Could a gym be the tonic office landlords need?
It is often suggested that office workers should join a gym or similar to counter their sedentary lifestyles. However in an ironic twist, the fitness industry is, increasingly, making a contribution to the health of the office market per se rather than just deskbound employees.
The latest example is the letting, just announced, of more than 1,500 sq ft of space at Soutra Point, an office building in the centre of Dalkeith, to a local company, Pulse Pilates and Fitness Studio Ltd.
Soutra Point is owned by Edinburgh-based Almondale Investments, which was developed by the firm's founder, the late Wallace Mercer, former chairman of Hearts FC. Until recently the building was fully let to various conventional office occupiers but the aforementioned space became vacant following the expiry of a lease to Welcome Finance.
Mercer's son Iain, now group managing director of Almondale Investments and a sister company, Cosmpolitan Investments, said: "We carried out the usual marketing campaign to find a replacement for Welcome Finance but finding office occupiers is not easy in the current economic environment, especially outside city centres and high-end business parks. Then we heard of potential interest from Pulse and after discussions with its owner, Janice Paterson, a deal was eventually struck."
Under the agreement, the tenant will be paying an average of £7 a sq ft over three years, a figure below what Almondale might have expected to achieve had the accommodation been re-let as office space. Also, the company had to seek permission from Midlothian Council for a ‘change of use' permit ffrom Class 4 (business) to Class 11 (assembly and leisure). However Mr Mercer says: "Landlords need to be realistic about the level of demand for office space and we came to a very acceptable lease agreement with Pulse.
"This fitness studio is the first of its kind in Midlothian so Pulse is filling a gap in the market. I would rather have the space occupied and producing some income than see it lie empty and producing no income. Also Pulse will be paying business rates to the local authority so it's a win-win situation for everyone, really."
Enthusiasm for Pulse as a tenant was encouraged by the fact that Mr Mercer had already done two other deals in similar circumstances. At Cosmopolitan's Harbour Point office development in Musselburgh, 2,100sq ft is let to Curves as a mini-gym operator, while in Edinburgh's upmarket Barnton District, Almondale has let 1,500sq ft of former office space to the same company at WH1, a mixed retail, office and leisure scheme where the head tenant is Sainsbury's Supermarkets.
Mr Mercer is emphatic that letting redundant office space to fitness operators should not be seen as a sign of desperation. The vast majority of the space at Harbour Point and Soutra Point is leased to conventional office occupiers. Indeed, late last year Daxtra Technologies more than doubled its accommodation at Harbour Point, adding 5,000 sq ft to the 2,800 sq ft already occupied, while another established occupier, the education company, Spark of Genius, added 2,000 sq ft to its established 4,000 sq ft. The deals saw Daxtra Technologies take a new lease of ten years at Harbour Point, which serves as the world headquarters of a company providing recruitment process automation software with offices in the US and Asia in addition to the UK. Meanwhile, at Soutra Point the Pulse Pilates deal coincided with a further letting to an existing office tenant, Action 4 Employment, which decided to double its space. Soutra Point is again fully let.
The desk-to-fitness phenomenon is not confined to mini-gyms. Pure Gym took a lease on the ground floor of the new-build Quartermile 1 office development in Edinburgh and its Glasgow premises is located in the overwhelmingly office-led Bath Street. Factory Gym has also taken a significant amount of space at the Old Stamp Office in Waterloo Place, Edinburgh.
Being honest, most landlords would have a first preference to let office accommodation to conventional users as, historically, rental rates for business space is higher, pro rata, than for leisure and any fall in rental income has a knock on effect on a building's asset value. However, given that the depressed state of the office market is unlikely to be relieved for some years, landlords who previously would not have considered a leisure tenant, are taking a more sanguine view.
Mr Mercer added: "The fitness industry is not a panacea for the current ills of the office market but the suitability of office premises to transfer from business to leisure use is a welcome complement at a time when demand from conventional sources is scarce. I would like to see local authorities help by speeding up the planning permission process for change of use, especially in instances when the new fitness occupier is providing a service new to the locality."
Source: Ken Houston Media
Date: 25 June 2012
Scotland on Sunday, 24th June, 2012:
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