FITNESS INDUSTRY Growth & Trends Retail Science from CBRE Summer 2019 the REPORT RUN-DOWN

FITNESS INDUSTRY Growth & Trends Retail Science from CBRE Summer 2019 THE REPORT RUN-DOWN

In the District of Columbia, the fitness market has dramatically grown in the past five years with nearly two new commercial fitness outlets opening every month, and there are no signs of it slowing down.

The fitness industry is a $30 billion business in the U.S. that has grown by 50% since 2010. With ever- evolving technologies, expanding 1.02M consumer options and broad SF OCCUPANCY economic improvements, more Americans are becoming health- conscious and actively engaged in 192 61% the fitness scene, driving demand TOTAL FITNESS OPENED IN THE PAST growth in the sector. OUTLETS FIVE YEARS In this CBRE research report, we explore five key trends shaping the D.C. fitness landscape and their implications for commercial real estate markets.

* Commercial fitness outlets are defined in this report as health clubs, fitness studios and personal training facilities. They do not include gyms within community centers or schools, gyms provided by apartment or office buildings, pop-up gyms, special sports learning facilities such as Taekwondo or dance studios, golf or tennis courses, or meditation rooms. Trend 1 Trend 2 Trend 3

THE D.C. FITNESS BOOM “CORE STRENGTH” PREVAILS MIXED-USE IS CHAMPION While fitness outlets were traditionally Concurrent with the downtown fitness The fitness industry has seen remarkable concentrated in residential areas, the urban boom, fitness outlets are increasingly growth in the District, with an average revival—and emphasis on “live-work-play”, embedded in office and multifamily addition of 1.8 locations every month amenity-rich destinations in the downtown buildings. While these users tended to be over the past five years. Today, the city core—has led to a significant surge in the located mostly in retail buildings, today is served by more than 190 commercial CBD, East End and West End in recent the majority (52%) are located in non- fitness outlets, including both national years, which are now served by 52 fitness retail, mixed-use buildings and function brands and home-grown operators. outlets, up from a mere six in 2009. as a ground-floor attraction.

Trend 4 Trend 5 MILLENNIALS THE RISE OF PROPEL GROWTH FITNESS STUDIOS For neighborhoods outside of core business Fitness studios—facilities that focus on areas, the growth of the fitness market is instructor-led classes instead of self-serve closely tied to the age composition of the exercise equipment—have been the fastest residents, with the presence of the 20-40 growing segment within the fitness industry. year-old cohort being a driving factor. With 83% of the D.C. fitness outlets are studios, the expanding knowledge economy and up from 57% in 2009, providing consumers in-migration of highly educated millennials, with a wide variety of à la carte options from the fitness sector is likely poised for yoga to pilates to spin. continued growth in D.C. Click here to view interactive map on

FULL-SERVICE HEALTH CLUBS NORTHWEST

FITNESS STUDIOS

NORTHEAST

0 0

GEORGETOWN

29 CORE BUSINESS DISTRICT 9 CAPITOL HILL

NUMBER OF FITNESS OUTLETS PER MARKET WATERFRONT 29

110 Northwest 80 9 9 Core Business District 52 Northeast 18 SOUTHEAST Capitol Hill 18 Georgetown 11 Waterfront 11 Southeast 2 9 29 THE WARM-UP with a dash of what’s cool and innovative in the D.C. scene

EXPANDING THE PELOTON: FROM “JUDGEMENT FREE ZONE” SQUASH ON FIRE CLICKS TO BRICKS FANS & FOODIES SOUL & SALAD

Planet Fitness takes a distinctive Some CrossFit studios—such Peloton, a home exercise We expect an interesting For each of the four approach by offering low- as District CrossFit and Total startup that has developed mix of fans and foodies SoulCycle locations in the cost workout options and an Source Fitness—utilize space a devout following and is this summer when the District, there is a Sweetgreen inclusive, “Judgement Free in warehouse buildings to now valued at more than Washington Kastles—D.C.’s located within two blocks. Zone” environment. Planet give patrons a hardcore, $8 billion, opened a professional tennis team— The geographic proximity Fitness opened its first D.C. industrial “feel” to the showroom in Bethesda, plays seven of its home creates a micro “health location in Anacostia in workout. Squash on Fire Maryland in September games featuring matches and wellness” ecosystem 2015 as the first full-service in the West End utilizes the 2018. This is its second in with Venus Williams and and enables partnership health club across the river, upper level of a fire station the D.C. metro region (the Nick Kyrgios on the rooftop programs such as “Soul & and expanded into a second as a creative space use. first being in Tysons, VA), of Union Market, a one-time Salad” which offers exercisers location earlier this year in Ivy and is it rumored Peloton warehouse turned into a post-workout salad discounts. City, along with five additional will open a studio (which popular food hall with more announced openings in focuses on interactive service) than 40 local vendors. Northern VA. in the District next year. THE D.C. FITNESS BOOM

1The fitness market has seen a remarkable rise in the NOTABLE OPERATORS

District, having grown more than five-fold over the past (number of locations) 10 years to 192 outlets as of June 2019— 8 an average of nearly 16 new openings per year. 7 The abundance of fitness options and locations adds to the growing amenity base in the city, and provides an array 6 of choices not only to D.C. residents, but also to the large commuter base. 5

4 FITNESS MARKET GROWTH 192 200 182 3 164 150 147 118 2019 YEAR TO DATE OPENINGS 100 98 barre3 Illumin8 74 61 CorePower Yoga Orangetheory Fitness 35 52 50 41 DC Row Planet Fitness Epic Internal Training Rumble Boxing Fuse Pilates [solidcore] 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD

Source: CBRE, Q2 2019. “CORE STRENGTH” PREVAILS

2Driven by market shifts toward “live, work, play” destinations and the emphasis on walkable amenities in 6 52 3 high-density urban locations, D.C.’s Core Business District (West End, Central Business District and East End) has seen open as of 2009 open as of 2019 opened this year a meteoric rise in commercial fitness outlets, from a mere six in 2009 (17% of total stock) to 52 as of June 2019 (24% of total stock). Three out of the 10 openings in D.C. so far this year are located within the Core Business District. 0 0

29 FITNESS OUTLET GROWTH in the Core Business District FIT CLUB

One to One EAST END Fitness Center

WEST END

29 CENTRAL BUSINESS DISTRICTDISTIRCT TRAIN LIKE A PRO 9

Source: CBRE, Q2 2019.

110

9 9

29 MIXED-USE IS CHAMPION

2019

Coinciding with the downtown fitness boom, the 3

occupancy of fitness outlets has become more diverse

and creative, and increasingly embedded in office and

44 multifamily buildings. ou

% tle

5 ts

/ 2 / s 2 et 3

While traditionally located mostly tl 2009 %

in single- or multi-tenant retail 8 4

buildings, today the majority 3%

2 / s 1 et 2

(52%) are part of non-retail, o u u o t

8 le

mixed-use buildings as a s

ground-floor occupant. 4

9 /5% FITNESS OUTLET OCCUPANCY

by Asset Type 9

1/3% o u t le 1/3% t 5 / Single-Tenant Retail s 3%

/ 2 4/ 6 11% Multi-Tenant Retail %

Office 5 0 o

u Multifamily t le ts / % 2 9 Industrial 6 / 1 % ts tle ou Hotel & Event Space 36

Source: CBRE, Q2 2019. MILLENNIALS PROPEL GROWTH

MILLENNIAL POPULATION (Age 20-40) as % of total population 4For residential neighborhoods outside of the Core Shepherd Park Under 15% Over 60% Business District, our research shows the density Barnaby 4 Woods Takoma 15%-30% Out of sample of millennial residents has a positive correlation 30%-45% # of outlets with the growth of fitness outlets, which is largely Brightwood Lamond Riggs 45%-60% 2 reflective of the lifestyle and spending preferences Chevy Chase

of this age cohort. Neighborhoods with a millennial 2 Queens Friendship 1 Chapel Heights Brightwood composition less than 40% average 1.8 fitness Park

outlets, while neighborhoods with greater than 40% American 4 University 4 1 Fort Totten North Park 16th Street Tenleytown Van Ness Heights Michigan millennials have almost double the locations. Park 1 Petworth 2 Crestwood A regression analysis indicates Spring Valley 3 1 University Cathedral Cleveland Heights 2 Heights Park 2 one fitness outlet for every 1 1 Brookland Mount Park Wesley Pleasant 5 Woodbridge 2 Heights View 1,020 millennials in a given Palisades Columbia Woodley Park Heights Fort 1 Lincoln neighborhood, while no other 6 McMillan Edgewood Langdon Glover 11 Park Adams Brentwood Gateway Morgan 9 2 LeDroit age group has shown statistical 1 U Park 50 Kalorama Street North 1 Foxhall 5 5 Shaw 4 Arboretum North Bloomingdale 1 14th 1 Eckington Ivy City correlation in this study. Dupont 2 Street Logan 1 4 3 17th Street Circle Shaw 1 Georgetown Georgetown Truxton 3 East Circle Union Market 1 District NoMa Trinidad Georgetown North 5 Capitol Carver Waterfront 11 Langston AVERAGE NUMBER CORE BUSINESS Street Union 3.5 DISTRICT Station H Street OF FITNESS OUTLETS 29 Judiciary 2.8 Square per D.C. Neighborhood Kingman Park 66 4 395 Capitol Hill 1.8 1 Eastern L'Enfant Market Plaza 2 3 4 Barney Circle/ 295 Southwest Barracks Hill East 2 Row 2 Waterfront 110 Capitol The Wharf 3 Riverfront Navy Yard <40% Overall >40% 395 Ballpark District Millennials Average Millennials 695 1 Source: CBRE, Q2 2019. Buzzard Point

2018 Millennial Population: Percent

Under 15% 395

15% - 30% 295 30% - 45% 45% - 60% Over 60% THE RISE OF FITNESS STUDIOS

5Over the past decade, a new concept has emerged FULL-SERVICE HEALTH CLUBS FITNESS STUDIOS and transformed the local fitness industry: boutique fitness Self-serve, Instructor-led, Business Model studios that deliver instructor-led classes in a wide variety Equipment-driven Service-driven of formats from yoga to pilates to boxing, many having Total D.C. Locations 32 160 developed a devout following among urbanites. Fitness Average Footprint 17,000 SF 2,900 SF studios successfully adapt to the evolving demographics 57% chain operators vs. 16% chain operators vs. and psychographics of urban dwellers who are transient, Operator Mix 43% single locations 84% single locations experience-seeking and socially connected. 24/7 Access Some No Today, studios account for more than Flexibility/Spontaneity Low High with Classpass* four out of every five fitness outlets in High-end Brands the District. $30+ per class $100+ per month (45-60 minutes) YOGA CROSSFIT/HITT* PILATES

Mid-end Brands

$15-$25 per class $40-$70 per month 47 36 18 (45-60 minutes) BARRE SPIN Affordable Brands

$12 per class $10 per month (45-60 minutes) 14 11 * Classpass is an app that allows users to visit multiple participating fitness studios while paying with credits. Most studios accept Classpass’ credits, with the exception of some such as SoulCycle and Orangetheory. * HITT: High Intensity Interval training

Source: CBRE, Q2 2019. SOSO

OUTLOOK: WHAT’S NEXT?

FOR FITNESS PROVIDERS FOR OFFICE TENANTS Converging offerings to capture evolving consumer needs Leveraging fitness for talent attraction and employee wellness • Adapting to demographic shifts and the trend toward interactivity and • With the increasingly tight labor market, office tenants are placing a greater personalized service, traditionally equipment-focused gyms are expected to emphasis on providing employees with amenities and concierge services, incorporate more instructor-led classes and a la carte options to help diversify including subsidies for gym memberships and fitness programs. their offerings. • Having easy access to a variety of fitness options near workplace can be • Furthermore, fitness providers have the potential to vertically integrate other leveraged as a recruiting benefit and help boost employee morale and services and products—such as workout apparel, dry-cleaning, nutrition, and productivity. Fitness outlets can also be used for teambuilding events and counseling services—to expand into a one-stop shop for multiple health and corporate gatherings. wellness related needs. FOR RETAIL TENANTS FOR PROPERTY OWNERS Creating a fitness ecosystem to cross-pollinate businesses Activating ground and subterranean floor stacks with a • Fitness is becoming a holistic, multi-faceted lifestyle. dynamic fitness brand As such, more health-focused restaurants may choose to locate near fitness • As the need for fitness options in the core business district continues to grow, outlets to attract patrons after their workout. more office landlords may consider incorporating fitness studios in their building • Fitness apparel and equipment retailers may also “downstream” near fitness mix as a ground-floor tenant, which requires a small footprint and helps outlets to leverage the geographical proximity, creating a fitness micro-market cultivate an attractive street presence. and a one-stop experience for consumers. Large fitness outlets may increasingly • Property owners of older industrial and mixed-use buildings may tap into the emerge as anchors for retail corridors in the coming years. fast-growing fitness sector to not only increase occupancy through creative and adaptive space reuse, but also help reenergize the building through branding and placemaking. FOR CONSUMERS Taking advantage of the fitness boom • With 10 new openings in the first six months and 9 more slated to open by the end of the year, options will be abundant for fitness seekers, accompanied by more competitive pricing and flexible terms. • As fitness outlets permeate areas where people live, work, and shop, offering self-service, group and personalized workouts at various price points, the growth of the D.C. fitness industry is telling a story of interactivity, inclusivity and community. WEI XIE Senior Manager +1 202 585 5642 [email protected]

ALEX WANG Retail Research Analyst +1 202 585 5682 [email protected]

LAUREN MAZZATENTA Retail Graphic Designer +1 202 585 5644 [email protected]

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SHAPING UP THE DISTRICT FITNESS INDUSTRY GROWTH & TRENDS

Retail Science by CBRE Summer 2019