What Can the Highest Grossing Movies of All Time Tell Us About the Philadelphia Real Estate Market?

Can you name the five highest grossing films of all time?

Looking at domestic box office receipts, the top five are:

1   Star Wars: The Force Awakens 937 2015
2   Avatar 761 2009
3   Titanic 659 1997
4   Jurassic World 652 2015
5   Marvel’s The Avengers 623 2012

Does anything look strange to you about this list? The oldest movie on the list is Titanic which was released in 1997. Didn’t anyone make good movies before 1997? Was Marvels’ The Avengers – fifth on the above list – really a bigger hit than Gone with the Wind (1939), The Godfather (1972) or Jaws (1975)?

The list of the top five domestic grossing movies is a good illustration of a problem that has been recognized by economists for years:  The problem of Nominal vs. Real Values.

In economics, nominal values are simply a raw, unadjusted numbers. On the other hand, a real value has been adjusted to account for an extrinsic factor so you can get a true apples-to-apples comparison. The most common type of adjustment is for inflation, but economists also sometimes adjust for the size of the population base.

When Gone With the Wind premiered in Atlanta in 1939 the average ticket price was a little less than a dollar. The total U.S. population was about 131 million. In 1997, the movie Titanic opened during a time when the average ticket price was around $4.60, and the US population was about 273 million.

Here’s what the list of top movies would look like if we took the nominal values and adjusted them for inflation:

1   Gone With The Wind 1,747 199 1939
2   Star Wars 1,541 461 1977
3   The Sound of Music 1,232 159 1965
4   E.T. The Extra-Terrestrial 1,227 435 1982
5   Titanic 1,172 659 1997

Only Titanic survived adjustment for inflation.

What if we were to further adjust for population? That would give us a number which would be the average inflation-adjusted dollar spent per person for each movie. Here are the top five:

Real Value

($ Millions)

Year USA  Population ($ Millions) Per Capita Spend
Gone with the Wind $1,748 1939 130.9 $13.35
Snow White $943 1937 128.9 $7.32
Star Wars $1,541 1977 220.2 $7.00
The Ten Commandments $1,133 1956 168.9 $6.71
The Sound of Music $1,232 1965 194.3 $6.34

Gone With the Wind has gone from being absent on the first list, to being in the runaway blockbuster movie of all time on the third list with a per capita spent of almost twice that of the runner-up.

So what does this tell us about real estate in Philadelphia? For the first time in history, Philadelphia’s new crop of class A+ buildings are commanding rental rates over $40 (on a gross basis which includes first year operating costs and taxes). Is this a sign that Philadelphia is about to lose its reputation as being a real estate bargain compared with other Northeastern cities? Are Philadelphia rents out of control?

No.

Rental rates, like many numbers, that are brandished about are too often expressed as nominal values, not real values. What if we inflation-adjusted Philadelphia’s historic rents? Let’s go back 20 years to 1997 when the movie Titanic was released. When we first saw Leonardo DiCaprio and Kate Winslet standing, arms outstretched, on the bow of the Titanic the consumer price index was 160.5. In 2016 the CPI was 239.5. That means a $40 rent today, adjusted to 1997 dollars, would be only $26.21. That’s significantly less than the gross rent the top buildings in Philadelphia were getting in 1997.

So although nominal rents have been increasing, the real rent in Philadelphia has been falling even as stock of buildings in Philadelphia get newer and better. Sounds like the perfect plot for a blockbuster.

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