Commercial landlords are increasingly seeking out fitness clubs as part of their tenant mix, according to the International Council of Shopping Centers (ICSC).

The ICSC took a close look at fitness clubs and their growing impact on retail centers in its report “The Dawn of the Age of Omni-Fitness.”

Exterior of a Retro Fitness location. The gyms are typically 15,000 to 17,000 square feet.

According to the ICSC, retail shopping center operators have been attracted by:

  • The industry’s strong growth ($33.4 billion in 2018, according to the International Health, Racquet and Sportsclub Association).
  • The ability of larger gyms to generate foot traffic.
  • The opportunity to lease 15,000-square-foot and larger spaces to a single tenant.

Fitness clubs are also prized for their ability to deliver unique customer experiences that cannot easily be replicated online, The Wall Street Journal recently reported. The influx of health-and-wellness-driven consumers also attracts nearby tenants that provide healthy foods and athleisure wear.

With online competition forcing the closure of many traditional retailers, the ICSC report notes that “fitness centers, when carefully leased, can function in much the same way that former anchors once did — i.e., as locations that draw a consistently high volume of people.”

It’s nice to be sought after

Trey Jasenski has a lot of experience opening new retail locations. He owns 23 Subway locations, as well as several locations of Auntie Anne’s Pretzels and 16 Handles frozen yogurt shops. He has also worked alongside his father, Larry Jasenski, an area developer who has overseen the growth and development of hundreds of Subway franchises.

Trey Jasenski opened his first Retro Fitness gym in 2016 in order to diversify his business holdings and tap into the industry’s growth, and the profit potential and steady cash flow of a membership-driven business model.

An additional benefit: He says he’s been in a much stronger position when negotiating for prime locations. He opened his second Retro Fitness last year.

“When good space comes available, it’s a lot harder for people to compete against you for it,” he says.

“With 1,500- to 2,000-square-foot spaces, almost anybody can move in there. There is a ton of competition from fast-casual restaurants, nail salons, everybody,” Jasenski says. “20,000 square feet is a lot harder to lease out unless you’re willing to subdivide it, but then you have to deal with tenant turnover and collecting rent from 10 different people. So if you can fill that space with a single tenant — especially one with a strong track record and the ability to bring extra people consistently to your shopping center, that’s very attractive.”

New challenges on the horizon

A woman lifts weights on a bench press.

Of course, there are plenty of fitness concepts that are eager to occupy those 1,500-square-foot spaces, and they’ve been transforming the look of American retail.

“A visit to an upscale suburban mall or a city shopping district used to be marked by stops at Gap, Sharper Image and Barnes & Noble, ending in a pile of shopping bags,” New York Times reporter Katherine Rosman wrote in June. “Now it’s about taking a $36 Pilates class, maybe followed by a $36 indoor cycling session if you’re really committed, then hitting the organic market to slam a $10 coconut water before making a quick stop for $40 cryotherapy.”

The businesses often form health-and-wellness lifestyle clusters to attract enthusiasts eager to look and feel their best. The fitness industry’s success has been driven by social and demographic changes. America’s obesity epidemic has driven a greater commitment toward health and wellness — especially among people under the age of 40. According to the Physical Activity Council, nearly 64% of millennials and 71% of Gen Zers are regularly involved in high calorie-burning activities. That compares to 41.6% of baby boomers.

The industry’s growth has been driven largely by two categories of business: high value-low price (HVLP) gyms like Planet Fitness and Retro Fitness, and smaller boutique exercise clubs like Orangetheory, Pure Barre, Club Pilates, and 9Round.

HVLP clubs typically require 15,000 to 20,000 square feet and function as 24-hour gyms, with access to a lot of workout equipment as well as amenities.

Boutique clubs typically focus on one particular type of exercise — such as cycling, yoga, or high-intensity interval training (HIIT). Customers work out in a classroom environment and pay for individual classes or the right to attend a certain number of classes per month. When class is over, they clear out to make room for the next wave of customers.

Boutique customers currently outspend gym members — $66 a month vs $35 a month, according to a 2018 report by Piper Jaffray. But the same report says “53% of boutique members note they would leave their boutique if a similar class were offered at a gym for a lower price.”

Kristen Geil, editor-in-chief of millennial-focused health and wellness media company ASweatLife, recently told CNBC she thinks boutiques will be hit hardest when the next recession arrives because of the price premium they charge.

“Consumers are going to be dropping (higher priced boutiques) from their budget. It’s the easiest thing to cut, but gyms will try to up their experience to make people stay with the trainers they know and love,” she added.

Retro Fitness CEO Andrew Alfano said the company has upped its game to compete for boutique customers.

“Smart gyms owners will offer group fitness classes as part of their membership models,” says Alfano. “There’s no reason a person should need to go to three different clubs just because they want to go to spin, or yoga, or HIIT with their friends.”

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