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Can cinemas breathe life into the leisure investment market?

Andrew McGregor


Don’t just listen to me, but it seems the streaming vs movie “battle” has found its equilibrium. Paramount Pictures CEO Jim Gianopulos and Disney CEO Bob Chapek have both recently stated that you can’t have one without the other. Big screen drives big franchises, which in turn drives streaming features and spinoff series. We can live in hope therefore, that come 17th May (when hopefully UK cinemas can once again draw back the curtain), that we will once again have a thriving movie industry.

Our own COVID experience at BGP, is that most cinema operators have taken the opportunity to agree rent reductions, rent free periods and/or rent deferment with their landlords, who in turn have been rewarded with longer leases. We have been indirectly involved with at least 7 such re-gears, which have resulted in an average lease extension of 5 years with a resultant cap rate (valuation) improvement of c25 bps. We also anticipate that the cinemas of tomorrow may need to offer a greater customer experience, and perhaps work in harmony with the more flexible working habits, such as co-working space and event-hosting.

Now is probably not the time to be selling cinema-anchored, multi-let leisure schemes, but you can certainly be doing the prep. Any buyer will want to understand the payment history, the plan for recovery and the joint investment these schemes will need to ensure that the customer feels super safe to return. My colleagues are still up to their eyes in new lettings, especially from “competitive socialising” and leisure brands who see this as a golden opportunity to acquire space they might not have dreamt of – who would have thought an 80,000 sq ft department store in south west London would be a “family entertainment centre”. I’m sure Gravity have learned from the previous incarnations, such as Dave n Busters, but they never had the chance to trade out of Wandsworth!

If the great British public still have the appetite to be entertained once all this is over, the leisure scheme/park of tomorrow may actually be an improvement on pre-COVID. Less “average” operators, peddling a poor quality offer to an ever discerning customer – several well-known restaurant brands spring to mind. From an investment point of view, in theory, only the best operators will have survived, probably on re-based/affordable rents, with even longer lease terms if the landlord and tenant have got their heads together.

Fingers crossed for a bumper H2 2021…..

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