Health and fitness clubs are a strong industry in Canada, and not just in terms of muscles. The industry generated $4 billion in revenue through 2019, growing 5.1 percent in the past five years. There are more than 9,000 businesses throughout the country employing nearly 70,000 employees.
Table of Contents - Investing in Gyms and Fitness Centers
One of the reasons for the industry’s continued growth is the country’s focus on improving wellness and living a healthy lifestyle. As adult obesity and the associated problems increased, both private and public organizations have worked to make Canadians more healthy. The Public Health Agency of Canada has run campaigns stressing the importance of exercising and making healthy lifestyle choices. Obesity costs the Canadian health care system an estimated $5 billion each year, so it is in the government’s interest to create healthier citizens. Consumer trends have also made it more popular for Canadians to frequent the gym as social media and lifestyle brands have glamorized being an active gym-goer.
What does this mean for real estate investors? Gyms and fitness centers are excellent property investments as the industry continues to grow. Canadians are becoming more health-conscious and the economy is performing well, so people are willing to continue paying for gym memberships. Unlike retailers, gyms are less susceptible to the move online. People can do their shopping on their phones, but they still need to get up to go to the gym. Online workouts are an option, but many people still enjoy going to a physical space to access gym amenities.
Gyms require a lot of space to operate, more than retail or other types of commercial spaces. Property owners with a lot of square footage to lease would do well to attract gym owners and franchisees as their tenants. Landlords are seeking fitness companies to anchor large spaces in shopping centers. Vacant spaces previously filled by big box stores and other large retailers are prime candidates for developing a fitness concept.
One of the most popular places for new gyms to open is in shopping malls. Shopping malls continue to struggle as retailers of all sizes close their stores in traditional shopping centers. Large fitness franchises like Planet Fitness and Life Time have moved into anchor spots where big retailers once drew shoppers to malls. Sites that once held Sears and Macy’s are now sprawling multi-story gyms.
Shopping malls thrive on foot traffic, and without an anchor store or an attraction to bring in customers, people won’t be shopping in the other smaller stores. Landlords of shopping malls are looking for new and different ways to attract customers for the benefit of all tenants.
Unlike retailers, gyms attract members to their location multiple times per week. A large gym in a busy area might see 1,500 members in a day, bringing that foot traffic to the shopping mall and benefiting nearby retailers and restaurants.
While landlords are not responsible for the business success of their tenants, they do have a vested interest. Attracting new and interesting tenants like gyms helps the financial success of all tenants, meaning they’ll be more likely to pay rent. With fewer vacancies, commercial landlords can charge higher rents and earn more profits.
Adding a gym to a shopping mall where a large department store once was is a shift in how we think about shopping malls and their purpose. Rather than being solely retail-oriented, gyms signal that shopping malls can be lifestyle villages. Attendees can work out, get a massage, go to the salon, get a great meal, catch a movie and of course, do some shopping. Perhaps most importantly, keeping shopping malls in operation preserves a social space for the community.
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A gym may not save an unsuccessful property, but it could boost one that has been solid but needs more foot traffic. Companies may be unwilling to franchise a location if the other stores in the area are not performing well.
Case study: Orangetheory Fitness
Anchor spaces in shopping malls are great for large gym franchises, but boutique fitness centers are also popular. Yoga studios, cross-fit gyms and spin studios are opening rapidly and require less square footage than a full-sized gym. These tenants are looking for high-quality spaces in populated areas with many commercial tenants nearby.
One fitness brand, Orangetheory Fitness, has seen explosive growth in Canada over the past couple of years. They opened 24 new studios in 2018 for 40 percent growth in one year and planned another 30 openings in 2019. That’s a new studio roughly every week and a half for two years. The company hadn’t started franchising in Canada until 2014. Locations are available in nine of the 10 provinces. The company currently projects there will be 200 Orangetheory Fitness locations in Canada by 2022.
To be able to grow so rapidly, Orangetheory Fitness has to be particular about what they expect from the real estate they lease. The company has preferred real estate brokers that they work with throughout Canada. To open a location, the franchisee must have a franchisee with industry knowledge and a location with enough space to accommodate their membership target. The franchise needs to be located in a spot that the company believes will be successful long-term.
Another factor OrangeTheory looks at when selecting a location is the number of fitness centers in the area. Instead of seeing other gyms as competition, they view it as a sign that the community is interested in improving their health and wellness. They understand the kinds of activities and lifestyle their members are interested in and want to join those communities, rather than open where they’ll be the only business of their kind.
Landlords for commercial real estate spaces would do well to consider adding a gym or fitness center as their anchor tenant. While not the typical department store or grocery, gyms are a great way of driving traffic to the area thanks to the high-performing industry.
Fitness Entrepreneurs & The Business of Fitness
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