Lights camera…action? It’s no secret the excitement of going to the movies is not the same as it used to be. When you can stream a blockbuster movie in the comfort of your own home and skip the inflated concession prices, families and busy working professionals alike can be swayed to staying at home. Brokers, I’m sure you appreciate the flexibility to opt out of going to a movie theater. Pausing a movie for a client call or managing the kids at home sounds significantly more appealing.
In the CRE world, landlords with movie theater tenants know these businesses need unique spaces at fair prices when sales are low. This week’s article explains the two reasons why landlords give grace to tenants like movie theaters in their rental agreement:
- To avoid the trouble of finding suitable replacements who can also make use of the uniquely shaped space.
- To save on the high costs of renovating the space for new tenants.
My question is, how else can landlords approach this situation with tenants that have a niche business space? Should landlords give up the good fight and bend to these tenants with cheaper rent prices? There certainly can be a better strategy to how landlords should be repurposing these spaces so they can get the space’s true market value.
Let’s keep the conversation going.
Charlie Coppola
Movie Theaters Have Weird Real Estate. It’s Saving Them
By Katie King | April 8, 2024
U.S. movie theaters were hurtling toward obsolescence only a few years ago. Their unorthodox real estate might be their salvation.
Cinemas are built with sloped, concrete floors for stadium seating. They feature large, windowless rooms and are often tucked out of view behind shopping centers or attached to struggling malls.
That makes it challenging for landlords to swap out an ailing movie theater for a Cheesecake Factory or Dick’s Sporting Goods. Skyrocketing construction costs and these oddball building characteristics have prompted many property owners to cut theaters’ rent just to keep the spaces occupied.
“To try to repurpose a theater is very hard and very expensive,” said Andy Graiser, co-president at A&G Real Estate Partners, an advisory firm that has restructured movie-theater leases, including for the Cineworld chain of cinemas. “There’s not a lot of alternatives unless you want to take the theater and knock it down.”
A number of movie-theater operators, meanwhile, are investing in their cinemas to make them more exciting places to watch a film than the living-room couch, installing giant screens, playgrounds for children and cocktail lounges for adults.
Theaters are one of the few areas of retail real estate where landlords don’t have the upper hand right now. The retail sector has recovered strongly from the pandemic, with constrained supply and a resurgence of in-person shopping and dining mostly pushing rents higher.
Retail availability has fallen to record lows, and landlords haven’t needed to offer rent concessions. They largely replaced bankrupt retailers such as Bed Bath & Beyond with better-performing tenants at higher rents.
But at movie theaters, said Chris Johnson, owner of the small Midwestern theater chain Classic Cinemas, “rents have come down overall.”
Johnson owns most of his real estate but has a few leases, which are structured as percentage-of-sales agreements. He builds out his own theaters—shelling out for the heated leather recliners and large-format screens—but pays a low fixed rent and then sends his landlord a check once sales exceed a certain threshold.
“I want to protect myself if things shut down for one reason or another,” he said.
Movie theaters have confronted significant challenges in recent years, enduring long closures during the pandemic followed by Hollywood labor strikes that slowed film production. The industry is also contending with how much at-home streaming services will reduce demand for moviegoing.
There are now about 36,400 movie screens operating across the U.S., a nearly 12% decline from 2019, according to the U.K.-based research firm Omdia.
AMC Entertainment, the world’s largest theater operator, has closed 169 theaters since the end of 2019 and opened 60 new cinemas. It narrowly avoided bankruptcy during the pandemic after becoming a meme stock.
“The new ones that we’re opening are far more profitable than the ones that we’re closing,” AMC Chief Executive Adam Aron said.
Still, declining box-office revenue has squeezed movie-theater profits, and Aron said the company plans to negotiate rent reductions.
Cineworld, the world’s second-largest movie-theater chain and the owner of Regal Cinemas, emerged from bankruptcy last summer after closing about 75 of its 505 U.S. locations.
For cinemas that survived what might have been the worst of the industry’s slump, theater operators and analysts are optimistic about a turnaround in 2025. The production slowdown stemming from the writers’ and actors’ strikes is expected to ebb, giving theaters more movies to show.
But there is a lot of ground to make up. Even with the blockbusters “Barbie” and “Oppenheimer” and the popular screenings of Taylor Swift and Beyoncé concerts drawing customers, the total number of tickets sold remained one-third lower last year than in 2019, according to the website The Numbers, which tracks box-office data.
“We’re not in the days when you’d go to the mall on Saturday and you’d hang out with your friends and you’d see what’s playing at the theater,” said Bruce Nash, whose company Nash Information Services produces Numbers.
Sales at theaters reached $110 a square foot last year, an improvement but still about 20% below 2019 levels, according to Datex Property Solutions, which tracks rent payments from shopping centers and retailers nationwide.
So, theater operators have to create better experiences.
In Red Oak, Texas, the 100-year-old B&B Theatres chain recently opened its newest movie complex. One theater boasts a screen seven stories wide and four stories tall. Another screen wraps around the sides of the room, creating 270-degree viewing. A third has a playground where children can “get their wiggles out” before the movie starts, said Brock Bagby, co-president of the family-owned company.
B&B Theatres built the theater to withstand “slow movie months,” Bagby said. The complex has 16 bowling lanes, an arcade, a rock-climbing wall, outdoor pickleball and bocce courts, three full bars and an outdoor balcony that can be rented for private parties.
“It’s something you can’t get at home,” he said.
