The Commercial Inspector | Cinema CRE Is Getting A Sequel

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Cinema CRE Is Getting A Sequel

 May 10, 2023 |  Property Investment, Commercial Real Estate News |  real estate trends, business tips, special purpose facility

Since the global pandemic led to an unexpected shift in revenue and in the way average people choose to spend their money, the movie industry has struggled mightily to recover. Per the Hollywood Reporter, the US has lost approximately 2,165 theater screens (or around 5% total) since 2019 within exhibitor locations, and nationwide, the largest theater franchisors are looking to reduce quantity to recoup losses and direct their focus on premium experiences. The way that this translates over to commercial real estate is massive due to the impact that empty theaters have on neighboring businesses.

Business owners and commercial property managers alike are wondering whether the cinema still can be relied upon as the consistent anchor to boost foot traffic and drive revenue. To get a better idea of the forecast of cinema CRE, let’s take a look at how theater property owners are adjusting their approach.

Movies Are Coming Back, And The Experience Is Better
Theater revenue has slowly improved over the past few years, but the industry has yet to replicate pre-pandemic numbers. This underperformance has been attributed to a number of factors, from a lower number of new film releases each season (another echo of the pandemic) to a change in preferences from theatergoers. As some theater owners have concluded, people are looking for higher quality experiences to bring them back to the cinema over waiting for online releases (especially since some new releases are immediately available through streaming).

While plenty of theaters have been exchanging hands, there are a few near-universal upgrades, including heated reclining seats, larger screens, better sound equipment, and expanded variety for concessions. Many theaters are coordinating memorable events to coincide with new releases, giving guests an experience more akin to an exclusive party than your standard movie viewing. For example, Pruneyard Cinemas in Campbell, California created food and cocktail pairings for the release of the Barbie movie. They also provided an elaborate selfie photobooth and encouraged attendees to wear their best Barbie getup (per Mercury News).

Beyond general upgrades, some locations have seen success with incorporating additional attractions like rock-climbing walls, bowling lanes, and bumper cars as with EVO Entertainment Group’s location in North Texas (as reported by the Dallas Morning News). In short, there are fewer screens overall, but the improved product is the primary strategy to draw in customers. Due to the investment needed, it seems that only larger theater franchises are expected to survive (although this trend isn’t necessarily new, according to a recent article by the AV Club). For the smaller theaters that can’t find new operators, owners need to find ways to repurpose these spaces.

Small Businesses Are Stepping In To Fill The Gaps
Theaters take up a considerable amount of space and are custom-built for their specific service, which means converting these properties for different purposes can be difficult. Still, theaters across the US have transitioned into restaurants, office spaces, retail outlets, and even multifamily housing to help combat the ongoing housing crisis. (Read more here about how developers are using vacant office space to offer luxury living spaces!)

Elsewhere, businesses are actually looking for ways to capitalize on the nostalgia that older cinemas provide and working it into their own marketing. For example, Cycle Cinema of Wesley Chapel, Florida hosts a spin class in what was formerly Theater 5, “...with mind-blowing music video sessions and other mesmerizing visuals.” Movie theaters might be changing their look and diversifying their services, but it seems these properties still have a space in the market for a long time to come.

For your next remodel or commercial property acquisition, remember to contact NPI's National Accounts Team to coordinate any of your inspection needs!

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