A Growing Trend in Industrial Real Estate: Gyms, Sports and Fitness Use
In recent years, we’ve worked with many groups both new and established to find a facility to house their sports or fitness use. These uses range from pickleball facilities (yes, lots of those), to soccer, volleyball, basketball, baseball, gymnastics, MMA and everything in between including health clubs and gym retail spaces.
What’s Behind the Rising Demand for These Facilities?
Turns out, our experience is far from isolated. There’s hard data demonstrating increases in youth sports participation, and other changes that tie directly into the increased demand for sports facility properties. For example, the Sports & Fitness Industry Association (SFIA) data from 2022 reported the number of participants in team sports in the United States reached 70.8 million, an increase from 2020’s 67 million and a return to pre-pandemic levels.
The Aspen Institute’s State of Play 2023 report also speaks to an upward trend in youth sports. They note an increase in casual sports participation, as well as the specific growth in girls' participation (35% participation). They also highlight the 2022 data, indicating an average spend per child on their primary sport of $883 per year. Considering hockey is frequently listed as the most expensive of all the youth sports, it’s safe to say MN trends are even higher than the national average.
And that’s not the only interesting data point about Minnesota. The Federal Government has set a goal for youth sports participation, aiming for 63% by 2030. According to the 2020-2021 National Survey of Children’s Health, Minnesota is one of just two states to achieve that number.
It is also worth understanding that the landscape has changed. Private clubs are growing. Private equity is also pouring billions of dollars into the market. This has shifted the sports market and led to increased investment in sports facilities.
The Fight for Fitness Space in Industrial Real Estate
With the growing trend of sports participation clearly established; the question becomes what do these groups need from a facility standpoint? I’ll give you one example that is very illustrative of a typical query coming into our office. “We want high clear height, wide column spacing (40’ minimum) and we need 20,000 sf of space.” What type of facility does that sound like to you?
If you said ‘Warehouse’, then you are correct. By and large, these groups are targeting warehouses that are:
Newer construction
Have a high clear height
Well-located
Unfortunately for these clients, their increased interest in these types of warehouse facilities just so happens to coincide with one of the strongest Industrial Markets in history (2022 was stronger). In short, youth sports and fitness tenants are regularly facing direct competition with more traditional warehouse users.
Helping Sport and Fitness Clients Navigate Industrial Real Estate
I am writing this article to, hopefully, provide useful information to groups that are similar to these clients. The insights here can help guide you through the opportunities or challenges you may face in your real estate search and will help you approach the market with eyes wide open.
I love working with entrepreneurs, and we have and are currently working with sports and fitness groups to find properties. That being said, I’m also brutally honest with what these kinds of tenants need to know and how their use will be perceived. The response tends to go one of two ways.
In the first scenario, my clients respond with “Wow, I didn’t realize the market cost this much and that Landlords might view our use that way. Yeah…that’s not going to work”. In this scenario, I hope I’ve saved them lots of time. Of course, I’m not here to crush dreams. But everyone deserves to know the realistic cost and what the process will entail before proceeding.
The second scenario goes something like this: “Ok, that information is good to know. We will update our model and line up what we need to line up. Now let’s talk about how we can approach this.”
A Roadmap for the Fitness Property Search
Usually, I’ll start by giving my clients an overview of the market conditions and the type of competition they might expect for the spaces they are considering.
Competition for High Clear Heights
High clear heights are a common demand for fitness and sports tenants. If they tell me they’re looking for a 24’ clear, they’re going to face strong competition with traditional industrial or warehouse users. If they’re looking for a 32’ clear, the fight gets even tougher. These users include manufacturers, distributors, light assembly use, etc.
Landlord Reluctance Around Facility Modifications
Many traditional industrial users only require a small amount of office space with the rest being warehouse space. Since there are many industrial clients looking for this standardized space, Landlords often avoid tenants who want to make significant modifications to what has worked and what is in demand. That way, when the tenant leaves, the space can be leased to another fairly easily with only minor modifications.
Financials and Operating History Matter
Particularly when my client is hoping to establish a new business, it’s important to discuss the challenges of going up against longer-running firms. When other groups have strong operating histories, assets, inventory, equipment, accounts receivable, tax returns and financials, there’s a lot more concrete information that a Landlord can consider and underwrite. In short, this is a more secure or credit-worthy tenant.
Consider Your Facility Improvement Needs
After setting some expectations, particularly the challenges that my client may face when proposing site modifications, we’ll discuss their specific needs for the building. The reality is that fitness or sports use is not the traditional use for industrial space, and it often requires features that are uncommon for this type of real estate. Clients need to consider:
Parking – Can this facility even accommodate your parking needs?
Adjacencies – Will your use conflict with your neighbor(s), create noise or sound out of line with lease restrictions, overwhelm parking infrastructure, impact pedestrian traffic, etc.?
Types of Landlord – Is the Landlord open to trying something new? Institutional Landlords usually do not consider unconventional tenants, though there are exceptions. Your best bet is to find a local or entrepreneurial-minded Landlord.
Zoning – Is this facility zoned for your type of business? See below for a more detailed discussion of this issue.
Of course, there are additional considerations for businesses that aren’t yet established. These clients need to think about all the above, PLUS:
Financials – How will you convince a Landlord of your financial stability? You will need to either be a high net-worth individual or prove you have access to sufficient funds necessary to reassure the Landlord. They’re naturally going to be concerned that, if you go out of business in a year after making a bunch of specialized improvements, they’ve lost money and have a space that’s been made less suitable for their traditional industrial clients. Most savvy Landlords will insist on a personal guarantee and will also want to know your personal financial situation to ensure you have skin in the game.
Operating & Experience – How soon can you be up and running? Do you have experience in this industry or a similar one? How do you plan to generate revenue, add clients, etc.?
A Business Plan – In this particular scenario, I’ve found that you need to show a well-thought-out plan to the Landlord about how your business is going to work.
The Zoning Problem
Most industrial-zoned areas where warehouses are built do not include ‘Fitness Use’ as a permitted use. This will vary by municipality but certainly holds true in the Twin Cities specifically. Of course, zoning regulations contain nuance, and many restrictions may be tied to certain square footage, etc. However, unless your operation is incredibly small, you’ll likely run into this problem.
To operate, you will need to apply for a Conditional Use Permit. This is a common bureaucratic procedure that many businesses go through. The main problem is that it can move quite slowly, something which both you and the Landlord should be aware of. You don’t want to sign a lease for a space if your conditional use is ultimately not approved. Tenants should also be prepared for the fact that some Landlords simply won’t be willing to wait on agreeing to lease terms for the 30-45 days (or more) that a C/U Permit can take.
How Sport and Fitness Tenants Can Win Over Industrial Landlords
Now, I want to take a moment to emphasize that none of this is meant to be discouraging. If you run into this search without knowing the possible challenges or are working with someone who isn’t realistic in their advice, the result is a lot of wasted time. Even wasted money, potentially, suffering damage to your reputation as a potential tenant. However, tenants who move forward with a clear head, good advice and a thoughtful approach have an excellent chance of finding a property that works.
My top recommendation is to plan and be thoughtful in your communication with a prospective Landlord. Package all of the information we’ve mentioned above into a clear narrative about your business.
Turn your Fitness Facility Dreams into Reality with Modern CRE
If you have some questions about starting your search for an industrial space for your fitness or sports project, remember you’re not alone. Many tenants before you have navigated this process and found success. This should serve as a good, rough guide. If you internalize the above, have appropriate guidance, solid financial backing and a clear communication of your experience and business plan, trust me, you will be in the top 10% of Fitness Users approaching a Landlord about leasing space
To get started working with us at Modern CRE, simply reach out to us today.
