Here's what may be popping up more often in retail property: Art installations and "selfie museums" that serve as backdrops for social media posts. Arcade bars, where patrons can drink while playing vintage arcade games. Sites for what's known as competitive socializing, where guests enjoy a single activity while dining. And more virtual-reality venues.

They're expected to fill 9.1 million square feet of commercial space in the United States and Canada within the next two years, according to a report JLL issued Monday.

"We identified 503 entertainment concepts with multiple planned or existing locations," the real estate firm said in the report. "Some are regional chains with modest ambitions, but many have national and international expansion plans."

Americans freed from lockdowns early in the pandemic have been eager to get out and pay for fun experiences rather than material goods, JLL said. That's driving the growth of entertainment — with a variety of new concepts in the mix — as a use for retail sites, according JLL's 35-page paper, "Entertainment Concepts Expand To Meet Growing Appetite."

Consumer spending is rising for dining out in the United States, increasing nearly 14% year over year in the fourth quarter, JLL said in its report, while spending at amusement parks and arcades increased nearly 21% year over year. Companies are ramping up opening entertainment concepts to meet that demand, according to JLL.

Dave & Buster's Entertainment, an experience-based restaurant chain with games and arcades created in the early 1980s, recently completed an acquisition of its one-time rival, Main Event Entertainment, and is looking to expand beyond its more than 200 locations in the United States, Canada and Puerto Rico.

But JLL warned that economic challenges may hinder the planned expansion of some of those would-be retail tenants. One obstacle is that many entertainment concepts are expensive to build, JLL said, and the biggest hurdle in lease negotiations between landlords and tenants is how much money the landlord will contribute in upfront construction dollars.

"Rising interest rates have limited the opportunities to profitably borrow when funding new construction," according to JLL. "Tenant improvement allowances for an expensive concept could be up to $400 per square foot."

Some eatertainment concepts have struggled including Punch Bowl Social, the family-friendly chain with bowling lanes that debuted about a decade ago. The company filed for Chapter 11 bankruptcy protection in December 2020 and was later purchased by Crowd Out Capital, a former lender. It currently operates 15 locations in the United States.

The roster of growing entertainment offerings that JLL listed includes:

• Art installations and selfie museums, ticketed installations meant for patrons to take photos of themselves and post on Instagram and other social media, such as Museum of Ice Cream and Meow Wolf.
• Arcade bars, with video games offered in a comfortable setting, such as 6-Bit Bar + Arcade and Ground Kontrol.
• Competitive socializing, with a game or activity offered with food-and-beverage options, like Puttshack and Flight Club.
• Eatertainment, where a variety of games and activities under presented all under one roof, along with food and drinks, like Dave & Busters, The Rec Room and Velocity Esports.
• Escape rooms, where players solve a series of puzzles within a given time, like Escape the Room and The Escape Game.
• Esports, places for gamers to gather and watch or play games like League of Legends, Overwatch and World of Warcraft, including Contender Esports and Belong Gaming Arena.
• Trampoline parks and kid zones, play areas for kids and families with attractions that can include trampolines, foam pits and zip lines, like Sky Zone and Kids Empire.
• Virtual Reality, a space that provides headsets and gaming stations to people who want to experience computer-generated worlds, like Sandbox VR and Zero Latenc.
  

Most of these entertainment venues fall into two size ranges, according to JLL. Those with larger footprints, with average sizes ranging from roughly 25,000 to 32,000 square feet, include: eatertainment; art installations and selfie museums; trampoline parks and kid zones; and competitive socializing. Those that typically have smaller footprints, roughly 4,500 to 8,500 square feet, include: esports, arcade bars, escape rooms and virtual reality.

Both landlords and entertainment tenants have lists of demands of what they need to execute a lease for a space, according to JLL.

Landlords are looking for tenants that have existing locations of the same concept with proven strong average unit volumes; an executive team with a history of success; a strong business plan, marketing plan and pitch deck; a good fit with existing tenants; consistent activity at the venue; and exclusivity, with no other location of the tenant nearby or too many other similar concepts in the area.

"More than one landlord said that as compelling as a concept might be, that’s not enough," JLL said. "Tenants also need good credit or cash in the bank. And if the concept has a strong parent entity, the landlord would like that group to sign the lease."

In the case of entertainment tenants, they want to be near their target user and demographic, according to JLL, so different concepts need different kinds of locations.

"Many concepts rely on corporate events for significant revenue," JLL said. "They’ll want to be in office corridors."

Other entertainment venues seek to lease in areas that tourists attract, while tenants that depend on repeat customers want sites with nearby residential populations, according to JLL.

"Families with young children are needed for trampoline parks and kid zones where they will host many a birthday party," JLL said.

The sticking point in lease negotiations is the high tenant improvement allowances required for construction of some of the entertainment venues, according to the brokerage.

"Some tenants seek landlords to act as capital partners with them, wherein the landlord pays for the build-out and in exchange receives some equity in the business," JLL said. "But many owners don’t have the needed capital to make this kind of investment and others see it as taking on too much additional risk."

Landlords have to charge high rents to offset tenant improvement allowances, and higher interest rates are driving up loans for construction costs, according to JLL.

"Because of higher upfront construction costs which will be amortized over the lease term, the rents that some entertainment tenants pay will be higher than other retail tenants in the same market," JLL said. "The length of entertainment leases is often 10 to 15 years, with options to extend. Many leases include a fixed base rent, and an additional percentage rent that the tenant will pay if it successfully meets an agreed upon sales threshold."

Of the 9.1 million square feet, JLL said, eatertainment and competitive socializing represents 2.9 million square feet each; trampoline parks and kid zones cover 1.9 million square feet; virtual reality is more than 400,000 square feet; art installations and selfie museums are 240,000 square feet; and arcade bars, escape rooms and esports make up 369,500 square feet.