starts to write big checks”

Americans pandemic-fueled-obsession with streaming video peaked in April with more than 160 billion minutes of streaming video per week. This level of viewing amounts to “the equivalent of about eight hours per person" or a doubling of 2019 demand. Blackstone Group, Inc. with “$46 billion in ‘dry powder’ cash committed by investors-to spend on real estate, just spent $1.65B by taking a “49% stake in three Hollywood Studio Lots.” They are making a long-term investment on streaming as “companies such as, Inc., Netflix, [Apple] and Walt Disney Co. will need stages to feed the world’s bottomless appetite for video.” With partner Hudson Pacific Properties, Inc., they will “buy up more of the space in such key entertainment hubs as London, New York and Vancouver…”

Prior to the pandemic vacancy was only 1%. Now demand growth is strong ”as anything we have seen in the real estate business” says Nadeem Meghji (Blackstone). In a change from the past production companies now want longer-term leases. Increasingly, they are wanting to stay in flexible space that they can readily modify as streaming productions change.

In order to compete, some smaller production firms may settle in lower cost locales beyond the large hubs, (LA 5.2M sq.ft, U.K. 3.5M, Vancouver 2.5M, Toronto 2.3M, Georgia 2.0M and NYC Metro 1.5M). Being at attractive, but out-of-the-way, locations like New Mexico might work for single projects or shorter series. For longer series talent strongly prefers being in the key hubs. In these high density locations, there isn't really space or time to build new studios, from ground up, so some are converting vacated warehouse and other space to meet demand.

At this moment most production space is idle. Consequently, revenue is down for actual production sales. These are charges for “providing services such as lighting, grips and control room rentals” make up a third of studio income. As a positive, unlike other real estate sectors, “studios [still] collected almost 100% of rent.”

As part of this trend to structure flexible space, customized office space has been added to properties but as the pandemic continues some feel back office departments may remain remote. A move that could reduce demand for space. Regardless, investors and industry experts still believe that creative requires face-to-face collaboration.

While there could be some shakeout among smaller streaming firms, Blackstone is betting “on aggregate demand growth.”

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