Appraisers should consider certain factors when developing an opinion of value for a movie theater, such as market area analysis and population demographics, as well as project development factors that can help valuation professionals determine the highest and best use of theater venues.
Define and analyze the market area. According to an article published in the Spring 2013 issue of The Appraisal Journal, the function of a market analysis when appraising a movie theater is to determine whether there is unsatisfied demand. Arthur E. Gimmy, MAI, and William Condon, write in “The Business of Show Business Act II: Appraising the Movie Theater” that to do this, an appraiser must first define the market area. For example, major urban market areas may be defined by neighborhoods, such as Greenwich Village in New York City or Gold Coast in Chicago.
Other factors for appraisers to consider include driving time to the theater, parking and access to public transportation. According to Gimmy and Condon, driving time gets more emphasis in suburban market areas, as parking at the venue is free or relatively inexpensive and public transportation is often limited.
Examine demographics. Demographics are also important for appraisers to examine when developing an opinion of value for a movie theater, since certain groups within the population are more likely to attend cinemas than others. According to the Motion Picture Association of America’s Theatrical Market Statistics report, people within the age group 12–24 represented 35 percent of frequent moviegoers in 2011 and purchased 30 percent of all tickets sold. Those within the age group 25–39 purchased 24 percent. Thus, movie theaters are more likely to be financially successful if they are located in areas with a younger demographic.
Consider project development factors to determine highest and best use. Data on project development factors such as floor area ratio can assist appraisers when determining the highest and best use analysis of theaters, according to Gimmy and Condon. For example, data on FAR is useful to the appraiser when determining if there is adequate land area that may be required for a proposed development of a movie theater. Floor area ratio analysis can also assist the appraiser in identifying where there may be inadequate parking and also in adjusting comparable sales from one site to another.
Appraisers, what other factors are important to consider when developing an opinion of value for a movie theater? Share your experiences!