Local property professionals are looking for a proposed increase in California subsidies for Los Angeles film and television productions, planned to be among the highest offered by any U.S. state, to help revive real estate demand in the world's entertainment capital.
The proposal announced this week to expand California’s Film & Television Tax Credit Program from $350 million to $750 million annually is aimed at providing a shot in the arm for an industry that's been struggling for years to compete with other shooting locations around the country, especially after the pandemic and last year's Hollywood writers and actors strikes.
The industry contributes $115 billion annually to the local economy, and "everyone is feeling the slowdown," said Chris Bonbright, a principal and managing director at Avison Young who represents entities tied to the entertainment industry in Los Angeles.
Office vacancies are up, deals are down, and the industry’s fastest growing players are expanding in other markets, Bonbright notes.
Other states and countries — such as Georgia, New York and Canada — have all adopted tax credit programs in recent years to lure productions away from Los Angeles. Hundreds of thousands of square feet of sound stage space is expected to come online over the next three years in such regions, including cities in Europe and Australia, according to a report from the California Film Commission.
While there's no guarantee Los Angeles' increased funds will drive real estate deal making in the region, the California plan announced by Gov. Gavin Newsom, a Democrat, represents the most subsidies to be offered by almost every state, except Georgia, and could lure some of that lost production back to the city and help drive new construction and deals.
Real estate pullback
The increased funds are set to be included in Newsom’s January budget and, if approved, would take effect by July 2025.
The proposal would funnel some $3.75 billion in tax credits to the film and television industry over five years.
“The industry here is increasingly on life support,” Newsom said during a press conference at Raleigh Studios in Hollywood. “It needs a pattern interrupt. We need to jolt. There was an expectation that things would turn around after the labor unrest was settled and that hasn’t happened.”
Between 2020 and 2024, California film and television production spending dwindled due to limited tax credit funding and increased competition in other states and countries, Newsom said. In recent years, 71% of the films and television programs that could not secure California tax credits took their projects and the associated spending outside of the state.
The number of days productions spent shooting in L.A. totaled 7,589 in the third quarter of 2021, According to Film LA, a non-profit organization that manages the film permit process for the City and County of Los Angeles and other local municipalities. By the third quarter of this year, L.A. shooting days were down almost 60% to 3,107.
The pullback, coupled with remote work trends, has contributed to a weak Los Angeles office market. The area's vacancy rate of 16.3% is ahead of the 15.4% vacancy rate a year ago, according to CoStar data, and is ahead of the 13.9% national average. Tenants gave back 5.2 million more square feet of Los Angeles office space than they leased in the past year.
'Back to work'
The planned 675,611-square-foot East End Studios Arts District LA Campus is among projects that could benefit from the expanded credit. The 15-acre campus in Downtown Los Angeles’ Arts District will include 16 soundstages totaling 299,012 square feet; 307,407 square feet of office; and 69,192 square feet of studio support spaces. The project recently finished its final environmental review, with anticipated approvals from the city early in 2025.
“This critically needed investment is a huge step toward getting everyone in the entertainment industry back to work,” Shep Wainwright, managing partner of East End Studios, told CoStar News via email. “The entertainment industry is vital to Los Angeles’ economic health and its identity. While other major cities are adding to their inventory of production space, Los Angeles must do the same.”
California’s Film & Television Tax Credit Program has generated more than $26 billion in economic activity and supported more than 197,000 cast and crew jobs across the state since 2009, Newsom said. A study by the Los Angeles Economic Development Corp. found that, for every tax credit dollar approved, the program generated at least $24.40 in output, $16.14 in GDP, $8.60 in wages, and $1.07 in initial state and local tax revenue from production in the state.
One limitation of the new subsidies proposed by Newsom is that, like the existing subsidies, they only apply to below-the-line expenses, meaning they can’t be used to pay for actor’s salaries like in other states.
“It’s not about subsidizing superstars," Mayor Karen Bass said at the press conference. “It’s about working folks and building a sense of community. It’s about Main Street. Small businesses benefit from this kind of investment.”
The governor is considering additional restrictions to the program as well as other incentives, such as the newly formed Entertainment Industry Council, created to advise officials on how to bring more show business back to Los Angeles.
"We're creating new studio and sound stage concierge services, which cuts red tape and provides direct assistance with city departments,” Bass said at the press conference. The council is helping push forward an existing pipeline of 7 new studios and sound stages including 8.1 million square feet of sound stage media production and associated creative office space, she added.