A different sort of GLP
The news captivating real estate headlines this week has been the acquisition of the international business of GLP Capital Partners by Ares Management. We intend to discuss another GLP however, a drug perhaps just as transformative of heretofore the greatest scientific invention of the 20th Century, the contraceptive pill. The newest generation of GLP-1 drugs, such as Ozempic, has been lauded as a "miracle drug" for their effectiveness in treating obesity. According to Goldman Sachs, the market for these drugs could expand to $100 billion by 2030 due to increasing demand and their potential to revolutionize healthcare. The Future of Healthcare report by Citi, emphasizes the need for such preventive healthcare measures to manage rising global healthcare costs. The reports highlight that while GLP-1 drugs are transformative, their broader adoption will depend on overcoming economic barriers and systemic healthcare reforms, positioning them as key players in the future of healthcare delivery and public health strategies.
The rise of GLP-1 drugs like Ozempic is not only transforming weight loss strategies but also reshaping the gym and fitness industry. According to the Financial Times, gyms are now experiencing a shift in consumer behaviour, with many moving away from cardio-intensive workouts toward strength training. This is partly due to the muscle loss that GLP-1 users can experience alongside fat reduction, leading to a higher demand for strength-building exercises to combat issues like "Ozempic butt" and balance problems. As a result, gyms are having to reconfigure their spaces, moving cardio machines to the periphery and creating more room for strength training areas and classes.
While some fitness centres are capitalising on this shift, others are struggling with the cost and logistical challenges of adapting their equipment, many of which are tied to long-term leases on cardio machines. The focus on holistic wellness, combining strength training with preventive healthcare, offers an opportunity for gyms to attract a broader customer base, including older populations that are increasingly interested in wellness but hesitant about returning to gyms post-pandemic.
Gyms remain a crucial component of leisure property. According to a CBRE report, gym memberships have proven resilient in the post-pandemic period. Despite 75% of respondents in a Censuswide survey expressing neutral or somewhat negative feelings about their personal finances, 73% still plan to either increase or maintain their frequency of gym visits. Notably, individuals aged 55 and above are the least likely to reduce or stop their gym attendance altogether. PureGym’s more recent Fitness Report for 2023/24 seems to echo these findings, where encouragingly, despite the cost of living crisis, the research reveals that 24% of the population has actually increased their spending on exercise within the last year. Although the State of the Fitness Industry Report 2023 recorded a slight 0.9% decline in the total number of gyms and health clubs in the UK, the continued emphasis on community and social connection continues to draw people to gyms, positioning them as leaders in the leisure sector.
The Wall Street Journal reported that the resilience of in-person fitness is boosting shopping-centre landlords who have found that gym goers often stick around after workouts to shop or socialize. “It’s sort of natural to come out of the gym and if there’s things around you that you can take care of—you do that before you get back in your car and go on to the next thing,” said Barrie Scardina, head of retail, Americas, for brokerage Cushman & Wakefield. Data from Creditntell shows that the presence of fitness centres increases foot traffic to nearby stores. A retailer located in a shopping centre that also has a gym receives, on average, 2.5% more visits a month compared with the same retailer’s other locations in centres without fitness businesses, Creditntell said.
This demand from gyms has come at an opportune time, as they occupy large vacant spaces left by department stores and offices. According to Sam Bernstein, Chief Operating Officer of Chelsea Piers, "There’s square footage opening up that never existed before." These fitness centres are securing long-term leases, sometimes up to 25 years, providing property owners with much-needed stability. Bahram Akradi, Life Time’s Chief Executive, emphasised the importance of space in this transition, noting, "You need to have a long-term vision," as gyms increasingly offer a wide range of amenities that require substantial square footage.
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High-end gyms such as Equinox and Life Time are transforming the fitness industry by incorporating additional services like childcare, co-working spaces, and hotel-style amenities. These luxury gyms, which were once viewed as supplementary amenities in larger complexes, are now becoming primary attractions, taking over vast retail spaces. Life Time's "country club" model includes features like cafes, pickleball courts, and workspaces, catering to clients who are looking for more than just a workout, blending fitness with lifestyle experiences.
However, the gym industry isn’t immune from the debt maturity wall impacting all asset classes. United FP, the largest operator of Planet Fitness gyms, is seeking $750m from private credit lenders to refinance a maturing $525m leveraged loan due in 2026. The refinancing package would include both a term loan and preferred equity. This move reflects a growing trend of companies turning to private credit as they face upcoming debt maturities. United FP's credit rating has faced pressure, with S&P Global revising its outlook to negative due to liquidity concerns.
Meanwhile, PureGym, a major budget fitness operator in the UK and Europe, has partnered with RCS Real Estate Advisors to expand its "Pure Fitness" brand in the U.S. and Canada. Known for its affordable, 24/7 gym access, PureGym aims to replicate its European success in North America. With nearly 600 gyms globally, Pure Fitness will benefit from RCS’s expertise in real estate strategy and franchise growth as it seeks to become a leading fitness operator in the U.S.
The sector’s growth has also attracted 26North Partners LP, an alternative investment firm founded by Josh Harris (formerly of Apollo Asset Management), which has acquired Onelife Fitness from Delos Capital. Onelife Fitness, with over 400,000 members across 61 clubs in the Mid-Atlantic and Southeastern U.S., offers premium health and wellness experiences at affordable rates. Mark Weinberg, 26North’s Head of Private Equity, stated, “Onelife is a fantastic opportunity to back what we believe to be a best-in-class operator in a growing category.” With 26North’s support, Onelife plans to expand and innovate its offerings.
Specialists, like Dr. Lee Kaplan advocate for long-term prescriptions to treat obesity. Kaplan emphasized, “We are going to have to use these medications for as long as the body wants to have obesity,” underscoring the growing role of these drugs in healthcare and their impact on medical property demand. Although all the rage since the pandemic has been focused on Life Sciences, Nuveen argue medical outpatient buildings (MOB’s) are well-positioned to outperform. Given that U.S. healthcare spending makes up an increasingly large portion of the U.S. economy - it accounts for one-sixth of GDP - the delivery of healthcare has been steadily shifting towards outpatient facilities for a variety of reasons including convenience and significantly lower patient costs. Given the highly favourable secular tailwinds in the U.S. – the senior population in the U.S. is expected to grow by 70% between now and 2040 and seniors spend about three times more on healthcare than younger age cohorts, presenting a unique window of opportunity for the medical outpatient sector.
In the realm of longevity, Peter Attia’s, runaway bestseller ‘Outlive: The Science & Art of Longevity’ encourages readers to think about their ‘healthspan’ (the quality of life), instead of their ‘lifespan.’ Attia argues that the human genome of our ancestral hunter-gatherer was not intended for our contemporary toxic built environment where our genes no longer match the environment. He misemploys JFK’s famous 1962 State of the Union address in which he said, “The time to repair the roof is when the sun is shining” to explain what’s necessary to promote human health, and one of the main contributors to longevity, is to exercise. Moving from being a couch potato to just doing a little, reduces the risk for morbidity and mortality. Obviously exercise is good for you, that's not his revelation; what's fascinating is the magnitude of the effect on health outcomes. In a side-by-side comparison of exercise vs. drug trials, exercise trials perform as well or better than drug interventions for certain ailments. Whilst GLP-1 drugs will have an enormous impact on the future of humanity, it is in fact the unremarkable gym that has a outsized impact on our health, and wallets. The inimitable Arnold Schwarzenegger once said "I do the same exercises I did 50 years ago and they still work. I eat the same food I ate 50 years ago and it still works."