With people still spending on entertainment, leisure retail could be lucrative subsector

'Eatertainment' is still king, but new and trendy concepts are gaining steam

Entertainment-based retail spending among consumers is on the upswing, opening up the niche for potential investment growth as new and trendy options pop up to meet demand, according to a new report from JLL.

In the U.S., spending on dining out grew by 13.7% year over year during the fourth quarter of 2022 while spending at amusement parks and arcades rose by 20.6%. And total entertainment spending by Americans is predicted to grow by 10.2% in 2023, according to an IBISWorld forecast.

Such figures suggest that, despite inflation, people remain enthusiastic about seeking leisure time outside their homes and are willing to spend money to do so. As JLL’s report says, “after a socially isolating pandemic, it’s no wonder that people want to get out and have a good time.”

New entertainment spaces are opening in many locations as a result, with JLL identifying 9.1 million square feet set to open in the U.S. and Canada within the next two years. The current retail entertainment market is led by “eatertainment” concepts, which combine food, drink and multiple games in the same indoor space (think venues such as Dave & Buster’s). Such establishments currently account for 35.3 million square feet of existing entertainment space in the U.S. and Canada. Eatertainment concepts are also set to take up the most square footage in the pipeline, comprising 33.9% of all planned openings, per JLL’s data.

But other trendy experiences are gaining ground too. “Competitive socializing,” which combines leisure dining with a type of competition activity for an over-21 audience (such as mini golf, board games, pickleball or ping pong), makes up some 14.3 million existing square feet of retail entertainment space, or about 17.1% of what’s currently out there. But the format accounts for 32.4% of the square footage of planned openings, trailing only eatertainment. The subsector is burgeoning, with Cushman & Wakefield reporting that competitive socializing concepts have grown by 386% since the beginning of 2021.

Part of the reason that the two categories make up most of the pipeline is simple space demand: Eatertainment and competitive socializing venues generally have larger footprints, at an average of 31,855 and 25,072 square feet, respectively.

One format with a smaller footprint that is gaining steam is virtual reality. VR establishments, which average a minuscule 4,772 square feet in comparison, make up 0.6% of existing retail entertainment space. But these high-tech, immersive experiences account for 5% of the square footage of planned entertainment openings, fourth among retail entertainment tenant types. That’s an impressive share, considering the comparatively massive footprints of the three establishment types ahead of it. Trampoline parks and other kid-friendly zones, which rank third in planned square footage, average 26,484 square feet per venue.

To be sure, hurdles remain for growth of the overall retail entertainment subsector. For one thing, tenants in most entertainment categories will require expensive build-outs, especially for activities like mini golf. If the concept comes with a dining component, the added costs of kitchen installation have to be factored in. For an expensive concept, JLL estimated that tenant improvement allowances could be as much as $400 per square foot, leaving many property owners without the necessary capital to make the kind of investment such establishments need.

Other owners simply don’t want to take on the additional risk involved. And other challenges, including space availability and ongoing economic uncertainty, also persist. The high interest rate environment continues to limit opportunities to borrow profitably when funding new entertainment spaces.

But at the very least, it appears the demand is there and has momentum behind it, even with a downturn possibly looming. People just want to have fun again, giving shrewd investors and lenders a potentially lucrative niche to explore.


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