Planet Fitness, a major gym franchise, is facing challenges in its expansion efforts due to various factors impacting the commercial real estate landscape. While there is a growing demand for convenient and affordable gyms like Planet Fitness, the company is struggling to open new locations due to persistent inflation, limited suitable space, and high construction costs.
As of the last year, Planet Fitness had plans to open around 600 new locations by the end of 2025, based on franchise contracts. However, CEO Chris Rondeau revealed that these plans have been significantly slowed down due to various headwinds. Franchisees are hesitating to move forward with new openings as they await a decline in costs.
In 2023, Planet Fitness had initially anticipated opening 160 new locations, primarily through franchising. But the pace of new gym construction has been hindered, with only 26 new locations opened in the second quarter, down from the 34 opened during the same period in the previous year.
Rondeau pointed out that the cost of constructing new gyms remains 25% higher than pre-COVID levels. This inflation in construction costs is impacting franchisees’ ability to build new gyms at the expected pace. Interest rate hikes over the past year have also affected franchisees, particularly those backed by aggressive capital structures, limiting their capacity to invest in growth.
Franchisees are also grappling with challenges related to the HVAC supply chain, which is causing delays in acquiring new systems. Additionally, finding suitable real estate has become more difficult, as there has been a 16% decline in retail space vacancy rates compared to the pre-pandemic period. This scarcity of available space is making it harder for franchisees to secure the right locations for their gyms.
Despite these challenges, Planet Fitness is determined to continue its membership sales efforts. The company is investing $250,000 in marketing to attract new members in 2023. Notably, sales at established locations have risen by 8.7% in the second quarter. The company is witnessing strong sign-ups from Generation Z customers.
For commercial real estate investors interested in the fitness industry, this article highlights the current obstacles that Planet Fitness and its franchisees are facing in expanding their gym locations. Investors should be aware of the impact of inflation, construction costs, interest rates, supply chain issues, and real estate availability on the growth prospects of such franchises. The situation underscores the importance of carefully assessing these factors and understanding their potential effects on investment opportunities.
If you are a property owner in this sector, it’s crucial to explore how these challenges might impact your situation. By understanding the dynamics at play, you can better position yourself to capitalize on emerging opportunities while effectively managing risks that might not be immediately evident. Don’t miss out on the potential for growth in the evolving commercial real estate landscape. Contact us to delve into the specific details of your property ownership situation and strategize for the road ahead.