The retail market is gaining tenants as fast as it is losing them. We have recently seen new demand from urgent care facilities for retail spaces, and now there is a new surge of fitness centers signing retail leases. Fitness operators—which includes a variety of classes, boxing gyms, yoga studios and the like—have strong revenues that allow them to pay premium rents and they help to create synergy in a shopping center by drawing health-driven tenants, whether restaurants, juice bars, athletic wear brands or health food stores. We sat down with Alex Koustas of The Agency for an exclusive interview to discuss the new trend.
GlobeSt.com: What is driving this new demand from fitness operators?
Alex Koustas: If we want to understand what is happening with this fitness trend in retail, we have to go back and understand what is happening to your standard retailers. A lot of the businesses that landlords have expected and grown accustomed to are no longer there. Or they might be there, but they are no longer profitable. We are finding that a lot of landlords have vacancy and they can't fill that space. Landlords are realizing that concurrently there has also been an uptick in physical fitness use. People are health conscious now and they want an active lifestyle, and there are a lot of new concepts in the market that lend themselves to a wide array of physical fitness use. The competition is fierce, and the price per class is going up. Classes can be anywhere from $25 to $35 per participant, and that adds up. Therefore, these businesses can handle the rent in a lot of these higher-level spaces that have now gone dark.
GlobeSt.com: Aside from filling vacancies, what are the benefits of fitness tenants?
Koustas: The benefit of a slick physical fitness concept is ancillary uses, such as juice bars, coffee shops and quick service restaurants. They not only start to show up as adjacent tenants, but they also become demand next to these physical fitness uses. People want to come in or out of the class and fuel or eat. Landlords are finding that when they have a high-caliber fitness tenant coming in, it is pretty easy to attract other similar tenants.
GlobeSt.com: What submarkets have been most popular among these operators?
Koustas: We are focused on a lot of Westside, Beverly Hills, West Hollywood, Downtown Los Angeles and the San Fernando Valley, and there are a lot of these deals happening now. Studio City and Sherman Oaks mirror the same kind of demographics that West Hollywood does. Cycle House in West Hollywood, for example, is now opening a location in Studio City. We are seeing crossover and cross-pollination between different markets in the L.A. Basin.
GlobeSt.com: What types or sizes of spaces are these tenants leasing?
Koustas: These guys are taking over everything from 1,500 to 6,000 square feet. These are significant chunks of space, especially when you are talking about a market that is anywhere from $7 to $22 per foot.
GlobeSt.com: Are they getting any sort of a discount on rent, since landlords have had difficultly leasing these spaces?
Koustas: It is a case-by-case. It all depends on velocity in the market, and velocity with respect to the landlord's position. You are not seeing larger concessions, but you are seeing that high-quality space in concentrated markets are in such high demand that when a fitness center identifies it and can pay the rent, they are taking the deal on an as-is basis. The landlord contribution can be non-existent in a lot of ways.
GlobeSt.com: What is your advice to new fitness concepts looking for space?
Koustas: The first most important element is the parking. Can the location accommodate the parking? There are a lot of locations that are great and look cool and fit the demographic, but if you can't park it, the city is never going to allow the use. Even if they city would allow the use, your customers aren't going to be able to make their class times, and you'll start to lose business. There is a larger parking commitment, and it is the biggest challenge to deals.
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Kelsi Maree Borland
