Retail Landlords Are Pumped About Gyms

, Daily Business Review

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Dan Adelstein, director of real estate and franchise sale, Orange Theory Fitness.

Dan Adelstein, director of real estate and franchise sale, Orange Theory Fitness.

Jill Kahn1 of 3
Orange Theory Fitness.

Orange Theory Fitness.

Jill Kahn2 of 3
Dan Adelstein, director of real estate and franchise sale, Orange Theory Fitness.

Dan Adelstein, director of real estate and franchise sale, Orange Theory Fitness.

jill kahn3 of 3

Retail landlords are pumped about gyms.

As chains like YouFit Health Clubs, Orangetheory Fitness and Crossfit Inc. open dozens of studios across South Florida each year, they're driving an uptick in retail occupancy.

"Coming out of 2009 and 2010, there was a lot of vacancy. Restaurants and national tenants helped keep occupancy up, but now it's nontraditional tenants filling a lot of smaller spaces and really driving up occupancy," said Gregory Matus, Franklin Street Real Estate Services' regional managing partner for Broward and Palm Beach counties. "Rents are starting to improve, helped by the rise of nontraditional tenants."

That's good news for retail landlords, who say the timing couldn't be better. The arrival of fitness tenants helps just as brick-and-mortar retailers are feeling the weight of stiffening competition from online merchants.

"Everybody's looking for a 30- to 60-minute workout," Matus said. "And what's happening is we're seeing abnormal growth in the number of micro-gyms with less than 3,000 square feet of workout space."

The New Star

One of the rising stars is Orangetheory Fitness, which has quadrupled its global footprint in the last two years, growing from 26 locations to 110. It operates 22 gyms in South Florida, each with about 3,000 square feet, for a total of about 66,000 square feet in Miami-Dade, Broward and Palm Beach retail centers.

"We're usually in places where people are not afraid to spend a little more for what they want," said Dan Adelstein, Orangetheory's director of real estate and franchise sales. "They want quality, and they want results."

Orangetheory's clients pay a premium for classes in the small gyms, where trainers provide individual attention during workouts. But their spending spills over to stores near the gym, landlords say. That's why Orangetheory prefers retail centers with high-end stores catering to health-conscious patrons with disposable income. Its first Broward County studio, for instance, is in the Harbor Shops with a spa, nutrition and vitamin store and yacht management company off the 17th Street Causeway in Fort Lauderdale.

"We find ourselves being a great complement to the other tenants," Adelstein said. "We bring a lot of people into the shopping centers, and it's a great dynamic because there are a lot of tenants, like Starbucks, GNC and Whole Foods that are good for our business."

Some chains, like Crossfit, attract clients who can afford to pay nearly $200 in monthly dues and often hold more than one gym membership.

"The more times people come into a shopping center, the more likely they are to bring business to your other stores," said Adrian M. Jimenez, vice president of leasing for Sterling Retail Services Inc., a private equity real estate investment firm that invests in retail centers in major U.S. markets.

Sterling's tenants, like Crunch LLC in Hialeah and 9Rounds gym in Pompano Beach, bring a daily flow of customers who initially come for weights or kickboxing but end up stopping by the supermarkets, clothing stores, restaurants, banks and other businesses next door.

"Gyms bring everyday customers," Jimenez said. "If they're going to the gym four or five times a week, they're going to the same center more than once, which spills over to the other stores."

Mass Appeal

Analysts say one gym's growth spurt could spread to other businesses across the region.

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