Fitness Tenants Show Signs Of Life As People Trickle Back To The Gym
Fitness concepts and gyms are beginning to see their clientele return as the vaccine rollout in the U.S. gathers steam, and that is starting to translate into real estate interest, according to retail landlords, brokers and tenants.
It's a healthy sign for the sector, which has been forced to navigate a series of major challenges, including lockdowns, revenue depletion, membership cancellations, loan applications, rent deferrals, difficulty making payments and ongoing capacity limitations.
The growing intensity of the health crisis, coupled with lockdowns, had a powerful effect on fitness concepts and gym memberships around the country. People chose to freeze or cancel their memberships, opting to work out at home instead. Multiple consumer surveys have since found that in some cases, home workout routines are now preferred.
Smaller fitness concepts have been even more challenged, with many mom-and-pop operators unable to handle the sudden and extreme loss of revenue. The ones that did survive were likely well-financed and had a cash cushion to rely on, Weingarten Realty Investors Area Vice President, Leasing Andrew Bell said.
“I think the people that had good business models, that were well-heeled [and] that had cash on hand survived well and are able to be opportunistic coming out of it,” Bell said.
Weingarten's national retail footprint is about 30.2M SF, and 585K SF of that is occupied by fitness users.
Bell noted that in Weingarten’s 3.4M SF retail portfolio in its hometown of Houston, very few smaller fitness operators have been forced to shutter, but many have still been grappling with financial woes and difficulties around occupancy and providing room for social distancing.
“They still struggle, because their members still are requiring more space than they're able to give them,” Bell said.
There are plenty of backfill opportunities for larger gyms in former big-box locations in the Houston area, according to Bell. Just last week, a Crunch Fitness franchisee made waves when it announced plans to open eight new locations in Fort Bend and Brazoria counties. The first location, a 30.2K SF location in Sugar Land, will open in a former Michael’s.
Evergreen Commercial Realty President Lilly Golden said that leasing activity for fitness and gym tenants started to show some movement during the fourth quarter of 2020. That carried into the first quarter of 2021 and accelerated in late February, when requests for tours began to come in, including from out-of-state operators.
“The fourth quarter of 2020 to the first quarter of 2021, we've really seen a huge pickup,” Golden said.
Golden’s firm oversees a Houston-area retail portfolio that includes LaCenterra at Cinco Ranch in Katy, Post Oak Shopping Center in Uptown, CityCentre at I-10 and Beltway 8 and the future Texas A&M Innovation Plaza in the Texas Medical Center.
The vaccine rollout is responsible for much of the renewed interest in touring, as companies are finally giving their real estate representatives permission to travel, according to Golden.
“I can say the end of February, beginning of March, is when we finally had tours. And it was because people were vaccinated,” Golden said.
However, the uptick in inquiries and requests for tours has not necessarily resulted in more deal flow yet, as many gym tenants are still recouping their losses and working to entice new or former members. For the smaller fitness concepts, the challenge around maximum indoor capacity is also keeping revenue low, limiting options for those owners.
“I would say that people are really kicking tires more than actually doing deals,” Golden said.
The difficulties faced by corporate-owned gyms and franchisee owners have been amplified for mom-and-pop owners with single-location concepts.
When lockdowns came into effect in mid-March, O Athletik in the Houston Heights was forced to close for 10 weeks. The 35K SF specialty gym is co-owned by NFL players Adrian Peterson and Trent Williams, as well as trainer James Cooper and investor Eduardo Buelna.
Buelna told Bisnow that the landlord of the property would not offer rent relief or deferral of rent payments, forcing Buelna to dip into his own savings to cover expenses until his application for a Paycheck Protection Program loan was approved.
Looking for a way to create opportunity out of the 10-week closure, Buelna organized some renovations for O Athletik, thinking that things would return to normal when they reopened.
O Athletik’s owners had opted to not charge members for April or May, as they couldn’t open or provide services. When the gym did open on May 22, the number of positive U.S. cases and deaths showed no signs of slowing down. By August, memberships began to rapidly decline.
“We had about 50% of the membership base do something,” Buelna said. “Basically, we had 40% of the membership base cancel, and the [other] 10%, they froze.”
It was the younger clientele at O Athletik that sustained the business through the fall and winter months, with many continuing to physically come in to train. But things began to rapidly turn around in March, when a wave of people that had canceled or frozen their accounts decided that they wanted to reactivate.
Buelna credited the vaccine rollout as a major factor in that return, particularly for the gym’s older clients.
“I have a list of individuals that said, ‘when I get the vaccine, I'm coming back,’ and that has been the case,” Buelna said.
Eduardo said that O Athletik isn’t looking to add locations, because the current location is so well-situated. However, he wants to expand the offerings within the gym, largely related to recovery therapy, including cryotherapy.
Inner Me Studios owner Nicole Phillips said that when she closed her 10K SF fitness studio in Houston’s Third Ward in March, she thought it would only be for two weeks.
The initial lockdown period spurred Phillips to embrace online classes, an initiative she had already considered, but which had previously been a low priority.
“In a matter of like 48 hours, we figured out how we were going to do the online classes. Which we'd always want to do, online classes, [but] it just wasn't at the top of our priority list,” Phillips said.
Inner Me Studios reopened in May at 25% capacity and has since expanded to 50% occupancy. The initial membership base of about 250 fell last year, but it has now rebounded to around 350 members, according to Phillips.
Phillips said she is fortunate to have such a large building to work with, as it allows her to continue hosting classes that can accommodate around 25 people.
“If I was still in a 2K SF studio, I think we would have had a huge problem. But because I'm in 10K SF and I have five different rooms, I don't have such a huge problem,” Phillips said.
The coronavirus pandemic did not present Phillips with the financial gut punch that some other businesses have experienced. After leasing and operating two prior locations, she purchased the building in 2019 and financed it with a Small Business Administration 7A loan.
Not only did the U.S. government pay her loan for six months last year, but the latest iteration is also paying that loan for another six months. That relief has made up for the loss of revenue from parties, which usually account for about 50% of sales.
“The financial part of the pandemic, we weren't hit with that, between the government paying our mortgage [and] the grants that we received,” Phillips said. “I don't have any financial quarrels with the pandemic.”
Like Buelna, Phillips is optimistic about the future, and she is willing to expand her business to other locations — though, after 11 years of putting in the work by herself, she would rather do it with a partner.
For the most part, fitness concepts and gym operators in the Houston area appear to be in a holding pattern, slowly recuperating their losses as more people return to indoor exercising.
Bell said that while landlords are usually not involved in layout or design changes that fitness tenants make, he doesn’t expect the larger operators to physically change much. The bigger changes are likely to appear in lease contracts, as tenants seek more protections against future health-related disruptions.
“Every lease that was ever done has something in it from some craziness that happened 20 years ago, that everybody wants to be covered for. So you can expect that now with this craziness, that people will want to mention it,” Bell said.
Golden said that home equipment manufacturers like Peloton are unlikely to go out of business anytime soon, but that for most people, the desire to leave their homes will help bring people back to fitness concepts.
“People are focused on their health and wellness, they're going to both be staying at home and coming out to work out among others. Neither one of them is going to stop, and it's going to be a priority for people,” Golden said.