Amenity-rich Movie Theaters as Anchor Tenants

As cinemas become popular anchors for retail and mixed-use developments, they are generating more foot traffic and creating synergies with other tenants.

WITH THE DEMISE of department stores as anchors, owners of shopping centers and mixed-use developments are looking to entertainment-related tenants to fill the gap. Movie theaters have become an important component in the entertainment mix.

Nick A. Egelanian, president of Siteworks Retail Real Estate Services in Annapolis, Maryland, advises shopping center owners on how to survive the post-department store era. He says, “Theaters help a shopping center to compete for customers’ discretionary dollars and time.”

Entertainment components make a center more of a destination and provide “another reason to go to the center and a reason to stay longer,” says Margaux Keusch, director of lifestyle and urban leasing at Woodbury Lakes in suburban Minneapolis. Owned by Ramco-Gershenson Properties Trust, the 300,000-square-foot Woodbury Lakes shopping center combines big box and lifestyle tenants in a town center configuration. In repositioning the center, management decided that it needed to add entertainment and restaurant components to generate more traffic.

Alamo Drafthouse Cinema, a state-of-the-art theater chain, was chosen as a good fit to anchor the center. According to Keusch, when it opens in mid-2018, the theater “will feature a full-service restaurant and bar, and will host a variety of movie-themed special events that will draw traffic” to the center.

Katie Bucklew, vice president of development at Edens, a national retail real estate owner, developer and operator, explains the company’s perspective. “When we look at a development project or any center that we own, we are asking, what are the drivers? What is getting people into the shopping center? What Edens really looks for in any of its centers is how we can be a hub of the community. How do we create a place that looks and feels great, that has the right merchandizing and really serves the community?”

Movie Theater Trends

Customer experience is the key, and theaters are rising to the challenge. No longer will stale popcorn and sticky floors suffice; today’s theaters provide the kinds of environments and amenities that discerning consumers demand: reserved seats, stadium or reclining seating, high-tech audiovisual systems, and expanded food and beverage menus, including alcohol.

Egelanian says today’s cinemas comprise a wide range of concepts, including “elaborate luxury venues with a broad range of food and beverage offerings. Essentially they are restaurants that show films.”

The Angelika Film Center, a boutique movie theater, helped draw both retail and office tenants to the Mosaic District in the Washington, D.C. suburbs, and serves as an anchor for the 32-acre mixed-use development.

The Angelika Film Center, a boutique movie theater, serves as an anchor in the Mosaic District, Edens’ 32-acre mixed-use development in the Washington, D.C., suburbs, which opened in 2012. (See “The Mosaic District,” Development, fall 2013.) Bucklew explains that Edens had the opportunity to place a traditional multiplex cinema at Mosaic but preferred Angelika’s art-house concept.

“We really wanted to differentiate this project, understanding the surrounding community, which was very highly educated. Time was constrained in their lives and they wanted a unique experience. We wanted to bring in a theater that spoke differently to those consumers.” Angelika fit the bill perfectly; four of its eight theaters are dedicated to independent films and it features gourmet food, coffee, wine and craft beer. Angelika’s presence as an anchor at Mosaic has “affected the type of merchandising for the rest of the center and who it attracted,” according to Bucklew.

At Vancouver Mall in Vancouver, Washington, Cinetopia took over an 82,200-square-foot space that had been a department store in 2011. According to JB Schutte, the mall’s general manager, “Today’s shopping centers are all about lifestyle. Entertainment and dining are a big part of that. These kinds of tenants bring people back to the mall more frequently.”

Schutte adds, “The theater at Vancouver Mall is a huge draw. Cinetopia is very upscale, with food and alcohol, and screens as large as 80 feet across. With 23 screens, some are “parlors,” like very fancy living rooms. These can be rented for parties, and also show first-run movies.”

Synergies Among Tenants

Egelanian notes, “Theaters are a reliable source of traffic in all but the most high-end malls. Further, theaters and restaurants are important to each other. Even though theaters often have their own internal food and beverage offerings, they spawn a great deal of interest in other dining venues in a shopping center.”

David Millard, a principal at Avison Young who was responsible for office leasing at Mosaic, credits Angelika and the vibrant retail scene at Mosaic with helping to attract tenants. “The activity the theater generates is typically at night and on the weekends, which you wouldn’t normally think would affect office leasing,” he explains. “But the retail that wants to be around the movie theater absolutely helps the office leasing.” In addition, since office and movie theaters operate at different hours, they are able to share the same parking spaces.

Leasing to Theaters

Compared to most retail leases, movie theater leases tend to be longer, require more expensive buildouts and generate less revenue per square foot. Egelanian says theater leases are typically for 10 to 15 years. Schutte says Cinetopia signed a 15-year lease with two 10-year extensions. The buildout cost was split about 50/50 between the landlord and tenant. Hours of operation are not specified in the lease, because the theater is open longer hours than the mall. Shows begin as early as 9 a.m. and end around midnight on weeknights and as late as 2 a.m. on weekends. These extended hours have not caused any problems for the mall management, according to Schutte.

Keusch notes that some of the potential negatives of theater tenants are not expected to be a problem at Woodbury Lakes. The movie theater is located at the far end of the center, with plenty of parking, so theater attendees – who typically stay for several hours – will not be parking in front of retailers. Keusch also cautions landlords to pay attention to “exclusive” lease clauses that might give a theater the right, for example, to be the only tenant allowed to sell candy or popcorn, which could eliminate an entire class of potential tenants.

That’s a Wrap

Despite lower revenue per square foot and potential additional effort and expense, movie theaters are a major draw that contributes significantly to the retail environment and experiences that landlords of shopping centers and mixed-use developments want to provide. As Bucklew observes, “What we have found is people want experiences. … That is why food and theaters have become really important to shopping centers. They provide that experiential element.”

Amanda Tran and Adrienne Schmitz are freelance real estate writers.