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.