Challenge
Consumers today crave flexibility in all they do, especially when it comes to working out. Thousands of square feet wrapped into large, big box gyms are no longer necessary, as clients look for smaller, more personalized gyms that offer classes and/or professionally led, quick workouts. For years, large, big-box fitness centers like LA Fitness reigned supreme. Still, due to the onset and aftereffects of COVID-19, even the centers in the busiest metros and growing neighborhoods are in jeopardy of going dark or facing rent reductions and lease restructurings. As these locations go dark, owners and investors are stumped about what to do with the large retail space, often causing the assets to be highly illiquid, taking months or even years to find the right buyer. The lack of buyers will come at the cost of the owner, that must maintain the property in the meantime, undergo the re-tenancy process, negotiate new tenant improvements, and likely eventually sell at a loss or merely breakeven after Landlord TI Costs of $50 – $100 per square foot and leasing commissions.
Strategy
With more options for consumers to choose from than ever before, fitness facilities need to adapt their services and physical spaces to meet consumer demand. Although digital, at-home workouts grew wildly popular during the lockdown period of COVID-19, data is showing consumers still prefer the in-person workout experience and use digital workouts as a supplementary service. Boutique fitness centers offer the social experience of a large retail gym without the intimidating size and mass rows of equipment. Moving forward, big-box gyms must downsize their locations to cater to neighborhood and lifestyle audiences. These retailers should also consider offering at-home workouts as a part of their membership, accessible through an app, and group workouts such as Class Pass. Overall, LA Fitness can cut rent, draw in a new generation of clients, and utilize real estate more efficiently by downsizing its footprint and modeling itself after operators such as Orange Theory, Anytime Fitness, and CorePower Yoga.
Take Away
LA Fitness owners need to step back and reevaluate their asset’s real estate. Many operators will say, “it can’t happen to me,” but in reality, no matter the affluence or growth of the market it is located in, a big-box gym can go dark. Gym membership and consumer interest in their health have continued to rise throughout the last decade, with the total number of club-goers increasing by 26.5 percent since 2009. Fitness facilities also hold the title of “internet-resistant,” as they aren’t heavily affected by the dominance of e-commerce giants. The fitness industry is one of the fastest growing and most profitable industries to invest in. Still, the real estate strategy needs to be adjusted to incorporate smaller brick-and-mortar locations for a more personalized and community-focused workout.
Dark LA Fitness Locations
Here are a few examples of dark LA Fitness locations that were never expected to go dark but were unable to keep up with the square footage rent, even in a populated and thriving market.
3474 Sawmill Dr, Sawmill, OH
The property was built in 2007, spanning over 53,000 square feet. The building was last sold in 2015 for $16,936,000 and is currently an unpriced active listing.
Year Built: 2007
Square Footage: 53,206
Last Sale Price: $16.94M
Cap Rate: 6.91%
13130 Preston Rd, Dallas, TX
The property is a newer build, completed in 2020, spanning over 40,000 square feet. Sold in 2017 for $15,223,016, the asset closed at an 8.0% cap rate. The property is now actively listed FSBO at $15,000,000.
Year Built: 2020
Square Footage: 42,213
Last Sale Price: $15.22M
Cap Rate: 8.0%
441 N Azusa Ave, West Covina, CA 91791
The property was built in 1982 as part of a community center in the West Covina, CA submarket. The investment was originally sold in January 2018 and was later sold in November of that same year for an undisclosed price. In January of 2021, the space we re-branded to an “Esporta”, one of LA Fitness’ latest models, in an attempt to rekindle the existing customer base. Nonetheless, one year later, the location went dark and remains so to this day.
Year Built: 1982
Square Footage: 28,300
Last Sale Price *as part of shopping center: $66.95M
Cap Rate: N/A
46 Skiff St. Camden, CT
The property was built in 2005 as a free-standing retail asset. Located in the Hamden, CT submarket, the estimated CoStar rent is $14 to
$17 per square foot. The property went dark in November of 2021, and despite the effort of multiple agencies to sell or re-let the site, it remains dark to this day.
Year Built:2005
Square Footage: 45,000
Last Sale Price: N/A
Cap Rate: N/A
97 S Val Vista Dr, Gilbert, AZ 85296
The property was built in 2002, spanning over 37,000 square feet. Located in the Gilbert submarket, the surrounding area boasts a population of over 240,000. In 2019, the site went dark and remains dark to this day.
Year Built: 2002
Square Footage: 37,000
Last Sale Price: N/A
Cap Rate: N/A
11707 Rosecrans Ave, Norwalk, CA 90650
The property was originally built in 1972 and renovated in 1990. In 2003, the center was sold for $29,500,000, equivalent to $404.46 per square foot at a 10% cap rate. Despite existing in a dense retail corridor, this site went dark in late 2019 and has been available for lease ever since.
Year Built: 1972, Renov. 1990
Square Footage: 72,954
Last Sale Price *as part of shopping center: $29.5M
Cap Rate: 10%
3200 Grapevine Mills Pky., Grapevine, TX 76051
The 42,213 square foot property was built in 2006 as a free-standing property in a neighborhood center. Located directly across from Grapevine Mills Mall, the center had excellent visibility and accessibility. The gym went dark in 2022 and is currently available for lease.
Year Built: 2006
Square Footage: 42,213
Last Sale Price: N/A
Cap Rate: N/A
7810 S. Priest Dr., Tempe, AZ
Built in the early 90s, the building is located in the South Tempe/Chandler corridor of the Phoenix metro. The property is within a retail community neighboring several high-traffic tenants. The facility was rebranded to Esporta Fitness and was last sold in July 2018 as part of a 6-property portfolio sale. In 2022, the property went dark and remains dark to this day.
Year Built: 1994
Square Footage: 35,000
Last Sale Price *as part of portfolio: $26.1M
Cap Rate: 7.58%
