The pandemic caused major disruption to most operational businesses but since the last lockdown ended in 2021, we have seen a gradual revival in the trading prospects for most leisure subsectors, but how have gyms fared in relative terms?
A series of national lockdowns, interspersed with periods of draconian measures, caused significant upheaval for health and fitness operators who had to respond and adapt quickly to a range of previously unimaginable restrictions. One of the major changes faced by the operators was not just at property level but the concerns of the public perception on health.
Many gym operators pressed the pause button on the acquisition trail at the height of the pandemic. However, more recently we have seen renewed levels of activity, particularly amongst the budget operators, which has carried through into 2023. Both group and independent operators have seen steady increases in the number of sites since 2019 and there are c.700 more gyms compared to pre-pandemic. The move towards hybrid working has meant that rather more city centre premises have under-traded relative to those situated in more suburban and residential locations, with this trend likely to influence the shape of the development pipeline going forward.
While membership levels have in general terms rebounded, the desire for hybrid and flexible memberships has become apparent with many operators redesigning membership structures and pricing for customers, so as to optimise retention and average revenues per user.
In operational terms, 2022 was not without its challenges, perhaps the most pressing of which was the acute rise in utility costs, especially for those clubs with extensive wet and spa facilities. The UK fitness industry has received government support to keep clubs open; although the industry is lobbying for continued government energy support, once the current initiatives come to an end in April 2023. As an example, it has been reported that Nuffield Health Clubs have closed all hot tubs for a 6 month period, resulting in a saving in heating costs of £1.6M while Bannatyne Health Clubs have reportedly turned down the off peak temperature of their pools.
As yet, very few operators have chosen to pass the various cost pressures onto their members by way of increased subscription fees. The budget operators by dint of their more scaled-back offer, are at least less exposed to the particularly high running costs associated with wet facilities. The mid and upscale operators meanwhile are likely to hold their prices so as not to raise concerns that they are trying to pass cost pressures onto members, fearing a spike in membership attrition rates.
The degree to which this and other operational cost pressures, such as inflation and rising business rates (the 2023 rateable value for health and fitness clubs has increased by an average of 15% on the 2017 rating list) can be passed on to members, is likely to have a significant bearing on operational profit levels in the next couple of years.
