Sport Life Group

Slow-moving stylobations: who is to blame and what to do!?

March 26, 2018
Commercial Property

Living on the ground floor of apartment building has always been considered as not prestigious, so today the developers have faced a serious problem… 

A housing boom of numerous high-rises both in the capital and other cities of Ukraine has led to a question of commercial space liquidity on the ground floors. 

As in the olden days many Ukrainian builders and developers, especially in the regions, prefer to design and lease to the tenants small “cut” spaces for so-called essential objects: bank departments, drug-stores, coffee houses, shops, beauty salons etc. However, experience in the recent years has shown that such management of commercial space is no longer efficient for a number of reasons: economic crisis, mass “influx” of high-rises, and, of course, public demand which, as you know, influences offer. But let’s get it sorted out. 

National crisis 

It’s more complicated with every passing year for small and medium-size business to meet competition or, to be more precise, just to stay afloat in the conditions of overwhelming economic decline. And this situation, despite the false security of large business, could not fail to affect it. It would seem nothing will happen with the construction company-giants — skyscrapers would be constructed as they were constructed, living metres would be sold as they were sold. But is it true and what to do with large, but “cut” commercial spaces on the basement floors!? It is in this context that the small business problems start to influence a developer-owner: repayment holiday, often changing tenants or just empty idle spaces. 

Mushrooming 

Today there is indeed the “building boom” of economy-segment residential property at the territory of Ukraine and especially in Kyiv. And when many big developers in Kyiv already understand that wouldn’t be possible to “settle” the ground floors by shops and coffee houses in the conditions of such number of “inexpensive” towers, in the regions the realization of this state of things hasn’t reached everyone. 

In other words, 10 buildings don’t need 15 coffee houses — let’s return to the term “repayment holiday”. Most capital developers have already understood: it’s necessary to look for a large and long-term tenant. 

Anna Popruha, representative of KAN Development company, considers that sports infrastructure objects could be one of the successful uses of non-residential space. At the same time she says that management of these objects is not core business for developers. 

A need for long-term strategic planning is one of the noticeable market problems, but very few Ukrainian developers can do it. “Such decisions are taken during the design stage and demand partner agreement with professional operator. For the most market participants the developer’s interest is to sell space profitably or lease it for long-term lease”, — explains Anna Popruha. 

A healthy trend 

However, the developer’s position has weak points. Demand issue is one of them. For example, Mykhailo Artiukhow, managing director of ARPA Real Estate company, estimates a volume of commercial space on the ground floor of new buildings in Kyiv approximately as 100-150 thousand square metres. He has observed that the vacancy in this segment is more than 30%. Professional commercial property (retail and office) is more popular. According to the data of UTG company, vacancy of the capital shopping and entertainment centres was 6.5%, business centres — 15% in 2017. 

In addition, when, for example, banking sector is getting more online in the whole world, a trend for a healthy lifestyle and sport is only gaining momentum. The USA is a setter of this trend, where, according to the data of Statista Inc. company, more than 57 million Americans (in other words, almost each 6 inhabitant of the country) visited sports clubs in 2016. Today, as indicated by Data-Lists company, there are 44 thousand sports clubs in the USA. According to the data of Statista Inc., this is an annual turnover about $25.8 billion in the USA only. In total the global industry of sports clubs generates over $80 billion a year, and this volume is constantly growing. 

A number of sports clubs in the USA, in thousands 

There is no need to go so far. According to the data of Colliers International company, central London is experiencing a boom of sports clubs of different format: from full-fledged fitness centres to studios. Operators of medium-size business dominate, when luxury objects occupy only 10% of the market (22% of total area of sports clubs). That’s not all. The growing demand for sports leads to increase in the need of related services: visitors of sports clubs need sportswear shops, juice bars etc. So, the demand for specified locations and their market value are increasing. It is noteworthy that 35% of sports clubs are in the underground accommodation, 54% — at the level of ground floor (foundation). 

A number of sports clubs in central London, %

We could look even closer, at Ukraine. According to the data of analytical company Pro-Consulting only 9% Ukrainians visited sports clubs in 2015, when this index reached 25% in Europe. So, on the one hand, there is a great potential. 

Sports on the ground floor

Despite the obvious sports trend only few developers have noticed it. “We have experience of realization of Sport Life fitness centre in the residential complex “Triumph”, which was put into operation in 2008. Two factors determined its success: at first, fitness industry was not so developed at that time that led to the increased demand, at second, we managed to make it really luxurious — starting from large space and finishing and ending with a swimming pool. The fitness centre had a full-fledged zoning, enough rooms for group programs (in particular for children), that provides an opportunity to offer a wide range of activities. We initially regarded the fitness centre as an anchor object, but not just as an infrastructure element”, — says Oleksiy Hovorun, deputy general director of development and marketing of TMM company. 

Sports clubs on the ground floors have been designed and realized in such capital residential complexes as Smart Plaza Politech (from the 1 to 3 floors, and there is a swimming pool at the 1st), Slavutych, Liko Hrad, Pivdenna Brama. There are fewer examples outside Kyiv: 1-2 such projects in Lviv and Dnipro. “However, there is a great potential. Everyone wants to do sports and spend a minimum time for logistic”, — says Dmytro Yekimov, founder of the group of companies Sport Life. 

As the additional arguments “in favour” he gives the following. At first, clean facades without visual garbage. “One sports club sign is more attractive than various signs of several tenants that could turn even the most luxury building to a kind of “skid row”, — he says. At second, it’s more profitable for developer to have one long-term anchor tenant, than several small which would leave from time to time. According to Dmytro Yekimov, Sport Life, for example, is ready to sign 10-to-15 year contracts and lease not so large premises — from 2000 m². 

“Today a home buyer is more demanding and experienced. People are not ready to buy just square metres. That’s why the infrastructure, in particular a fitness centre of high quality, is extremely important for a consumer nowadays. People want to spend a minimum time for travelling around the city, today a person needs to have everything within close range, be it a gym or shop, café or kid’s club”, — says Anna Popruha. 

KAN Development projects always include sports locations, although the developer decided to build sports clubs not on the ground floors, but in the separate buildings in such large residential complexes as Comfort Town and Faina Town. “From an engineering perspective it’s necessary to include activities different from shops and cafes while projecting fitness premises. It’s a different number of people, different consumption of electricity, water etc. If a sports club includes a swimming pool, a realization cost will increase significantly. Usually, a professional operator manages such club. KAN Development company has been cooperating in its projects with Sport Life network for many years”, — says Anna Popruha. 

The problem is that sports club on the ground floor has to be designed in advance. “Of course, it could be redesigned and re-planned, but quality will suffer”, — says Oleksandr Popov, manager of design group “Archimatika”. According to him, if it’s a construction of a usual fitness club, building costs of premises will be approximately equal to building costs of usual commercial premises. He has estimated that a swimming pool could cost almost twice as much. “Everything depends upon the goals. A sports club could be constructed in an economy-class residential complex, but other design solutions, materials and technologies should be used. However, such solutions certainly affect an object attractiveness and life quality improvement”, — he says. 

However, the experts also assure that developers and builders should be very scrupulous about a choice of sports operator, as management and administration of fitness club with a swimming pool is perhaps one of the most complicated business directions. In this case, they recommend to conclude contracts with the proved, first and foremost by the time, fitness networks, which have not less than 10-year experience in club management.