Regional Government Leaders Look to Bolster Industry Hit Hard by Pandemic
By Lou Hirsh CoStar News
July 27, 2020
San Diego County supervisors are considering letting gyms and other fitness-related businesses use county parks to operate outdoors, as communities look to assist a hard-hit industry that was among the few bright spots for retail center owners before the coronavirus pandemic.
“In order to balance public safety and keep our businesses afloat, the county must be creative and flexible in our approach,” said Supervisor Dianne Jacob in a recent letter to her board colleagues introducing the measure.
Jacob is calling on the county to make it easier for fitness-oriented businesses and places of religious worship to conduct activities in county-owned parks and other properties by streamlining permit processes. The measure is scheduled to be reviewed by supervisors at an Aug. 5 meeting.
Local cities including San Diego and Poway have also enacted or are considering similar measures to let certain businesses such as gyms remain open in city- and privately owned outdoor spaces after re-closures ordered by state and county officials in an effort to stem recent spikes in coronavirus cases. Other major California cities including Los Angeles and San Francisco have also been seeking ways to expand outdoor businesses, in some cases by letting them extend operations into nearby sidewalks, streets and parking lots.
The moves are deemed especially crucial for businesses hit hard by the pandemic such as restaurants and gyms, which have become important to retail landlords for the same reasons they've been setback by the coronavirus: crowds.
CoStar managing analyst Joshua Ohl noted that gyms and fitness centers have been among the most active commercial space occupiers for the past several years in San Diego and other cities, as retail centers have turned to more experiential tenants that lure customers away from their homes. In recent years, they have become significant in large cities’ retail centers as store chains continue to shut physical locations amid competition from e-commerce.
Fitness businesses generally proliferated across the region in large and small retail centers prior to the pandemic, and many are operated by smaller local and independent franchisees.
“They also typically sign on for considerably larger spaces than traditional storefronts — although they fill those as well in more boutique style clubs — which provides some motivation for landlords to maintain their occupancy,” Ohl said.
Fit Athletic, for instance, opened several new high-end spaces in locations such as Little Italy and Mission Beach, and Equinox anchored a new retail collection at the Westfield UTC mall with a 30,000-square-foot gym facility.
But the efforts to allow gyms to operate in outdoor areas may not be enough to keep gyms operating.
“Not all gyms — particularly in Downtown San Diego — will have an easy means of moving their operations outdoors during the pandemic, which may make it considerably more difficult for them to remain viable during and following the current lockdown,” Ohl added.
Without reliable income, those once-dependable retail-center tenants could face increasing pressures with prolonged pandemic closings.
San Ramon, California-based 24 Hour Fitness last month announced a financial restructuring through a voluntary Chapter 11 filing, which the company said would allow it to reposition itself by eliminating debt and closing clubs that were either out of date or in close proximity to other 24 Hour Fitness locations.
In an email to CoStar News Monday, 24 Hour Fitness said the company is “researching options for utilizing outdoor space in select 24 Hour Fitness San Diego clubs to potentially present an outdoor workout alternative to members.”
“We look forward to reviewing our options and potentially presenting them to members in San Diego County in the forthcoming week,” the statement said.
The nationwide Gold’s Gym chain recently filed for Chapter 11 bankruptcy protection, and other national fitness chains are known to be contemplating similar moves.
Major bond-rating agencies have recently downgraded debt held by the parent companies of two of the largest chains, LA Fitness and 24 Hour Fitness, both of which have announced some permanent nationwide closures during the pandemic.
“We believe that COVID-19-related fitness club closures have materially impaired the company’s liquidity position,” said a June report by S&P Global ratings, pertaining to 24 Hour Fitness Worldwide Inc., which has 400 locations.
Moody’s Investors Service expressed a similar downbeat outlook in April for Fitness International LLC, parent of LA Fitness, the nation’s largest nonfranchised gym chain with more than 700 locations.
“The negative outlook reflects Moody’s view that Fitness International remains vulnerable to coronavirus disruptions and unfavorable shifts in discretionary consumer spending,” Moody’s analysts said in a report. “The negative outlook also reflects the uncertainty regarding the timing of gym re-openings and the risk of liquidity stress should gym closures persist.”
Gold's Gym did not immediately respond to CoStar News’ requests for comment.
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