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Movie, TV Production Slowdown Boosts Pent-Up Demand, Priming LA for Development Surge Pandemic-Spurr

By Lou Hirsh CoStar News January 12, 2021 | 9:10 AM

New pandemic-related TV and film production shutdowns in hard-hit Los Angeles are having a counter-intuitive effect on developers and landlords that cater to the industry by increasing commercial real estate activity. There's now an escalation in the already high pent-up demand as producers look ahead to eventually making up for even more lost time because of the added delays from the coronavirus outbreak that worsened in recent months. “Most of the existing soundstages in the Los Angeles area are already booked up, and they have been for a while,” said Carl Muhlstein, international director in the Los Angeles office of brokerage JLL. A full-fledged return to production still faces delays, and providing time and increasing competition in the hunt for more space, he said. Property investment and development firms are expected to announce new leasing or purchase deals tied to filming facilities in coming weeks as the pandemic accelerates competition among media companies that are pouring billions of dollars into more content for their streaming services. Amid spiking coronavirus cases and hospitalizations, several TV and movie production employment unions, including those representing performers, producers and directors, this week recommended a temporary hold on in-person production in Los Angeles and elsewhere in Southern California. That call followed last week’s move by several major producers, including Warner Bros., Universal, Sony and Disney’s 20th Television, to postpone the resumption of TV production after the holiday hiatus for at least a couple of weeks. The shutdowns add to the state of suspension that Los Angeles media production has been in during the pandemic. But interest in commercial real estate tied to the industry has shown few signs of a let-up in recent months, suggesting property owners are bracing for significant new demand when the movie and TV industries are fully back in action. "The streaming war is not going away, it’s just going into hibernation," said Ryan Patap, CoStar's director of market analytics in Los Angeles. "Media firms will be eager to resume production as soon as possible to satiate the incredible demand for content." That demand may be even higher than what it would have been without the pandemic, which has escalated at-home viewer numbers and expectations as well as shifts away from movie theaters. The Walt Disney Co., for instance, said late last year it's shifting even more of its resources toward its streaming content, after viewership for its Disney+ service soared and attendance at its theme parks plummeted. Netflix meanwhile signed one of L.A.'s biggest office leases of the year in September when it took 171,000 square feet to create it first dedicated animation studio. The region's biggest real estate deals that have been done in the past year have almost all been related to media. A $1.7 billion investment by Blackstone Group, among the world’s largest investment firms, took a 49% stake in Los Angeles-based Hudson Pacific Properties and its three major studio sites, filled with major media tenants including Netflix. That stake will fuel a planned expansion expected to double the size of Hudson’s Sunset Gower Studios in Hollywood. In another big-ticket deal, Geyser Holdings and Lincoln Property Co. paid $186 million for a campus originally built by the late developer Jerry Snyder. That 261,000-square-foot creative campus is near the historic Sunset Las Palmas Studios and steps from the main campus of Netflix, which is among the major media companies taking more space in Los Angeles. Developer and master contractor Lendlease and retirement fund Aware Super paid a near-record sum for a $600 million development designed to cater to the city's media giants. Production RecoveryThe Los Angeles region, with an economy highly dependent on entertainment industry employment, was seeing a sharp drop-off in location shoots even before the most recent holiday spike in coronavirus infections and hospitalizations that have kept several industries shuttered or operating at diminished capacities. Paul Audley, president of FilmLA, which handles location shooting permits, told CoStar News that the pace of permit applications had already dropped to around 45% of normal capacity as of October. “We did see a precipitous drop in the second and third weeks of December,” said Audley, noting that was around the time that the first wave of production halts was announced, initially by independent producers that were subsequently joined by major studios. Muhlstein said he’s not seeing signs that producers are itching to switch production from Los Angeles soundstages that have already been booked to other U.S. cities with strong concentrations of studios but less problems with the pandemic, such as Albuquerque, New Mexico. That’s partly because labor unions generally are interested in maintaining uniform health and safety standards across all studio sites nationwide. Also, some preparation work for the next production startup is already taking place at Los Angeles filming locations. Not all industry-related suppliers and service vendors who deploy commercial space in the region are completely shut down. “Just because filming is currently stopped, that doesn’t mean carpenters aren’t working on building sets or lights aren’t being delivered,” Muhlstein said. Additional productions also often trickle into demand for office space by post-production groups, legal teams and other groups that are part of the entertainment ecosystem. Commercial property owners with strong and growing ties to entertainment production, including Los Angeles-based Hudson Pacific Properties and Hackman Capital Partners, have said on several occasions they expect continued long-term demand for their space offerings whenever the industry bounces fully back into action. “Given the pent-up content spend in production, particularly the non-feature film, single-camera episodic dramas perfect for streaming for which all our stages are ideal, we anticipate demand to remain extremely robust,” Hudson Pacific CEO Victor Coleman said during a November earnings call with analysts. “The bottom line is we believe tech and media will lead this recovery.”

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