Escape Rooms: How These Unconventional Tenants Break Free From Retail's Woes
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The doors lock shut. Stephen glances at his girlfriend, who returns his bewildered look with one of her own. They are trapped in a windowless room inside of an abandoned warehouse, and time is running out. This is not the start to the next Hollywood horror movie. It is one of the hottest retail trends.
Escape rooms debuted in Tokyo seven years ago. Since, the industry has blown up — there are now roughly 2,800 escape rooms worldwide. The explosive growth is attracting plenty of interest, but many wonder if the industry's rapid success will go AWOL.
SCRAP Entertainment opened the first escape-game event in Japan in 2007. The concept was based on online point-and-click adventure games that required players to investigate and collect clues. In 2012, SCRAP Entertainment brought the concept to the U.S., opening its first location in San Francisco.
SCRAP's revenues grew by 800% in its first year in the U.S. The company has been profitable and seen revenue growth every year since then, MarketWatch reports. Many have noticed its success.
Andrew McJannett-Smith and his wife, Traci, run Escape Expert, which opened in Dallas in February 2015. “We started with negative income to now bringing in $70K a month,” he told CNBC.
Nate Martin, co-founder and CEO of Puzzle Break, the first escape-room facility to open in the Pacific Northwest, invested $7K of his own money in 2013 to get the business off the ground. He recouped his initial investment within a month.
“Some months are record-breakingly fantastic,” he said. “Some are only very good.”
Escape rooms are the latest iteration of the experience economy: the concept that consumers now prefer to spend money on creating memories and doing something rather than passively consuming.
“People want more to do than sit at the bar and drink. People are looking to be more entertained. Games are becoming more popular," Evergreen Commercial Realty President Lilly Golden said. Golden has spent more than 20 years helping retail tenants.
"It's more than a trend at this point," Golden said.
London-based Escape Plan creator Brendan Mills told the Financial Times, “Experiential games such as escape rooms are a far cry from the time people are spending behind their iPads and laptops. It’s about interacting with people and using your brain against the clock, and I believe their popularity will only grow.”
"There is a growing consumer demand for social play experiences that are live and unique and can't be repeated," USC School of Cinematic Arts Assistant Director of the Interactive Media and Games Division Sam Roberts told the LA Times. "You can charge premium prices for it."
Millennials have been an early (and the primary) driver of the trend, but corporate accounts are proving particularly key to revenues as businesses view the teamwork and cooperation skills required as useful elements in a team-bonding experience. Google, Amazon and Facebook have all taken staff to escape rooms.
While they rake in big corporate accounts and premium prices, escape rooms often pay bottom-dollar rents in hard-to-lease spaces, making for an even better bottom line. Golden said they are not looking for the typical front-and-center retail space preferred by most. They want to be hard to find.
“They can be in C-quality space because people will search them out,” Golden said. “When it’s kind of hard to find them, it’s a game just to get there. It’s kind of neat they aren't front and center.”
While there are many escape rooms opening in prime retail locations or within already established entertainment venues like movie theaters and bowling allies, many more are opting for unique placement in abandoned warehouses or hard-to-find alleys. Golden said an escape room typically only needs 5K SF, leaving them plenty of options.
More and more landlords are taking advantage of this, soaking up vacant space with escape rooms. But how long will the industry's explosive growth last?
According to Escape Room Artist, a blog that keeps close tabs on the industry, the U.S. market remains under-penetrated. Market demographics also point to future growth. Major players like HBO, Ford, Disney and others have already used escape rooms in marketing campaigns, but the majority of the population has not heard of the concept, leaving plenty of potential to tap into, Trapped Escape Rooms claimed in a press release.
There is still plenty of room for product development, according to Escape Room Artist. Many games remain low tech, but are still making a comfortable profit. As competition increases, customers will develop specific preferences, and the overall product quality will rise. It remains to be seen on which axis: whether production quality, tech quality or some other product feature will drive users’ preferences.
Experts predict the investment and skill gap will begin to take its toll on the market. This means there will be closures as lower-end escapes rooms lose out to better competitors.
"Escape games first started out as a low-cost business, which is the appeal for entrepreneurs as they rent a rundown basement and designed a game based on an abandoned basement," Lockdown Singapore Director Jonathan Ye told CNBC via email. "The new generation game rooms require more technology as players demand higher quality and innovative games."
The industry may hit saturation within the next five years, business incubator Updraft Ventures founder Giuseppe Crosti predicts, but every region will have its own saturation point. It is too early to tell what that point is because no market is there yet.
Like most retail trends, the future of escape rooms is hard to predict. But if you follow the clues, you just might figure it out.
Hear more about escape rooms and other entertainment concepts at Bisnow's Big Retail South Event on Sept. 19.