Sport Life Group

“The market has shrunk, there is a struggle for leaser!”: how fitness club saves the premises from downtime

August 18, 2017
Commercial Property

The analysts note the market of commercial space is highly turbulent due to the crisis and is undergoing its painful transformation over the years. 

Despite the gradual reduction of rental rates seen for three years, a leaser’s pool is unstable and constantly changes — both quantitatively and qualitatively, and vacancy is still at a very high level and reaches 20-30% in some segments. 

“The market has shrunk, there is a struggle for leaser. Price policy – in other words a leaser pirating by lower rates doesn’t work anymore. We cannot continue to reduce rates, this dumping would ruin the market, – says Viktor Oborskyi, head of strategic consulting department in UTG. — It’s important for the owners to possess non-price instruments in such conditions that would help the premises to be more competitive and attractive than in a neighbouring business centre. And the accompanying infrastructure plays this role. It’s an important condition for the office buildings to have the space with other, not office, designated purpose: cafes, restaurants, banks, showrooms, and fitness clubs. Accompanying service functions providing additional comfort and convenience for staff and guests make the premises much more attractive”. 

In the expert’s opinion such services in business centre don’t provide a developer with enormous yield, but still the profit they bring can hardly be overestimated. Fitness clubs and restaurants in one space with offices provide a strong effect of extra cost for leasers, they are much more interested in rooms with fitness, showroom or even dry-cleaner next door that a simple “empty corridor” of business centre, the expert thinks. In addition, an owner doesn’t come off the loser: as a rule the space for gyms or cafes was not initially designed for offices and couldn’t be rented for these purposes. 

Shopping and shopping and entertainment centres also have considerable benefits when there is accompanying infrastructure at their territory – especially, when it’s connected with the recreation and health sphere, analysts note. 

Viktor Oborskyi calls this infrastructure objects “the anchors of alternative visiting” and agrees they can attract a significant number of additional visitors to shopping and entertainment centre. According to estimates of Maksym Havriushyn, sales director of group of companies “Budkhaus”, a fitness centre in shopping and entertainment centre as an anchor can generate more than a thousand people a day. Vadym Neposedov, founder and president of UTG, considers that entertainment aspect of any shopping and entertainment centre is a formula for success. Audience surveys showed: visitors are equally ready to spend money for both shopping and fitness studio or restaurant. 

By the way the representative of KAN Development company also considers: the market of commercial projects is on the development level when they are regarded as defective without accompanying infrastructure. Nikonov pays a great attention to the fitness clubs at the territory of commercial and shopping centres. “When we construct something we create environment – everything a man needs, — said the developer in an interview. Fitness has already become one of the main attributes of life. If a man spends one-two hours in a fitness club per day, he “lives” there about a month in a year! Almost all staff of 101 Tower do fitness. A fitness club is must-have at all in office centres”. It should be reminded Sport Life provides fitness services in the business centre 101 Tower – as well as in other projects of KAN Development company. 

“Fitness clubs are necessary everywhere” — agrees Dmytro Yekimov, founder of the group of companies Sport Life. — Commercial real estate can’t manage without recreation grounds in the modern world. There is demand for fitness, so offer should be too. Fitness service sphere is a honey pot where money can and must be earned”. 

Developers who offer their space for long-term lease to the fitness operators never come off the losers. According to careful estimates given the increasing sale index of basic goods and services, extra profit could make from 3 to 15% annually. 

 “A good developer should attract partners who provide a quality level of infrastructure, — considers Valentyn Yaromenko, the owner of “Mark&Sales”, the company managing sales of the development corporation “Riel”. This increases the customer loyalty and influences a volume and quality of sales. 

It is fair to say that national operators of sport and entertainment industry the demand for which is rapidly growing despite the crisis are not always ready to offer a high-quality and affordable service and be the very saving “anchor”. 

Involving of operator could lead to unnecessary problems for owner when the operator is new in business or tries to work using a wrong business model. And a bad “anchor” is worse than not having one at all. As it can harm reputation of the whole shopping and entertainment centre, the analysts warn. Not to be trapped the business analysts recommend to do business with the proven market players. The network operators with many years of experience both in Ukraine and abroad are such players in the fitness market. A good example is already mentioned network Sport Life. 

Sport Life is a well-known brand that offers a unified range of high-quality options throughout the whole its network, — says Yaromenko. — Buying space in the complex where there is Sport Life a client understands: he receives expected quality and level. Such partnership is quite profitable for both developer and operator of fitness industry”, — concludes our companion. 

Today the network has 47 working clubs and 18 are planned. “Our task is to open at least 65 clubs around the country”, — says Dmytro Yekimov. — When during the initial stage we introduced sport to more than 50 thousand people, then a number of exercisers passed 100 thousand after the new clubs were launched. According to Yekimov’s data a number of fitness fans in Ukraine grew to 5 % for the last few years, and 3.5% of population of the country visits fitness clubs on a regular basis. “Demand for fitness services is growing and a number of clients who extend gym membership every year constantly increases, — says Dmytro. Our rooms are not empty. I think this is because we offer good services at reasonable prices. Nowadays fitness is the cheapest leisure activity in the realities of Ukraine: the consumer expenses make about 15 hryvnias a day expressed in expenditure side”. 

According to developer’s estimates Sport Life is the most flexible lease holder in the Ukrainian market. It operates with a large range of different formats: from express clubs with 1500 sq. m to sports palaces with 8000 sq. m.

 “Our clubs are located almost in all types of commercial real estate — in residential complexes, business centres, shopping centres and shopping and entertainment centres, — says Yekimov. Certain types of commercial real estate have their benefits: if our fitness-club enters the structure of shopping and entertainment centre, the owners will increase the object attendance by 5-7%. Our best clubs generate a flow of 1 000 000 of visitors a year that could be compared with a small shopping centre. Sport Life is becoming not just “anchor” lease holder, but “super-anchor”. According to Dmytro Yekimov’s estimates the network plans to grow rapidly despite the crisis. “As large network retail businesses exit the market due to the crisis and leave the premises, there are new opportunities, — says our companion. — We are ready for negotiations on a long-term lease of these premises from 1 000 m² and more”. 

Not only Dmytro Yekimov is optimistic about the business – the business analysts we have interviewed support this opinion too. The future of business industry in Ukraine is already quite attractive. The potential available market is huge and may amount to billions of dollars a year. Demand is steadily growing — by several per cent a year. Profitability of fitness business – up to 25% per annum, each new club of the network provides a full return after 3-5 years of work (provided the club is a part of the network).

According to expert’s estimates the operators, which are ready to offer quality and familiar services in close proximity to place of residence or work of potential client and at affordable price, would stay afloat in the medium-term.