What D.C.'s Fitness Explosion Means For Its Retail Market

When Anne Mahlum founded Solidcore in D.C. in 2013, boutique fitness studios did not have much of a presence in the nation's capital, but she saw a wave coming. 

“I felt pretty comfortable knowing how much of a fitness-focused city this is and how hard people like to work,” said Mahlum, who will speak Nov. 14 at Bisnow's D.C. Metro retail event. “We were packed from day one.”  

Solidcore has opened 12 D.C.-area locations, with more on the way. Similar boutique fitness concepts have grown rapidly in the market, such as Orangetheory Fitness, with 19 locations, and SoulCycle with five locations. 

At the same time as boutique concepts have multiplied, larger, high-end fitness studios like Vida Fitness and Equinox have also expanded their D.C. presence. D.C.-based Vida Fitness in October signed a deal for its seventh location in the region. 

"When we started, the market was underserved for our full-service, higher-end product," Vida Fitness founder David von Storch said. "There were a lot of very mediocre facilities, but we were the first to step it up and we've done very well. Other people in the business have noticed our success and realized the opportunity here, and the market is becoming much more competitive."

The growing footprint of boutique and high-end fitness concepts has been a bright spot in the region's retail market. Developers of mixed-use projects have heavily courted the brands as a way to attract residents and draw in other retailers. 

Rappaport in July signed Solidcore as the first retail tenant of its 419-unit Avec mixed-use project on H Street NE. 

"We thought Solidcore was the perfect tenant to create community," Rappaport President Henry Fonvielle said. "People go two to three times a week ... it brings people that will go and have breakfast, lunch or dinner and use other services in the building."

Anthony Bianucci, who owns three Orangetheory Fitness franchise locations in Northern Virginia, said the average customer comes to his studios 3.5 times per week, creating foot traffic for the nearby businesses.

"If someone is coming in three or four times a week, and you have it where there's a grocery tenant or a big-box gym or a smoothie place, whatever store is next to it ... if they're coming in multiple times a week, we're almost an anchor tenant in a way," Bianucci said.

Mahlum said Solidcore's broker is constantly fielding phone calls from developers and landlords looking to bring the concept to the building. She said the company is receiving large concession packages with free rent and tenant improvements because landlords have struggled to lease retail space and see fitness studios as a catalyst for activity. 

"They know we're an asset to the space with people wanting to live in the building and attracting other co-tenancy. We have a lot of leverage in this space," Mahlum said. "The retail space is having its struggles right now. We're going to take advantage of all of that."

Vida Fitness is experimenting with a new tenant-landlord relationship in its deal with Penzance for a 27K SF location at the developer's Rosslyn mixed-use project. In addition to being open to the public, the gym will serve as the fitness center amenity for one of the project's three multifamily buildings.

Von Storch said the financial terms of the lease were adjusted for the cost of providing memberships to the residential tenants. He said Vida is exploring similar deals at corporate office facilities. 

"The market in the fitness world is changing. We have to make sure that we continue to explore different ways to stay financially viable and relevant and competitive, and this is one of those," von Storch said. "It doesn’t mean we’re changing how we do business, it means were expanding."  

Orangetheory has propelled its expansion through franchise arrangements. The chain now has over 1,000 locations in 49 states and 18 countries. Bianucci, who plans to operate about 20 Orangetheory franchise locations, said they put new operators through a rigorous, weeklong training program to ensure the strength of each location. 

"You’re not going to open that thing unless you know it through and through," Bianucci said. "So they really vet out right individuals and the right operators."  

Solidcore has chosen not to pursue the franchise model so the company can earn as much profit as possible from each location, Mahlum said. Solidcore in October 2017 received outside investment from a Salt Lake City-based private equity firm and announced plans to double its footprint, then 25 locations, by the end of 2018.

It now has 36 locations nationwide, with five more opening by year's end, and it plans to have 125 studios by the end of 2022. Once she reaches that goal, Mahlum said she plans to sell the business and pursue a new entrepreneurial venture.

"We understand the economics and we're not willing to give up on profit to get more studios open," Mahlum said. "We'd rather have 125 producing as much profit as possible and keep it in-house. If the next buyer decides to take the concept and franchise, they can do that."

For now, fitness companies continue to expand quickly and anchor new developments. But the market could become saturated, and if concepts become more specialized, they may not see as much success. 

"It's not going anywhere soon unless the concepts get a little skewed and too far out of control," Bianucci said. "Once you start following a niche of a niche, that’s where it gets very slim. As long as they’re making them for the masses and anybody can do it they'll be fine. Once you start slimming down it's challenging to have growth."

Von Storch said Vida plans to look at other cities, but its primary focus is still growing its D.C. presence to beat out new competitors entering the market. He said the market could become oversupplied with fitness options, but he thinks there is still room to run.

"Of course there’s a saturation point for every business," von Storch said. "I do think the studio market will continue to grow aggressively, maybe another five years. At some point, there will be a correction because it won't be sustainable. I don't think we're there yet, but we're closer than we were two years ago." 

Mahlum, von Storch, Fonvielle and Bianucci will speak on a panel at Bisnow's D.C. Metro Retail event, Nov. 14 at The Hamilton Live.