Is Boutique Fitness A Sustainable Solution To NYC's Retail Woes?

When RKF Vice President Peter Whitenack took over the marketing for an approximately 37K SF space at Brookfield Properties' One Liberty Plaza in Lower Manhattan, the private equity giant told him to find a boutique fitness tenant to take space on the second floor.

In the past, Whitenack would be looking for traditional retailers to take the space when Brooks Brothers’ lease ran out. But Brookfield is chasing a boutique fitness concept — a smaller, specialty operation that has a niche offering — in order to bring the space alive.

“It’s a new phenomenon,” Whitenack said. “In the past, owners would want a bank and a cellphone tenant … now it’s all about placemaking.”

New York City landlords are under pressure to get creative to fill space, as e-commerce continues to squeeze and tenants balk at high rents. In 2017, asking rents in most retail submarkets in Manhattan, including the most expensive parts of Fifth Avenue, Times Square and Herald Square, dropped.

Across the country, malls plagued by vacancy are now putting gyms in as anchor tenants, in an effort to draw people in that would normally have no other reason to visit them. But while shoppers are flocking online, health and fitness is experiencing something of a boom. More than 57 million people belonged to a health club in 2016, a 26% jump since 2009, the Wall Street Journal reported, citing International Health, Racquet & Sportsclub Association data.

In New York, landlords are being pushed toward experiential retail and some have relied on pop-up stores as tenants. Boutique fitness concepts — places like Barry’s Bootcamp, Rumble Boxing, Flywheel, barre classes and yoga studios — are now seen as a valuable way to fill space.

“We don’t really know where retail is going,” said Whitenack, adding he is in the final stages of finding a large-scale fitness tenant for Macklowe Properties’ One Wall Street, though he declined to provide details. “People will travel to boutique fitness, they will follow around their favorite instructors around the city.”

While fitness uses have long been a staple of suburban strip malls alongside pet shops and nail salons, they are a relative newcomer to high-priced urban retail. 

Colliers International Vice Chairman Brad Mendelson said gyms are not a surefire solution to attract foot traffic. Attracting tourists is the best way to keep a retail space healthy in New York City, he said.

“There’s only so much [a] gym can pay, so, in a lot of areas, they are priced out,” he said, adding condominium prices and rents can have a major impact on a gym’s survival. “Someone who lives in a $50M apartment is not going to a $10-a-month gym.”

Planet Fitness, with memberships starting at $10 per month, has 11 locations in Manhattan, six of which are south of Central Park. SoulCycle, founded on the Upper West Side in 2006, has classes that start at $30 for a 45-minute ride. It has 19 locations in Manhattan and two in the tony Brooklyn neighborhoods of Williamsburg and Brooklyn Heights.

Two of the women who founded SoulCycle made just shy of $90M each in 2015 when Equinox bought out the company. A third SoulCycle founder started Flywheel in 2010, which has expanded to more than 40 operations in the city.

Rumble boxing, which has locations in Nolita and Flatiron, allegedly counts David Beckham, Kendall Jenner and Hailey Baldwin as attendees.

But gyms often have complex demands for their build-out, and keeping alive in the city is no cakewalk.  

“Not everyone’s going to make it,” said Director of Retail Leasing Service at Cushman & Wakefield Michael Azarian, whose clients include boxing fitness concept EverybodyFights. “It’s a very competitive market.”

But despite the challenges, many operators see NYC as a market worth taking on.

FitHouse, which is launching in the city next week, plans to open 15 gyms by taking short-term leases of a few months, spending around $150K on the fit-out. It gives the company the ability to test out locations without committing for too long.

The benefit to the landlord, according to FitHouse founder and CEO Clément Benoit, is the gyms will fill the space and bring in rent,  although perhaps not as much as if it were a long-term tenant.

“There is a retail crisis, it’s obvious. They need to activate their space,” Benoit said, adding that FitHouse has the first right of refusal built into the contract if the landlord does find a long-term solution. “A long-term deal takes six to eight months, when a short term takes two or three weeks max.”

Its first location is at 276 Bowery, and it is searching for space in Flatiron, on the Upper East Side and Upper West Side. The company aims to open one new location per month in the city.

Benoit said he is motivated by the competition in New York City, which is fierce. Fitness users are now taking pieces of space originally built for big-box retail, a type of tenant no longer active in the market, according to Azarian.

“It’s kind of a win-win, now a fitness user gets to use it and the landlord can fill up the space and mitigate the risk by having multiple tenants,” he said, adding that landlords are now building office and residential buildings with gyms in mind.

When boutique fitness first came to the city, it initially took ground-floor retail, until rising rents forced them up to higher floors. Eastern Consolidated's Adelaide Polsinelli said retail rental prices are coming back down, which will allow boutique fitness to move back to street level.

“Fitness has now become about social aspects,” she said. "You are doing things like SoulCycle and it’s become a culture."