- Internet Resistant Tenant / Amazon Proof; Fitness concepts don’t compete with the internet like other retailers.
- Strong, Growing Industry: Consumers flocked to health clubs and gyms last year, with over 6.7 billion individual visits to nearly 40,000 fitness facilities.*
- Approximately 24% of Americans utilized U.S. health clubs in 2019. There are more than 64.2 million health club members in the United States, or slightly more than 1 in 5 Americans.*
- Average attendance reached an all-time high of 109 visits among members in 2019.*
- Health club memberships have grown 28.0% over the last 10 years.*
- Future Growth: 75% of the population in United States currently do not go to a gym.
- Health & Wellness is a Long-Term Trend with a Bright Trajectory.
We offer clients the benefit of innovative insights based on economic, demographic, and real estate indicators as it relates to each specific Health Club transaction.
Why Are Health Clubs Undervalued Single-Tenant Investments?
The growth of health club memberships nationwide has spurred the development of world class fitness facilities in some of the densest retail trade markets in the country creating unique real estate investment opportunities. The health club investment category continues to grow and show strong long-term attributes for many of the following reasons:
- Resistance to Economic Fluctuations:
Never before has the public been exposed to so many articles and advertisements relating to wellness and fitness programs. When American households cut back on vacations and consumer spending during the Great Recession, we saw health club memberships increase as people were more focused on improving their own physical health and well-being. The challenging job market also freed up more time for Americans to work on something they could control – their own health.
- Safety and Security:
This category of single tenant net leased (STNL) investments is unique in that its customer base prepays and provides ongoing annuity income. In addition, many new revenue streams have become available for the tenant such as food and health bars, personal trainers, sports massage and even executive medicals. The clientele are also good targets for advertising and the sale of health products and sportswear. This creates sustainability and offers superior growth rates.
- Expansion and Consolidation:
Over the past few years numerous, well-reputed private equity firms have invested in this category and continue to grow and consolidate the industry. Management and service expertise ensure customer intimacy with a very high rate of membership renewal annually. Mergers and acquisitions of smaller regional chains by the larger national brands will improve the overall experience and facilities for gym members while growing the strength of larger brands and henceforth the industry as a whole.
- Cap Rate Spreads for STNL Investments in this Sector are 100 to 200 BPS Over Other STNL’s:
In comparison to many of the other single-tenants including department stores or grocers, investors can achieve significantly higher returns with a Health Club while many times achieving equal or strong credit behind the lease. Rental escalations of 10% over 5 years are standard with long lease terms and options. These yields allow for greater leverage, which improves the cash on cash returns. The ability to secure fixed long-term loans at currents market levels makes these investments highly attractive.
- Not just Specialty-Use Anymore:
Many of the older facilities were viewed as specialty-use for Fitness activities only, but the newer state-of-the-art Health Clubs are now designed and constructed to accommodate a wide range of retail users in the unlikely event the property is forced to change use. Many of the improvements including the 2nd-level mezzanine floors are non-structural and easily demolished to create a multi-tenant space or just an open floor plan for a variety of mid-to-big box retailers.
- Social Media and Meeting Venues:
Health clubs have introduced more and more social activities by offering various types of specialized classes and recreational sports. Marketing via various social media has created greater awareness and which will ensure the longevity of these health clubs.
- Other Positive Factors:
- There is limited or no growth in the sale of home gym equipment as their health club experience offers a broad variety of facilities equipment and expertise.
- With the booming Internet, more people work from home and look forward to a regular visit to the gym.
- Due to the high parking ratio and locations with good access the premises could be suitable for multi-purpose uses.
- All of the most active REITs and Institutions that only acquire investment grade tenants have been increasing their holdings of Health Clubs due to all of the growth and notoriety within the retail industry.