Products like Kirei’s EchoScreen help fine-tune fitness-tenant customers’ workout experience. | Courtesy Kirei

The New Darling of SoCal Retail CRE

Carrie Rossenfeld Retail

According to a recent report from CBRE, fitness tenants have become one of the most active retail occupiers in the Southern California — Greater Los Angeles, Orange County, and Inland Empire (GLA/OC/IE) — region in the last 10 years, but it wasn’t long ago when they were considered somewhat undesirable among property owners. Gym patrons were typically unlikely to stop by the other shops in the center after working out, and such large swaths of retail space were better suited for big-box tenants.

Fast forward to today, and the paradigm has shifted considerably, CBRE says. Since 2008, fitness users have leased 8.5 million square feet in the GLA/OC/IE region. Last year alone yielded the highest deal count in the last decade with 1.1 million square feet leased by fitness tenants. Shifts in both landlord and consumer preferences drove demand.

Fitness users want more of an experience, and landlords recognize that working out cannot easily be usurped by e-commerce, CBRE reasons. In addition, gym-goers have become a captive audience and are now far more likely to visit adjacent retailers before or after working out.

Also, modern fitness tenants offer a plethora of workout options, equipment, classes, and personalized experiences tailored to the consumer, CBRE points out. Joining the ranks of other retailers, fitness tenants have carved out their own experiential retail niche.

SoCal Real Estate spoke with Petra Durnin, CBRE’s director of research and analysis for SoCal/Hawaii, about why SoCal real estate industry’s perception of fitness tenants has changed so much in recent years, how retail landlords are catering to these tenants and what landlords and smaller fitness tenants in the region should be aware of about each other.

Petra Durnin | Courtesy CBRE

SoCal Real Estate: Why has the Southern California real estate industry’s perception of fitness tenants changed so much in recent years?
Durnin:
Historically, gym goers were single-use consumers — they would work out and leave, which didn’t benefit other nearby retailers, so mall operators especially did not want fitness centers in their tenant roster.

Now the gym-goers look for other amenities to patronize before or after working out, and this trend has positioned fitness centers as the darling of commercial real estate and an important component of experiential retail. Fitness is one of the few retail sectors that cannot be consumed online, which increases the exposure of other related tenants, such as apparel, to shoppers pursuing a healthier lifestyle.

How are retail landlords in this region catering to these tenants and utilizing synergies within centers to generate sales?
Retail has evolved into an experience where shopping, tech, entertainment, and services converge, and many landlords are rethinking their tenant mix. Positioning unconventional but correlated retailers such as restaurants, coffee shops, and personal services near fitness tenants helps solidify a customer base and increases the chances of a return visit separate from a workout. In an effort to fill junior and big-box anchor stores, landlords are offering lower rents. With the right tenant mix, they will be able to drive traffic to other stores within their centers. Other programs such as discount coupons for nearby amenities offered to fitness customers helps drive sales.

What should retail landlords in this region who are not familiar with fitness tenants know about their needs?
As a significant number of the population ages, fitness, rehabilitation, and other wellness tenants may start to gain some traction. Health clubs could partner with mixed-use and lifestyle centers instead of traditional retail centers. To reach the desired customer base, they could also locate near residential communities or medical/hospital complexes. On the other end of the spectrum, millennials are drawn to a personalized experience, and as they put more emphasis on their health, hybrid fitness stores could emerge, offering challenging workouts while providing energizing and nutritious meals.

What should smaller fitness tenants be aware of when leasing retail space in Southern California?
Smaller fitness tenants are growing in a sector previously dominated by large clubs and gyms. The smaller players can more easily target specific industry trends such as cross-fit, group training, yoga studios, and boot camp, all of which are gaining popularity with younger consumers. Niche service that clients have never seen before can gain traction quickly, too, like trampoline parks and skydiving centers, especially if there is an experiential component.