Development of Film, TV Production Space Remains Undaunted Despite Netflix's Gloomy Subscriber Numbe
US, Canada and UK All See Rush of Soundstage Construction
By Jack Witthaus CoStar News June 3, 2022 | 1:59 P.M.
By early May, Jeff Clark had taken just one day off since the start of the year. It was his birthday. Clark runs Mr. Location Scout, a location-finding service for advertising agencies, entertainment companies and other producers of filmed content in Los Angeles and Northern California. His business took a hit when work dried up during the pandemic, but demand has returned and Clark says his work has tripled in recent months as spending on film, TV and commercials rebounds. For Clark, who identifies both soundstage and on-location sites for shoots, it has been tough to find available space when he's competing with major producers that lease real estate for longer amounts of time as they seek to feed demand for more content. "It's not always working out," he said.
If developers have their way, it may soon become easier to find that space. Millions of square feet of studio space is in the development pipeline in Los Angeles, Canada, the United Kingdom and other large production hubs across the U.S. But the rush comes as the streaming entertainment industry, which has driven much of the demand, has shown signs of vulnerability — prompting concerns over whether construction could outpace the need.
Industry leader Netflix, which saw subscriptions skyrocket with the world locked at home during the pandemic, said it lost 200,000 subscribers in the first quarter and it expects to lose another 2 million in the second quarter. After watching Netflix's struggles, analysts with New York-based media research firm MoffettNathanson questioned how much other major entertainment companies would be willing to spend on creating content.
"Putting it all together, we think the industry is facing a point of no return in which the economics of the old models look increasingly frail while the potential of the brave new world now appears overly hyped," it wrote in a May 2 report.
That led to pointed questions for real estate developers investing in soundstage projects. Victor Coleman, CEO of Hudson Pacific Properties, a Los Angeles-based developer of production-related space, was asked during the company’s April 28 quarterly earnings call if content spending had peaked in light of Netflix’s weak performance, which could mean less need for soundstage space. "The streaming companies' perception on [if] this is a downturn is absolutely not relevant to, first of all, the demand that we have in our studio space, and two, the capital that's being put into the marketplace," Coleman said.
Hudson Pacific is building Sunset Glenoaks, a purpose-built studio in the Sun Valley neighborhood of Los Angeles. The property may feature seven stages totaling 241,000 square feet. (Joe Palacios/CoStar)
And while Netflix has taken a hit — its stock has slumped more than 60% since the start of the year as subscribers peel off — in many ways it stands alone. Competitors such as Apple, Disney and Amazon have been adding subscribers and also have other robust revenue streams to offset any potential losses in streaming business. In the first quarter, Disney saw its Disney+ subscribers grow by 7.9 million, Paramount Plus added 6.8 million subscribers and HBO and streaming service HBO Max saw subscriptions increase by 3 million.
Subscriber gains have been seen as justification to invest in creating more content, which in turn created demand to develop more soundstage and production space. Producing StagesIn New York, film permits exceeded or were near 2019 levels between August and November 2021 before dipping to roughly 70% of 2019 levels in December, according to a CBRE report. In the fiscal year ended June 30, 2021, there was a record-setting $4 billion spent on productions in Georgia, according to a statement from the Atlanta-based Georgia Department of Economic Development. Across the pond, film and high-end production spending in the U.K. nearly reached $7 billion in 2021, also a record-setting amount, according to the British Film Institute. Against that backdrop, developers are pushing ahead with speculative soundstage development projects in the U.S., U.K. and Canada to chase after a global content industry that is projected to generate $230 billion in activity this year.
In Los Angeles, the leader in soundstage space globally with 5.4 million square feet of existing space, millions more square feet are in the development pipeline. That's in addition to the more than 4.7 million square feet of soundstage stock in the United Kingdom, Ontario’s 3.3 million square feet, New York’s 2.4 million square feet and Georgia’s 2 million square feet, according to an April report from FilmLA, a nonprofit organization that tracks the industry and facilitates filming in the region. Those markets also have dozens of soundstages in development as they compete for production business. Bardas Investment Group wants to convert an empty Sears on Santa Monica Boulevard in Hollywood into a 600,000-square-foot campus with four stages and one flex stage. (Joe Palacios/CoStar) The amount of space in the development pipeline in L.A. alone may increase the region's number of certified stages by at least 27%, according to FilmLA. That seems like a lot, but there has been little purpose-built studio construction in Los Angeles since the late 1990s. Shifting Landscape
Soundstage sites are cropping up all around Los Angeles, changing the character of some neighborhoods. In May, the 12-stage, $500 million Sylmar Studios facility broke ground in the San Fernando Valley. A pair of cranes tower over the NBCUniversal lot off the 101 Freeway, where a roughly $1 billion investment in construction is expected to deliver new commercial space, including soundstages. Looking ahead, a long-abandoned Sears at 5601 Santa Monica Blvd. in Hollywood may soon bloom with actors, writers, directors and production crews if the crumbling store is redeveloped as planned into soundstage space. In the Arts District, an aging 15-acre industrial site may transform into 15 soundstages at Sixth and Alameda streets.
Soundstage construction has changed entire industrial markets, too. Billy Walk, a senior vice president at Colliers who works in the North L.A. industrial market that features numerous entertainment-related users, said he has seen entertainment users backfill industrial spaces that aerospace and defense manufacturers have left in recent years. Now, some investors are looking at redeveloping or repositioning these properties, and others, to accommodate studio and production services. "Thus far, we have not heard of any contractions on the production side of things, and in speaking with a few studio operators, the overall sentiment is still very optimistic," Walk said.
Ultimately, speculative spending on entertainment-related real estate development is dependent on streaming companies' desire to spend billions of dollars on content to grow their platforms. The appetite for this from companies such as Apple and Amazon is difficult to quantify, as these companies don’t solely make money from the entertainment business. Critics also are quick to point out that streaming content largely generates revenue through monthly subscriptions, which is far less profitable than movies and traditional TV, which draw additional revenue through ads, box office ticket sales and syndication fees.
But for now, the content spending uptick means work will stay busy for location scouts like Clark who don't know when their next free day will be. Clark said he's still trying to catch up from his pandemic losses and pay off a house he bought during the pandemic. "I think it'll even out or stay steady," he said of content spending. "I'm not sure."