Pandemic Drives Growth of New Niche: Sound Stages

The coronavirus pandemic has been erratic, causing devastating harm to some and no harm to others. Commercial real estate has been no different. Within the industry, the pandemic has distressed whole sectors and driven significant growth in others. The newest beneficiary of the pandemic is sound stages. The boom in online content streaming during the pandemic has driven demand for sound stage real estate, according to a new report from CBRE, and institutional capital is taking note.

Also known as production real estate, sound stages are not a new sector. The real estate niche is an 11 million-square-foot market mostly concentrated in six major metros—Los Angeles, Atlanta, New York City, British Columbia, Ontario and Louisiana. Unsurprisingly, Los Angeles accounts for half of the total market with 5.5 million square feet of sound stage space. However, there has been notable growth in the Atlanta, Vancouver and New Orleans markets as well.

The market has consistently maintained a 90% occupancy rate, but until now, the market has been fragmented. The pandemic has driven demand in the market segment, and the arrival of institutional capital has promoted the standardization of formats and operations. Hudson Pacific Properties and Hackman Capital are among the investors active in the space.

The market has inherently attractive fundamentals: growing demand for content, which translates to limited availability of product and rising rents. In some markets, demand is so strong and space so limited that warehouse properties have been converted into sound stages to accommodate demand—and interesting trend considering that warehouse space is also in high demand and trading at a premium. However, the two products share common needs, like high ceilings and large unobstructed floorplates. A sound stage user would only need to add soundproofing and suspended weight loads. In smaller markets, like Atlanta, developers are building new construction stages on former parks, fairgrounds, military bases and auto-assembly plants.” During the pandemic, these fundamentals have helped to drive transaction activity even as other parts of the market have stalled. Hackman Capital Partners and Square Mile Capital purchased Silvercup Studios in New York City in a joint venture, and Stan Johnson Co. marketed an industrial soundstage building in Montana.

The pandemic has been responsible for increased institutional interest in several niche asset classes, thanks to changes trends and market fundamentals. Dollar stores are another example. Typically a market known for private ownership, dollar stores have been attracting institutional capital this year. This year, several dollar store assets have traded hands.