Treading water
Glasgow, a city once synonymous with a hedonistic lifestyle of booze, chips and deep-fried confectionery is now a picture of health. Gyms and coffee shops have replaced the greasy spoons. But while Glaswegians may now appear to be healthier individuals, the same cannot be said for the health and fitness industry in general.
While there are more gyms open than ever before, the industry has run itself into a circle over the last 18 months. Two years ago, gym chains were growing and operators were fighting for sites. But saturation, together with a weakening economy, made some members reassess their monthly out-goings and cut back spending on non-necessities, such as gym membership.
Operators had to consolidate and pegged back expansion plans as a result, but can the industry regain its vitality, and what shape is it in to see it through the next 12 months?
To understand where the health and fitness market is going, it is necessary to look at the wounds that have been left by tough market conditions. Rents have faltered and this, combined with a few landlords getting their fingers burnt (see panel) has dented the industries covenant strength.
"Rents are static or have fallen - particularly in London because of the saturation factor - and therefore the viability and return for a landlord is diminished," comments Andrew McGregor of FPDSavills. "Three years ago the majority of operators were solvent and had plc status, but that has changed. LA Fitness is the only plc other than David Lloyd, and as a consequence covenant strength has been diluted."
Colin White of Edward Symmonds Hospitality & Leisure says this will weaken health and fitness operators' bargaining power, and will make landlords more wary.
With competition for sites from other higher value uses such as residential and offices, the industry is left with a steep hill to climb. Industry commentators, however, remain cautiously bullish.
"We are at the tail end of the growth phase in this sector, so there is still room for 10-15% growth," says White.
Where that potential growth will be is open to more discussion. White believes the attention should be turned away from the often saturated big cities to smaller towns.
Simon Hawkins of Gerald Eve believes some places may have been overlooked. "Everyone has targeted the main cities; for example, Leeds is over its health and fitness trend, and no one would consider it now." Larger towns and cities such as Darlington, Sunderland, Middlesbrough and Stockton could take more gyms. Likewise, Barnsley and Rotherham. Hawkins describes the latter as "decent towns with decent catchments that could take health and fitness operations, but haven't traditionally been targeted".
LA Fitness, the UK's second biggest health and fitness brand, is one name that is looking for potential new sites. Agents describe the operator as very site selective, and its director of property, corporate development and strategy, David Turner, confirms there is a certain amount of caution.
While reluctantly putting forward a target figure of eight to 12 new units for the next financial year, Turner admits that if the right sites don't come up the number could easily be less. Equally, it could be more if it strikes it lucky with locations.
"The sector has been through problems, but the industry remains strong and the growth opportunities are there," he says. "Demographics still drive it, but I think there are opportunities across the whole country."
Turner believes LA Fitness' plc status will still have a certain amount of cachet with landlords, although he admits that the competition from alternative uses is going to be tough.
David Minton of sector consultants The Leisure Database Company believes that the industry can emerge stronger than before. "The industry realises it has been a tough year and there has been a slowdown, but is positive about the coming year. Most of the main operators have learnt a lot and been through the pain of restructuring and refinancing, and 2004/5 is a year of opportunity."
