Omicron Threatens to Upend Gyms’ Fragile Recovery

Fitness-center leasing increased 27% in the third quarter compared with the same period in 2020, according to data firm CoStar Group Inc.

Gym popularity, sharply down for much of the pandemic, has been recovering in recent months and that momentum appears to be withstanding fears about the Omicron variant. Gym visits during the last week of November and first two weeks of December were above 2019 levels, according to foot-traffic analytics firm Placer.ai.

But the fitness industry still has a long way to go to make up for the loss of revenue and membership it has suffered during the pandemic. In California, gym developer Marc Thomas said membership and revenue at even his strongest-performing gyms are still 30% lower than pre-pandemic levels.

Mr. Thomas, who owns and operates 40 Orangetheory Fitness locations, has opened two new locations since the pandemic hit. But that is 10 fewer than the dozen he had planned to open over the past two years, he said.

Because of Omicron, Mr. Thomas said he is considering scaling back a big marketing and sales effort he had been planning for early in 2022. January typically is one of the strongest months for fitness centers as people carry out New Year’s resolutions and return to postholiday workout routines.

“Again the recovery has come to a grinding halt,” he said.

Fitness businesses were prized by shopping-center landlords before the pandemic because their members visit frequently and often stop in neighboring juice bars and other shops. The amount of square footage occupied by fitness centers expanded at an average annual rate of 7.7% from 2015 to 2019 in the nation’s 54 largest markets, according to CoStar data.

The pandemic turned weight rooms into ghost towns, as avid gymgoers switched to exercising outdoors and in their basements and through online programs like Peloton and Obé Fitness. As of July 1, about 9,100 fitness facilities had closed permanently, representing 22% of the 41,370 locations that were operating in 2019, according to IHRSA, a global health and fitness trade association.

Even though the number of lease signings has picked up steam in recent months, the total square footage occupied by fitness centers declined by 1% from the end of 2019 through last quarter, CoStar data shows.

Rent collections from fitness centers improved this year after dropping by more than a third in 2020, according to Datex Property Solutions, whose real-estate portfolio management platform tracks rent payments from thousands of shopping centers nationwide. Still, collections from fitness centers were more than 10% lower this year than in 2019.

“It’s a category that got slammed in 2020, has been digging its way out month by month,” said

Mark Sigal,

Datex’s chief executive.

Some gym operators took advantage of the slowdown by leasing more space and negotiating more favorable rent prices and terms. For example,

Xponential Fitness

opened 388 new stores between March of 2020 and September of this year, according to

Anthony Geisler,

chief executive of the company, which has more than 2,000 franchise locations under 10 different brands.

Xponential Fitness’s real-estate team avoided closing stores during the pandemic by negotiating rent deferrals and abatements, Mr. Geisler said. New leases often include provisions to protect operators, such as clauses that allow them to pay rent based on a percentage of sales if Covid-19 restrictions limit business operations.

In some cases, operators are forced to lease larger spaces to give customers more room. Data from JLL Research shows that the average fitness center footprint increased more than 12%, to nearly 12,000 square feet this year.

Santino DeRose of San Francisco-based Maven Commercial said the brokerage’s fitness deal volume is down by half compared with before the pandemic. Moving forward, he thinks gyms and exercise studios will still be in demand, but membership costs might rise because of inflation and operators needing more space for the same number of people.

“When you have yoga studios that really pack them in, and now you’re 6 feet apart, you’re decreasing your occupancy by half,” Mr. DeRose said.

Write to Kate King at [email protected]