Location scouting: investors hunt for their film-making hotspots

AXA’s plans to create a pan-European film studio platform demonstrate that investor appetite for studio space is not waning – and that the market is growing up. Last week, the €185bn ($159bn) AUM real estate arm of the French insurance giant bought Studios de Bry for €150m from Nexity. Built between 1977 and 1987 in the small commune of Bry-sur-Marne, around 8km to the east of Paris, the studios have been used for films as varied as Sofia Coppola’s Marie Antoinette and this year’s live-action Asterix and Obelix movie. “It’s a great asset, it’s in the right place, and it’s our home market. So it’s easy for us to understand the landscape,” says John O’Driscoll, AXA IM Alts’ global co-head of real estate. O’Driscoll has big plans for what is already one of France’s biggest studios, aiming to develop far more of the 30-acre site and double the scale of its production facilities to around 500,000 sq ft. But that is just the start of AXA’s goals. “This was a great first entry into the sector, but I would stress the word ‘entry’,” says O’Driscoll. “We will be ambitious around trying to grow our footprint across Europe.” [caption id="attachment_1187124" align="aligncenter" width="847"] Kirsten Dunst as Marie Antoinette[/caption] “Highly speculative” O’Driscoll is already looking at other deals, including in the UK, where he says the next transaction will “in all likelihood” be. “We like the UK market. It’s the biggest market and it’s the market in Europe that is further progressed, so of course we are looking actively into that,” he says. But other European markets are also being examined. “Spain is interesting, Germany is interesting, Ireland is interesting. So we will spend time on those markets trying to find the right opportunities and we’ll take them as they come, with the view of creating a pan-European studios platform.” Investor appetite, and competition, is growing as demand outstrips supply, despite warnings from the likes of Netflix and Amazon that budgets are being cut. A survey of film and TV producers by CBRE found that more than half expected to need more UK studio space next year, while 83% said they would need at least the same amount. Increased demand is also expected from game developers. But although there is some 11.2m sq ft in the pipeline, CBRE said that only one scheme was likely to be available by the end of 2023. “Some of it is greenfield and highly speculative,” says CBRE’s Simon Calvert. “Not all of it will actually be developed, and even if it is, not all of it will be suitable or successful.” AXA has been looking at buying in this space since mid-2021 but has been biding its time to find the right sort of asset. That has plunged the group into an already congested market. Investors including Blackstone and Aviva Investors are also looking to build bigger platforms. Established hubs Aviva, which last year signed a landmark deal with Netflix at its Longcross Studios in Surrey, has designs for a range of investments, including a new facility that would require a £200m investment and a five-year business plan. “We are also looking at where we can develop facilities,” says Aviva’s head of real estate, James Stevens. Ideally, this would be on a “Longcross model”, where part of the space is taken on a 10-year lease, with short-term revenue coming from others. “We are more comfortable with that blend of risk.” In contrast to AXA’s methodical approach, Aviva “fell into” owning film studios. Temporary uses of its Longcross assets meant that it had been effectively running an operational film studio there for about 10 years while looking for a change of use to residential, data centres and commercial uses, says Stevens. In doing so, it came to understand the dynamics of the market: “It opened our eyes to the breadth and depth, and also some of the supply imbalances.” Like AXA, this understanding has led Aviva to be picky about what it invests in. Location is king, and as such, Stevens says, existing hubs will benefit most. “While there will be more schemes being delivered, it is the intensification and professionalisation of the facilities that are already there where the dominant activity will take place,” he adds. “Those in more established locations will become more dominant because of those support networks.” That doesn’t bode well for some of the more adventurous greenfield schemes in the pipeline.  “We are not afraid to develop,” O’Driscoll says, adding that a number of pure developments feature in its pipeline. “We have looked at greenfield, brownfield and operating assets, and we will continue to look at them.” Even if they are not established sites, they will be in established locations. “We are not going to do anything heroic about establishing brand new locations,” he says. The reason for that is talent. Crew is crucial, with film producers choosing filming locations as much on the reputation and skills of the crew as any other consideration. The UK’s reputation is high but under threat. Last year, Screenskills estimated that the UK needs at least 21,000 more skilled crew by 2025 just to keep up with existing demand. “That skill set is still the biggest draw,” says Calvert. [caption id="attachment_1187125" align="aligncenter" width="847"] Longcross Studios in Surrey[/caption] Winning model Bry offers a blueprint for what AXA thinks is the perfect formula. “If I could find this profile of asset in other markets, I think we would probably prefer it,” O’Driscoll says. “We do like the integrated platform story. We have the ability to operate, that ability to develop and to generate new pipeline. That is the winning model for investors, and it helps us deliver what the operators want.” Operationally, Bry won’t have a long master lease, like Netflix at Aviva’s Longcross. But it will be run by industry stalwart Guillaume de Menthon, president of Telfrance. And Bry certainly has development potential. At heart, studio investment is a real estate play, so the perfect combination is an established location, a working asset and heaps of development potential to grow new revenue. O’Driscoll is excited. “At the moment we see a lot of latitude to grow here. We see pipeline. The story is good. We also see investor support behind it.” In that regard, AXA’s approach will be the same as it has been for those other sexy sectors, data centres and life sciences – ignore the fact that they are sexy and focus on the real estate. “We are happy to enter at the right time and scale up, and also exit if that makes sense as well,” O’Driscoll adds. The market of the past few years has been full of the buoyancy and youthful optimism of a U-rated movie. But now it is maturing. Solid demand suggests that it won’t become a horror show, but with players such as AXA entering the market, it is now at least a PG13. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photos: Main image © Brands&People/Unsplash Marie Antoinette image © Columbia/American Zoetrope/Sony/Kobal/Shutterstock Longcross Studios image © High Level/Shutterstock