China’s retail landlords shape up in response to health & fitness trend

February 12, 2019

Gyms and fitness centres are becoming popular mall tenants in China as landlords look outside of fashion to fill space, drive footfall and raise rents.

Fitness clubs are a relatively recent phenomenon in China where the market has lagged the global health and fitness trend. But a growing number of health-conscious consumers are driving change.

China’s fitness industry grew by 10.4 percent last year, reaching total revenue of US$7 billion in 2018 and the number of gyms is rising; today there are over 37,000 gyms across China, with the majority in tier one and two cities.

“Leasing space to gyms, yoga and dance studios, or other fitness-related operators, enables landlords to lease space which has limited alternative demand,” says Michael Ball, Director in JLL’s China retail team.

Street level stores continue to command a premium, especially among luxury brands but as online shopping has taken off in China demand for real estate space has dropped especially in the basement or upper floors of malls.

“Landlords have to work harder to find tenants, other than restaurants and coffee shops, to occupy space outside of the prime street level units,” says Ball.

“Gyms not only take this space but they help to drive shopper traffic.”

Fitness driving footfall

Yoga, Pilates or specialist franchises like Cross Fit are proving most popular with consumers, even though they can cost upwards of 2,000 RMB (US$290 per month).

Landlords are willing to offer lower rents to these operators than fashion brands because they help to boost rents elsewhere, says Ball: “Providing amenities for other tenants in a mixed use development means landlords can argue a slight increase in rents for office tenants, for example.”

Landlords are also tapping into the health trend in food and fashion.

Signs of growth in China’s health category first emerged in leisurewear, which has been expanding as a result of government-backed programmes to promote healthier lifestyles. Healthy eating is also more popular with salad bars, juice shops and farm-to-table food concepts now a regular sight in malls.

“Athleisure fashion is among the top performing apparel categories in China,” says Ball.

Canadian-born brand, Lululemon, is currently the market’s best performing retailer despite it costing significantly more in China. 

Fit for the future

In order to profit from the health trend across food, fashion and fitness, Ball says savvy real estate developers and landlords will begin to incorporate fitness concepts as a complementary service for other tenants such as offices and hotels.

Landlords could effectively buy a number of memberships from a chosen gym provider and allow hotels, serviced apartments and office tenants to use the facilities.

“Hotels and offices would benefit from offering a gym without operating it themselves, and it de-risks for gyms because they get guaranteed use.”

If the current trajectory continues, China could become the biggest fitness market in the world within the next 20 years.  Retail landlords, developers and investors can therefore bank on this trend changing everything from tenant mix to income streams.