One Crisis Down And Another Dead Ahead: Fitness Real Estate Gets A Muscle Flexing Moment

After suffering deadly blows at the height of the pandemic, the fitness industry has made a triumphant comeback.

Now, as an economic downturn threatens its success, the industry that battled back from moribund status is acting as a crucial lifeline for retail real estate. But as owners and developers brace for a recession, many believe the sector is better set than most to withstand the impact.

Fitness and recreational sports centers absorbed more than 12M SF in 2022, a 4.2% increase over 2021, according to data from CBRE. Annual visits for retailers within the industry rose more than 29% last year and were up about 14.5% over 2019, according to Placer.ai.

Individuals are more health-conscious coming out of the pandemic, which is fueling fitness industry growth. Retail has responded by doubling down on its commitment to gyms, said Ben Terry, director of portfolio leasing at Weitzman in Dallas-Fort Worth.

“Fitness is more a part of our daily lives, and it’s getting more and more acceptable in shopping centers,” he said. “The younger generations are living a healthier lifestyle, which is the reason you see bigger demand.” 

The fitness industry endured a historic disruption in 2020. Revenues plummeted by 58%, and 17% of facilities permanently closed their doors, according to IHRSA, a global health and fitness association. Eight major companies filed for bankruptcy, and more than 1 million employees lost their jobs.

Since then, the sector has rebounded. Even beleaguered Peloton, which drastically slashed locations last year, is on the rise, reporting a “turning point” for the company in its most recent earnings report that saw its shares rise 26% in one day.

The brick-and-mortar side of the business is playing a major role in backfilling some of the vacancies left behind by big-box tenants. In Dallas-Fort Worth alone, large-format fitness leased about 600K SF worth of 15 vacant boxes in 2022, according to Weitzman. 

“When these landlords lose major tenants, it’s not just the rent roll that goes away,” said Parham Javaheri, chief development officer and executive vice president at Life Time. “They have covenants, they have minimum occupancy, they need to fill space immediately. Fitness, in some of these big open spaces, is an easy one.”

Life Time, which in 2020 was forced to suspend new club development and reported a $360M net loss in revenue, opened 10 new clubs in 2022 and is poised to open around 20 clubs over the next two years, Javaheri said. 

The company’s developments include greenfield projects covering 5-10 acres as well as property redevelopments and acquisitions of existing facilities.

“We anchor all sorts of developments that are either new [or] want to ensure there is traffic, vibrancy and sense of community,” Javaheri said. “Or, they need a shot of life, like some of these malls with empty anchors.”

One of Life Time’s newest athletic country clubs took the place of a former Belk in Atlanta’s Phipps Plaza, a redevelopment project spearheaded by Simon Property Group. The 120K SF, five-story facility has all of the run-of-the-mill health and fitness amenities but also includes nontraditional offerings, like coworking, an on-site café and a rooftop pool.

Life Time’s diverse offerings complement the live, work, play ethos touted by a growing number of developers. In the past, Life Time had to convince property owners they were a tenant worth including. Now, Javaheri said the company is viewed as a valuable piece of the overall patchwork of development.

“How shopping centers operate, compared to 10 years ago, is very different,” said Natalie Bushaw, Life Time’s president of public relations and corporate communications. “Getting Life Time in there helps transform what these developments used to be to what they can be today.”

Landlord sentiment toward gyms and health clubs has evolved over the past several years, said Chris Morris, vice president of Dallas-based Edge Realty Capital Markets. Whereas in the past, owners viewed fitness tenants as a drain on parking, today, their biggest priority is keeping space occupied and drumming up foot traffic.

“Landlords want to fill vacancies, and they’re starting to become more realistic,” he said. “They know that if there is a gym looking at a space, if they don’t have four or five other tenants knocking on their door for that same space, they have to consider it. Gone are the days of being super picky.”

Gyms tend to catalyze activity at nearby businesses, especially in centers that have struggled to regain foot traffic since the start of the pandemic, said Kelley Gray, founder and CEO of Dallas-based boutique gym and consulting firm Trophy Fitness. 

The data backs Gray's theory — according to Creditntell, a retailer in a shopping center with a gym receives 2.5% more visits a month on average than the same retailer’s location in locations without a gym. 

“The No. 1 reason to have a fitness center in your development is we are going to bring people to the development every single day, and those people tend to spend money elsewhere,” Gray said.

The industry has also served as a boon for malls, both struggling and thriving. 

Northshore Mall in Peabody, Massachusetts, saw 17.2% more foot traffic in July 2021 compared to three years prior after a Life Time opened in a former Sears, according to data from Placer.ai. 

Gyms may lose some of their competitive edge as the nation’s retail pipeline continues to shrink. Development activity decreased nationwide in 2022, with annual deliveries sitting at 46.2M SF, the lowest annual total on record, according to Matthews.

A dearth of new space coming online, paired with the high cost of building out existing space, means move-in options will be in high demand moving forward, Terry said. 

“Gyms who want to expand, who have capital or growth patterns, will have to focus on second-generation space,” he said. “It’s going to be important for landlord-developers to be sure they pick the right tenant.”

Economic headwinds have thus far done little to deter the fitness industry’s success. Weekly foot traffic in the fourth quarter of 2022 was up substantially compared to the same periods in 2021 and 2019, according to Placer.ai, indicating that Americans’ commitment to health and wellness coming out of the pandemic remains strong. 

But tightening budgets may be factoring into which type of gyms individuals choose to visit. Value-priced gyms saw the largest visit growth in Q4, per Placer.ai’s data, with foot traffic at Crunch Fitness and Planet Fitness rising significantly compared to both 2021 and 2019. Those gyms offer monthly memberships ranging from $9.99-$34.99 per month. 

Life Time’s memberships, by contrast, start at around $79 per month, but include a suite of services and amenities that surpass traditional offerings. For this reason, Javaheri said he believes customers will be reluctant to slash the expense. 

“I think gyms are discretionary spends, but [cutting] Life Time, to most of our members, is not an option,” he said.