Hollywood Studios Are an Unexpected Bright Spot for Real Estate Investors

Blackstone’s New Investments

Blackstone Group (BX) will acquire a 49% stake in three Hollywood studio lots, valued at $1.65 billion. This decision is reflective of two trends brought on by the ongoing COVID-19 pandemic: a boom in demand for video streaming content and a wash of uncertainty in the real estate industry.

During the pandemic, people stuck at home have been hungry for video content to keep themselves entertained. When lockdowns in the US were at their peak in late March and early April, people in the US were watching over 160 billion minutes of streamed videos per week, which comes out to about eight hours per person per week. This number was twice as much content streamed one year prior. Streaming companies like Netflix (NFLX), Disney+ (DIS), Amazon (AMZN), and others are rushing to meet this booming demand. As a result, demand for studio space in which to film content is also surging.

A Changing Studio Space Market

Meanwhile, most of the real estate industry has been severely impacted by the pandemic. Investors are wary of everything from offices to hotels to retail space. Even apartments, which tend to be thought of as recession-proof, are struggling due to high levels of unemployment. Sound stages are providing an unexpected bright spot for real estate investors.

Sound stages have never been the stars of the real estate industry. In the past, production companies tended to sign very short leases because so many shows were canceled after one or a few seasons. Streaming services and their hunger for content has changed that trend. Now, content companies are making longer-term commitments because fewer shows are being canceled—and even if shows are canceled, companies have opportunities to film new ones. Additionally, the supply of sound stages is staying fairly stagnant, even as demand surges. Very few new sound stages are being built, especially in LA. They are the size of airplane hangers and space is scarce in the movie-making hub.

Looking Ahead

Because the market is so tight for studio space, even as video production has been scaled down or canceled due to the pandemic, landlords report that production companies are up-to-date on their studio rent. Production companies know how limited studio space is, and they want to keep their leases.

Blackstone is betting that even if the pandemic subsides and demand for video content ticks down slightly, streaming companies will still have billions of dollars to spend on content, and space in which to film that content will be in high demand.

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