Christopher Walker talks to Blackstone and Hudson Pacific about the expansion of their Sunset Studios platform beyond Hollywood

Last year, Hudson Pacific Properties and private equity house Blackstone got together to exploit a “conviction theme” using the Sunset Studios film-production platform. This week, they announced plans to create a “world class studio facility” in the UK for film, TV and digital productions. It is a significant deal – they are intending to invest close to a $1bn (€845m) at the site in Hertfordshire and it is the first expansion of their platform outside the US.

Major shifts are taking place in the entertainment industry. “Global demand for content continues to surge, and with it the demand for sound stages, ancillary services, production offices and studio-adjacent office space,” says Jeff Stotland, senior vice president of global studios for Hudson Pacific.

This surge reflects the dramatic switch to streaming content enabled by adoption of the cloud and 5G technology. In a recent report, Fortune Business Insights suggests that the video-on-demand market could reach some $160bn by 2027, up from just $60bn in 2019. It notes we “have witnessed a massive popularity in the past few years, mainly due to the increasing use of services such as Netflix and Amazon Prime… and the ease of availability of cloud platforms has opened the doors for growth”.

COVID-19 has accelerated this with the use of so much more home-centred entertainment. Last year, CBRE reported a 74% increase in US demand for streaming, and Stotland says “appetite for content during the pandemic has created significant pent-up [studio] production demand, further bolstered by shows substituting stages for location shoots due to COVID”. Instead of last-minute studio rentals, Netflix is also moving to multi-year leases.

These trends, which Blackstone describes as “strong tailwinds”, have major implications for real estate investors. The creative industries are large consumers of space and studios require high ceilings – Warner Brothers’s average studio ceiling height is 36ft – and large, unobstructed, floor plates. Then there are the space requirements of the production offices, creative labs and myriad ancillary services Stotland.

A report by CBRE in last year noted: “Film and television production are one of the biggest occupiers of office space in the Los Angeles region of Southern California. As of 2020, these firms occupy 17.7m sqft of office space.” Demand in California is building up into a pressure cooker.

This has led Hudson Pacific and Blackstone to move further afield in California to add to their portfolio of Hollywood real estate, which includes Sunset Gower Studios, Sunset Bronson Studios and Sunset Las Palmas Studios. The move in the UK is mirrored by their recent $190m decision to develop a 240,000sqft studio in Sun Valley –the first new studio to be built in 20 years.

Nadeem Meghji, head of real estate Americas at Blackstone, said: “What we love about this is the strong demand, and also very limited supply.”

Demand is also changing other US real estate markets through a ‘spill-over effect. “With sound-stage vacancy consistently in the low single-digits and sustained demand supporting steadily climbing rental rates, production companies have increasingly looked to alternative filming locations,” CBRE noted. “This has led to intense demand for regional production space.” The state of Georgia has around 1.8m sqft of studio space, and New York some 1.5m.

CBRE says this ripple effect means studios are increasingly looking overseas. Hence the UK move by Blackstone and Hudson Pacific – their first foray into Europe. Stotland says: “Demand for purpose-built studios has long outpaced supply in the UK, and we have been looking for the right asset with which to enter the market for several years.”

According to the UK Creative Industries Council, tax relief for film, high-end television and animation “have made production in the UK more attractive than ever”. The council says there have been £18.4bn (€21.6bn) worth of film claims, and £8bn of high-end television relief since it was introduced.

Could the attract more investment from real estate players? “The UK is a global centre for production – its infrastructure, generous tax credits and the site’s proximity to crew and talent make it a highly desirable production location,” Stotland says. “We believe the opportunity in the UK is quite significant and, together with Blackstone, we are actively pursuing additional opportunities to expand the Sunset Studios platform in the UK.” There are “other key markets where we are looking to expand”, he adds.

Meghji agrees. “We think we are uniquely positioned to grow our studio footprint, both in LA and a small handful of markets in the US and globally,” he says. “It is one of our highest-conviction themes.”