The cheapest of these tenants offer only warehouses, some even without heating. They prefer to engage themselves early in the project, require lots of energy, water, and air, and – as a rule – want their own entrance and exit. Their visitors occupy spots in the parking lot for two or even four hours, and often come at night. These tenants also require two thousand square meters of floor space, though it doesn’t have to be the nicest. The representatives for this sort of tenant always proudly refer to themselves as potential anchors for any shopping center or office complex, as forward-thinking property owners are always happy to use the services of these tenants to appease the caprices of their residents or visitors. This is how the fitness center is emerging in our market today.
A Tenant’s Market
Fitness centers began to appear in Russian business centers during the 90s and have only expanded since then. International commercial real estate consultants are uniformly in favor of this trend. “Fitness clubs at one point were more likely to be found in office buildings where retail properties were not present, as at Smolenskii Passage or at Olympic Plaza, or in business centers somewhere close to a residential area or set of hotels, in order to guarantee the club a supplemental flow of customers,” explains Olga Yasko, head of analysis for Colliers International. “Fitness centers are present now in practically every business park, such as at Khimki Business Park, Krylatskie Kholmy, and Westbridge, and at every multifunctional center, such as Bashnya, Federatsiya, Imperiya Tower, and Sakharova Business Plaza. Developers attempt to improve the infrastructure of their complexes, giving tenants the opportunity to use all the services they require in the areas in close proximity to their places of work,” comments the senior consultant for strategic consulting and evaluation at Jones Lang LaSalle, Nadezhda Folina. In that event, service tenants help the proprietor to attract larger and more lucrative tenants to his office facility.
In the business center, Diapazon, at #1 Volokolamskii, the Horus Capital management company recently opened a fitness center on 400 sqm. “The beginning of operation at the fitness center coincided with the opening of the central entrance of the complex and accompanying retail facilities. Like this commercial zone, the fitness club is conceptually accessible not only to the office tenant, but to all of the business centers’ visitors. The building is accessed through a turnstile operated by a magnetic card,” explains the director of marketing for Horus Capital, Pavel Barbashev. “The first week after opening already saw 100 applications for membership and it was predicted that there would be more like 350 by the end of the year.” The club is ultimately oriented, however, only toward the other tenants of the Diapazon, and the potential for membership growth will be stalled until the opening of a second phase of the business center on 50 thousand sqm in 2009.
The LeFORT business center, also by Horus Capital, plans to open a Gold’s Gym in February, the second of the international fitness chain’s fitness clubs in Moscow. “LeFORT will offer an independent two story building with a total area of 1.5 thousand sqm and it is expected that the 1,500 members will take advantage of its services. The fitness operator was attracted to the second phase of the project after the first project had already completely begun operation,” explains Pavel Barbashev. “Since the activities of the fitness center are directed toward the improvement of the center’s infrastructure, their lease was signed for lower rates than those offered to the other offices and for a fifteen year period. Gold’s gym will serve not only the complex, but the entire region. The entrance to the complex will also be free and independent.”
The business center, Romanov Dvor, at #4 Romanov, offers one of the most prestigious and, accordingly, expensive fitness clubs in Moscow – World Class Fitness, which offers a very full range of services. “The fitness operator was attracted to the project at the very first stages of construction,” says commercial director of RD Construction Management, Ilya Baibus. “They have specific electrical, hot water, and air conditioning requirements. A number of architectural changes were also required. These terms were all fulfilled by our company at the request of the fitness club. In this way, the architectural conception and engineering systems suited this tenant from the very beginning.” It is ideal for the operator to successfully cooperate with the proprietors of the building at the first stage of planning. Sometimes the club must be drawn in late, and is generally stuck at that point with leftovers. “In some business centers, the architectural problems can be quite complicated,” recalls director of development for the World Class brand of fitness clubs, Dmitry Korobeikin. Since 1999, World Class has been leasing approximately 2,000 sqm of the retail-business complex, Smolenskii Passage, which had formerly been unable to find a tenant. In 2007, the operator opened another facility in the Citadel Business Center at # 11 – 19, Zemlyanyi Val, and will also be represented at Severnaya Bashnya in the Moscow International Business Center.
Profitable for Everybody
The presence of a high quality fitness club in a business center is one of the competitive elements not only for the property, but for the operator himself; the symbiotic benefit is obvious. Usually the business center’s positioning affects how the operator may present his fitness club. Developers are even beginning to understand that a fitness club attracts and guarantees a certain flow of traffic as well as a harmony with other tenants, although from a commercial standpoint it may not always be the most lucrative part of the collective. At the same time, the period of cost recovery for a fitness club does not necessarily depend on how it fits into its surroundings, but the operational costs may be lower if the club is a part of a complex. On the whole, the profitable fitness club generally covers cost in step with other service and production properties, according to World Class.
For some developers, the price is not as important, however, as the quality. The most ambitious may even try to operate a fitness club exclusively for the other tenants of the complex. The Terrasport network of sports clubs is one of the new business-oriented enterprises being realized by MIAN, which has had a particularly lucrative year. For now only two of the group’s clubs are operating: one in the new micro-region Raduzhnyi (Solntsevo) and another built on 2700 sqm in the elite residential complex, Kopernik, on Bolshaya Yakimanka. The network’s development strategy, according to the proprietors, is oriented toward the presentation of a full spectrum of high quality services for the whole family in the fitness sphere. “The Terrasport clubs operate 24 hours a day, 365 days a year. The flexible pricing policy offers 40 different types of membership,” says Stepan Danilov, the network’s head manager. “Our basic motto, ‘Live at Your Own Rhythm!’ suggests that clients choose precisely the sort of fitness which is most appropriate for them.” At the end of the year, the network hopes to open its third Terrasport at a business center on the Sadavoe Koltso.
“Third party operators are not interested in areas less that 1,000 sqm,” points out Barbashev. “The fitness center is not the most lucrative business from a strictly financial point of view. At the same time, with good business planning a fitness center in Moscow may recoup expenses for construction, outfitting, and operation at the end of 3-4 years. Of course, such a goal is achievable only under conditions where outside clients are also attracted to the facility.” As Baybus points out, a business center location is therefore optimal for these properties if the facility ultimately offers various creature comforts and a separate system of climate control.
Reasonable rates for a fitness center may be between $200 and $800 per sqm annually, for a period of roughly 10 years. A fitness operator generally prefers the sort of building which can be easily accessed at night, when a fitness club is usually at its busiest, and which is in close proximity to a major transportation artery. One of the greatest advantages is the presence of accessible parking. World Class has historically preferred the sorts of buildings which have already been outfitted technically, so as to open quickly. “We generally calculate accessible rates for our lease based on certain parameters: the club’s expected revenue level and the investment, operation, and administrative costs, as well as on the period of cost recovery,” adds vice president for the health and athletic club chain, Planet Fitness, Marianna Maslenikova.
“Traditionally, the club pays less for its lease, since it must be distinctly understood that the club itself reflects the value of the project,” says Nadezhda Folina. “If the issue is a large business park, we often recommend a professional operator such as World Class or Planet Fitness, on an area with a volume from 1 to 3 thousand sqm, including the pools, spa salons, and so on. The small training hall with an area from 200 to 300 sqm would hardly be enough to handle the demand.”
Hip to Be a Square?
The demands of a fitness center on its landlord may be quite strict. If a pool is part of the plan, the ceiling can be no less than 4.5 meters high, and the structure’s area must be at least 600 sqm. Windows are even desirable, though 100% artificial lighting is possible. The floor must also be able to withstand 350 kg per sqm. The ideal form for the structure, also, is a perfect square with high ceilings and a maximum of free interior. “Often, at first glance, we are quite interested in projects that are not ultimately viable, thanks to numerous passages and corridors. Architectural and planning obstacles make it preferable to finally refuse a number of such areas, even in fine quality business centers,” explains an expert.
The optimal area for a genuine business club is generally between 3.5 – 4 thousand sqm and offers the following services: a training hall, 1 – 3 halls for aerobics, a hall for personal training or martial arts, a cycling studio, a children’s club with independent children’s membership, a spa salon with an area for hairstylists and manicurists, a fitness bar, and a sports shop. In contrast to fitness centers located in residential complexes, a business center location probably will not offer a children’s membership. According to Dmitry Korobeikina, the maximum area for a club will depend on the marketing situation and specified location. One of the most important questions is naturally how expensive the membership ought to be. The Fizkult clubs are in fact more profitable thanks even the World Class brand, thanks to their low prices and flexibility.
Planet Fitness currently operates 58 clubs, with both independently operating properties and facilities offered within a business or residential complex. The two largest formats – in Moscow at #9 Bolshoi Kislovskii Pereulok on 2,800 sqm, and in Saint Petersburg at #18 Petrogradskaya Naberezhnaya on 4,300 sqm – operate in business centers, Rusdragmet and City Center, on 24 hour schedules. In Saint Petersburg, on Petrogradskaya Naberezhnaya, the facility was transferred to the business center’s management before operation began. “The requirements of the engineering system must be satisfied during the planning phase, since the heating, water, and electrical needs of a fitness club are quite different from those of your standard office,” explains Marianna Maslennikova.
Planet Fitness requires 1,000 sqm from its business center landlords for its clubs and between 400 and 500 sqm for its autonomous studios for personal training, dances, or Mind and Body workshops. The presence of windows is essential, as are ceilings no less than 2.7 meters high, 6 meter columns, and a load-bearing floor capable of withstanding 400-500 kg per sqm.
A no less important role is played by the manageable streams of external visitors and office workers. At Romanov Dvor, the streams are kept separately. The external visitors’ access to the recreation zone, fitness clubs, and underground parking lots must be free. “But the visitors must not accidentally find themselves in the office zone, and at the same time the office workers want to have free access to the fitness complex and various other areas and also have a way back. In our case a separate entrance into the building exists only for service personnel,” explains Ilya Baybus. “Clients also ought to have access to the club independent from the business center’s operation hours,” says Korobeikin. “For example, Smolenskii Passage is open from 10 AM to 10 PM, but our club runs from 7 am until midnight. So while the central entrance to the offices may be closed, clients can continue to access the fitness club through the specialized entrance on the left side of the facility.” According to Maslennikova, to separate the streams of clients is very important for comfort and safety. “An independent entrance into the club is preferable for us, since a fitness center in a business center can also serve the clients coming in from the street. Additionally, our clubs can work late or even 24 hours, since access is guaranteed even after the end of the working day, which is usually around 9 pm for these business centers.”
Water, Wind, and Fire
The nuances of operating a fitness club cannot be accommodated by every business center. The most serious requirements are generally those for electricity and air. “The owners of business centers must come to grips with the fact that fitness clubs with a full range of services are tenants who require a lot of energy. For example, after an intensive aerobics workshop, a multifunctional hall must be heated for at least 10 minutes from 18 degrees to 22 degrees, before a children’s section or a yoga class. If the services are more limited, perhaps a club can operate normally in almost any business center,” explains Dmitry Korobeikin. “But regardless of the positioning and range of services provided by the club, the electrical costs will still be several times higher than those of other tenants.” One kilowatt currently costs proprietors approximately 44 thousand rubles. Larger clubs on 4.5 thousand sqm or more may require nearly 1,000 kilowatts per hour. Despite the implementation of ever more progressive systems of energy conservation, the consumer’s requirements for comfort seem to be progressing faster.
“Our experience shows that specific attention must be shown for the electricity, ventilation, and water requirements of a fitness center,” says Barbashev. “However, the major factors are certainly the size of the business center and its location. It is simply not worth planning a fitness club if the area of the building is no greater than 30 thousand sqm. Visitors to such a club would be very few. At LeFORT, the initial planning made ideal allowances for a fitness center’s needs, but unfortunately the operator decided to make adjustments.”
A More Diverse Sort of Club
In the 90s, a fitness club was a kitschy element well within the territory of business circles. Now it seems to be relevant for anybody who is planning a happy and healthy future. But no matter how swanky the furniture design, the majority of fitness clubs in the capital currently fall into the category of public pools or private trainers. There are no polished systems for working with clients, no high-quality fitness programs, and no professional instructors. There is also a lack of club spirit. Fitness, ultimately, contrasts from sport in that there is no central authority figure or coach, but rather a truly individualized approach. This naturally causes the developer to favor the elite office segment.
Today, the cost of a yearly membership at World Class, the clubs of which all fall into either the luxury or premium classification, runs from 45 to 142 thousand rubles. Its most affordable format is offered under the Fizkult brand, with an emphasis placed on group workouts over individual sessions, for 25 – 45 thousand rubles. In practice, World Class is the only variant where the managing company of the complex has a role in designing the program, and where the services provided to other tenants are in fact a part of the fitness club’s leasing agreement. Today, nearly 60% of the company’s clients are the employees of adjacent tenants surrounding the club’s outlets.
Most stable economic models for fitness clubs at the moment seem to rely on yearly membership. According to certain data, only 35% of visitors to fitness clubs in the capital actually renew their membership, and so clubs must replace 65% of their client base every year. The International Health, Racquet, and Sportsclub Association, IHRSA, values the fitness industry in Europe for 2006 at $25.6 billion. Russia made up $701 million of that total, but this market is growing at a rate of 40% per year. Meanwhile, the results of research carried out by Deloitte & Touche in conjunction with IHRSA shows that the potential volume for the fitness market may reach 2 billion euros. Approximately 1.8% of the total population currently uses fitness clubs, though in Moscow the figure is closer to 2 or 3%. Experts believe that nearly 1.7 million Russian citizens can ultimately be attracted to the fitness clubs, of which there are 1100 in the country, though attendance levels are currently closer to 502 thousand. Experts at Strata Partners, who operate a total of 19 clubs under the Orange Fitness and City Fitness brands, believe that the opening of a premium club costs from $2-$5 million, while a more affordable facility may run from $800 thousand to $1.5 million. It seems that, for now, the Russian fitness market will remain focused on the premium and luxury networks.