Will film studios be the next blockbuster for investors?

Film and TV production studios are not usually viewed as a key focus for property investment, but the intensifying race for studio space after lockdown could signal their time to finally steal the spotlight. “It’s a booming industry,” says Gordon Aitchison, director of investment and development at Legal & General Investment Management’s Real Assets arm, which is developing Sky and NBCUniversal’s newly consented 32-acre studios in Elstree. “It’s Covid-19 resistant.” Although studios have been hit with shutdowns owing to the pandemic, the £12bn film and TV industry is facing a surge in appetite for new content from consumers that have been stuck at home. “When filming stopped, [the UK was] pretty much at full capacity, and we had something like a billion pounds of production running across studios,” says Adrian Wootton, chief executive of the British Film Commission. Wootton adds that the rising popularity of streaming and long-running TV series have forced production firms to take longer-term views on leasing space, making its prospects for yields and returns more attractive to investors and developers. Long-term leases agreed last year have highlighted this, including Disney’s deal to take up most of Pinewood Studios in Buckinghamshire, struck last September, and Netflix’s move to Surrey’s Shepperton Studios in July last year. Industrial mindset British Airways’ pension fund is among a rising number of institutions that are starting to look into film studios as investment opportunities. This is partly because film studios function as an extension of industrial – an asset class that has been at the top of the shopping list for any investors, says Piers Read, managing partner of Time + Space Studios, which operates Twickenham Studios on behalf of BA’s pension fund and General Projects. Read, who is also producer of The Inbetweeners and Peep Show, adds the downward spiral of other “safe bet” asset classes, such as retail, have “fallen down the pecking order” and left “investors looking for a new market to back”. Time + Space and its parent company, urban land regeneration firm The Creative District Improvement, is taking advantage of a studio boom generated by streaming giants such as Amazon and Netflix after securing £500m of institutional investment in March to set up a network of studios across the UK. The firm has so far invested in three, including Twickenham Studios, the Ashford International Film Studios in Kent, and Liverpool’s Littlewoods Building. It is in the process of agreeing a further three deals, and has identified another six acquisitions. Firms from outside of the UK are also eying opportunities for expansion. Ryan Millsap, chairman and chief executive of US company Blackhall Studios, says he has already secured commitments from film and TV producers for his first production facility outside of the US and Canada. He is in talks with the University of Reading to build a £150m scheme at Thames Valley Science Park. The scramble for space Studio space has been a fast-growing industry for the UK, which has stood out from international competition for its tax breaks. Support from the government has also bolstered its attractiveness to occupiers; last month it unveiled a £500m fund to help restart film and TV production. A burgeoning talent pool, both on-screen and behind the scenes, is also a major draw for tenants. The BFC’s Wootton points out that seven of the eight largest visuals effects companies in the world are based in the UK. This all contributes to the view that the UK’s film and TV industry will continue to expand for at least the next five years, and that despite its growing pipeline, even more studios will be needed to satisfy occupier demand. But on the whole, unlike its logistics and industrial counterparts, film and TV production is not a ‘build it and they will come’ industry. Occupiers want to know that the developers and investors behind the schemes can deliver on time, as they juggle filming schedules stretching to as many as five years. Time is money in in this sector, and delays are costly. Finding occupiers that are willing to take up film studio space before planning is approved is therefore very tricky, given the UK’s slow-paced system. To tackle this, the BFC in March won additional funding from the government to become a “clearing house” to help developers navigate planning issues with local authorities. “Sometimes these projects are very time critical and the momentum of planning can be an issue,” says Wootton. Sky’s the limit Proving that the sector is all too often overlooked by the property industry, LGIM Real Assets’ Aitchison admits that it was considering a sporting use for its 32-acre plot before Hertsmere Council introduced its Elstree Studios scheme. Caroline Cooper, chief operating officer at Sky Studios, says the 32-acre location will “turbocharge” Sky’s ambitions and provide it with enough studio space to meet demand, alongside new film and TV projects from its partners at NBCUniversal. Its decision to occupy the 32-acre location was driven by its strategy to double its investment in its Sky Originals content over the next four years, as it aims to take on rivals Netflix and Amazon. The sector’s demand and supply imbalance was also a factor. “Over the first five years of operation alone, we expect Sky Studios Elstree to attract over £3bn worth of production spend from Sky, NBCUniversal and others,” says Cooper.  “That’s investment and projects that would otherwise be probably made elsewhere or had to be delayed until there was enough studio space to cater for the demand in the UK.” The sector has a long way to go, but as large and small production companies alike prepare to produce greater volumes of new content, it may well prove to be an award-worthy option for investors after all.  To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette Photo © Stephen Chung/LNP/Shutterstock