The UK takes a leading role for TV and film production, according to new CBRE report

Creative Industries GVA growth has been triple that of the wider UK economy since 2010

• Lack of supply is a growth constraint

• Imbalance of studio supply and demand creating opportunity for investors and landlords

The UK TV and film production industry has been growing at a rapid pace in recent years. This is partly due to a surge in global video-on-demand platforms

where global subscription revenues have tripled since 2015 to $49bn. The trend is only expected to continue according to Setting the stage, a new report from global real estate advisor CBRE.

The gross value of UK Creative Industries, which includes TV and Film, increased three times as fast as the wider economy, growing by 57% compared with 17% between 2010

and 2018 when ‘TV and Film, Video and Radio’ contributed £20.8bn to the UK economy. UK film production has also increased its global market share, up from 14% in 2010 to 25% in 2019.

Michael Brown, Associate Director, UK Research, CBRE comments: “A record £3.6bn was spent on high-end TV and film production in the UK in 2019. In the last decade British talent was used in 70% of the top 200 grossing films. Creative Industries GVA growth has been triple that of the wider UK economy since 2010. Language, talent, exchange rates and existing infrastructure are all key factors which make the UK an attractive destination.”

Several studios have expanded in line with the sector’s recent growth including two of the biggest: Shepperton and Pinewood. However, since 2018 both have been let to producers - Netflix and Disney - on 10-year leases, further diminishing supply. Many other studios report that they are near or at full practical occupation. It is widely believed that the UK is losing out on business due to the lack of space, with Pinewood Group estimating the UK lost out on £2.8bn of revenue between 2015-2017.

Michael Brown continues: “This problem has been acknowledged by the UK government and its stated aim of achieving £4bn per year of inwards investment by 2025 is explicitly contingent on the expansion of studio stock to create capacity.”

In addition to some large lettings in existing studios, the strong recent performance of industrial and logistics space has led the vacancy rate in units over 100,000 sq ft to fall to just 5%, creating a shortage of potential development sites suitable for studio use. That said, there at least nine dedicated studio facilities in the pipeline including Dagenham Studios in London, Mercian Studios in Birmingham and Enterprise City in Manchester.

Michael Brown continues: “We estimate there is at least 2m sq ft of active demand in the market at the time of writing. With 1.5m sq ft of sound stages in the development pipeline and demand expected to grow, more purpose-built space will need to be delivered.”

The imbalance of studio supply and demand creates an opportunity for investors and the financial case for owning studio space can be compelling. Soundproofing stages is expensive and converting existing big box units can cost around £40psf. New developments can cost up to £300psf. While this means considerable costs for investors, it also means producers often opt to enter into lease agreements at existing facilities.

Occupiers are typically willing to pay higher rents for flexibility. For example, a 15,000 sq ft stage leased for six months could attract a rent around £70psf, net of typical discounts and incentives. As we have seen, some producers have taken studio space on a long lease of up to 10 years. Landlords are agreeing rents in the range of £40-50psf (net) in exchange for the certainty that comes with longer leases. Compare these rates with rents on prime ‘big box’ logistics (units in the best possible location, let with a strong covenant) near to London of around £16 per sq ft in Q3 2020. Away from London, prime rents decrease to around £7 per sq ft. Clearly this creates a compelling case for making the higher initial investment for studios over industrial and logistics space.

Simon Calvert, Senior Director, CBRE concludes: “The TV and film sector is a strategically important industry for the UK. High demand for sound stages is set to continue, driven by growing VOD revenues and the UK’s attractiveness as a filming destination. Compared with other asset classes, there are relatively few investors in the studio market. Still, investor interest is increasing rapidly and competition is growing. Amid a shortage of purpose-built studio supply, producers are struggling to find suitable space. This is adversely affecting the sector’s growth. In order to meet its potential, the sector needs investors and landlords to deliver much needed studio facilities.”