In recent years, there’s been a lot of talk about the death of retail. Its demise may be overstated, but as more and more brick-and-mortar businesses succumb to e-commerce, there’s a growing concern that the trend will lead to an increase in vacancies and a decrease in tenants.
While retail discovers its footing in this new economy, there’s a new and quite profitable tenant in town. In both urban and suburban markets across the country, wellness facilities—shops that exercise the mind, body, and soul—are filling some of the CRE void as tenants in strip malls or as anchors in larger locations.
The driving force in the $5-trillion-dollar self-care industry is the spending habits of Millennials and Gen Z. As gyms have morphed from rough and sweat-soaked to big and state-of-the-art, they’ve always had a place in communities. Younger generations accustomed to spending their money on experiences rather than material items, however, are steering a new trend in which smaller, boutique-style facilities are a perfect fit for small and mid-sized CRE vacancies.
A personalization trend also means self-care providers can be creative about what they offer clients. In other words, this isn’t your grandfather’s gym. It’s also not your grandmother’s spa. One location, for example, can offer high intensity fitness training, while another can offer spin classes, yoga, and manicures and pedicures.
Many of these newer wellness facilities are franchises, which tend to offer 10-year agreements for any entrepreneurs interested in entering the franchise field. As a result, many franchise tenants are interested in signing 10-year leases with two five-year options. The last thing a franchisee wants is to have a lease expire before the agreement does.
To further secure their financial success, many franchises offer monthly membership fees just like a traditional gym model. This monthly recurring revenue (MRR) is a more secure, profitable bet than relying on the walk-in client who may walk in once and never again.
When it comes to fitness providers, their flexibility is proving to be a good fit in both urban and suburban locations. In metropolitan areas, for example, consumers may opt to click and swipe for shopping, but they are much more likely to travel for the boutique fitness experience, often following their favorite instructors between franchise locations.
Meanwhile, in suburban strip malls, wellness centers are filling vacant spaces because they are an added convenience. People are able to work out, grab some groceries, and pick up the dry cleaning but keep the car parked in one location.
Of course, the greatest concern among building owners and wellness tenants is oversaturation. While there certainly seems to be enough consumers who are willing to purchase monthly memberships, it’s a good idea to explore what sort of fitness offerings already exist in a radius around a potential location. Armed with this knowledge, building owners can seek out or welcome franchise tenants that offer something unique.
To attract a tenant, some landlords offer reduced rental rates at the start of the operation, so the tenant can build up a client base. In urban areas, some franchises and landlords are working together on short-term leases to create pop-up wellness centers. The goal is to develop a strong tenant, because that inevitably leads to an increase in foot traffic to nearby businesses.
It goes without saying that wellness is good for people. At Morris Southeast Group, we believe that the same concept can be applied to the owner/tenant relationship and to the community as a whole. That’s a big reason why we do what we do. To learn more about property investment opportunities, and/or our other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at firstname.lastname@example.org.