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Howick Local Board
18 April 2024
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Active
Communities: Marina Fitness Lease Expiry
File No.: CP2024/04279
Te take mō te
pūrongo
Purpose of the report
1. To seek a decision from the Howick Local Board on whether to renew
the property lease for Marina Fitness at 1 Ara Tai Road, Half Moon Bay, or to
close this centre.
Whakarāpopototanga matua
Executive summary
2. Marina
Fitness, located at 1 Ara Tai Road, Half Moon Bay, is the only pools and
leisure facility in the Auckland Council network where the building is not
owned by council. The current lease expires on 16 August 2024 with no right of
renewal (see Attachment A).
3. A decision is required from the local board on whether to renew the
lease. The building owner has proposed two new lease options. One being an
extension for 12 months and the other to renew the contract for three
years.
4. The
pricing of these options will negatively impact the financial performance of
the facility, with no discernible strategic benefit to council.
5. Given
the financial position of Marina Fitness, the Section 17A Value for Money
process, strategic alignment and the proximity of Marina Fitness to other local
fitness facilities (including those within the existing council network), the
recommended option is not to renew the lease.
6. The
main risk of this option is public disappointment resulting from the closure of
the facility. This can be mitigated with the transfer of memberships to
neighbouring, local council facilities. An additional mitigation step could be
exploring alternative active recreation initiation opportunities in the Half
Moon Bay area.
Ngā tūtohunga
Recommendation/s
That the Howick Local Board:
a) whakaū
/ confirm that the lease for 1 Ara Tai Road, Half Moon Bay, Auckland is
not renewed, closing Marina Fitness.
b) tuhi ā-taipitopito / note that Marina Fitness, located at 1 Ara
Tai Road, Half Moon Bay, is the only pool and leisure facility in the Auckland
Council network where the building is not owned by council.
c) Tuhi ā-taipitopito / note that the
lease for 1 Ara Tai Road, Half Moon Bay expires on
16 August 2024, with no right of renewal.
d) tuhi ā-taipitopito / note that existing single-site memberships
for Marina Fitness have the option to transfer to either Lloyd Elsmore Park
Pool and Leisure Centre or Howick Leisure Centre.
Horopaki
Context
7. Marina
Fitness is a fitness centre operated by Auckland Council. It is located at 1
Ara Tai Road, Half Moon Bay. It is the only pool and leisure centre in the
network where the facility is not owned by Auckland Council.
8. While
Auckland Council owns the land, the site is subleased (via Eke Panuku
Development) to a third party who owns the buildings. Active Communities leases
the building occupied by Marina Fitness.
9. Marina
Fitness was established in August 2009 under the legacy Manukau City Council.
At that time the Marina Precinct was being developed with shops, offices and
cafes. The development presented an opportunity for council to lease premises
in the Compass building and provide an additional fitness facility for the
local population.
10. The nearest
council fitness facilities are Lloyd Elsmore Park Pool and Leisure Centre
(LEP), at a distance of 2.8km, and Howick Leisure Centre (HLC), located 3.4km
from Marina Fitness respectively.
11. The larger
footprints and expansive grounds of these other centres provide ample room for
growth in both membership and service offerings, both within and outside the
buildings themselves. Conversely, Marina Fitness' small physical footprint and
lack of outdoor space present constraints for sustained growth and the
expansion of service offerings.
12. Marina
Fitness, and all legacy Manukau City Council controlled fitness facilities,
were united under Auckland Council management in 2010 during the amalgamation
of seven legacy councils.
13. The Compass
building is owned by a charitable trust, the Marina Maritime Foundation (MMF).
The Marina Maritime Foundation is administered by a Board of Trustees, all
personally involved in the operation of the marina.
14. Since
council’s original lease in 2009, there have been two contract renewals
with MMF, in 2015 and 2018. These renewals increased the base rental, and
additional price adjustments occurred through consumer price index (CPI) and
operational levy increases. As the lessee, Auckland Council covers all
operational levies and utility expenses associated with its lease in the
Compass building. These include water and electricity, rubbish collection,
repairs and maintenance, and security expenses.
15. In 2018, the
annual lease expense (not including utilities) was $128,400 per annum. In 2021,
a five per cent capped CPI increase was introduced, effective until the end of
the current contract (August 2024). Council’s current lease expense is
$134,820 (five per cent CPI increase and capped). Council also pays
approximately $31,309.92 in annual operational levies. The current total rent
and levy expenditure for council is approximately $166,129 per year.
16. The
current lease expires on 16 August 2024 with no right of renewal. A decision is
required on whether to renew the lease, or to close Marina
Fitness.
Tātaritanga me ngā
tohutohu
Analysis and advice
Service
provision
17. Marina
Fitness is a stand-alone fitness centre that serves the population of the wider
Half Moon Bay area, encompassing Bucklands Beach and Eastern Beach. While the
site footprint is comparatively small in size compared to other fitness
centres, Marina Fitness provides a boutique style, high-end service offering in
a desirable location with views of the ocean. Its location, next to the ferry terminal,
is convenient for some central city commuters.
18. Because of
these characteristics, Marina Fitness is one of just two Auckland Council
fitness facilities which fall into ‘gold tier’ pricing. The
‘gold tier’ pricing means that the fees are set higher than those
for other Auckland Council facilities (the other ‘gold tier’
facility being Tepid Baths in Auckland city centre).
19. Marina
Fitness has an active membership base of approximately 665 members. From July
2023 to March 2024, Marina Fitness has had 38,055 visits. This is up 17 per
cent compared to the same period the year prior. This trend is consistent with
most fitness centres across the wider network. It is attributed to the Covid-19
rebound and concentrated membership recruitment efforts.
20. Due
to the small size of the facility, there is competition for equipment and space
during busy periods. In addition, the limited capacity of the site, means there
is restricted opportunity to expand the current membership, and increase the
financial return on investment. The existing ‘gold tier’ pricing means fees are already higher than elsewhere in the network.
Customer accessibility
21. Marina
Fitness is on the second story of the Marina Compass Building. It shares this
floor with a physiotherapist, day spa and a medical clinic. The centre has
disability access in the way of a lift and has an accessible entrance and
bathroom to support wheelchairs.
22. The centre is
the only fitness facility in Half Moon Bay. The nearest privately owned
alternative is Anytime Fitness in Highland Park (2.5 km from Marina Fitness)
and Jetts Highland Park (2.6 km from Marina Fitness).
23. Of
the 665 members at Marina Fitness, 382 hold a membership type which enables use
of all council-operated fitness and leisure centres. The
remaining 283 are on a ‘Gym it’ or similar membership, which
provides single site access.
Section 17A: Value for Money review and
decision-making framework
24. There are 45
pool and leisure centres providing active recreation services in Auckland.
These facilities provide a range of activities that can be summarised into
three broad categories: aquatics, recreation and fitness.
25. Council
currently operates a hybrid model, outsourcing the management of 19 facilities
and self-managing 25 facilities. It also has 1 site that is leased by a third
party (The Olympic Pools and Fitness Centre (Olympic)).
26. Auckland
Council is currently undertaking a service delivery model review, as the
management contracts for 19 sites are nearing their expiry at the end of June
2024. The lease for Olympic expires in November 2024. The expiry of these
significant service delivery contracts triggers the requirements of a service
review under Section 17A of the Local Government Act 2002.
27. Marina
Fitness is included in the Request for Proposal (RFP) put to market in late
2023 for the Pools and Leisure Section17A Value for Money (VFM) Review.
28. Decisions on
the provision of the network fall within the remit of the Governing Body (via
the Revenue, Expenditure and Value (REV) Committee) and are due in May 2024.
29. If
procurement or resulting contracts are deemed: “a major service delivery
contract for Auckland-wide local assets and facilities on a coordinated
basis”, then decisions of the provision fall within the remit of the
governing body via the REV committee. The process to seek a decision from the
REV Committee includes engagement and consultation with the relevant local
boards.
30. The inclusion
of Marina Fitness in the RFP does not commit council to including it in a final
VFM decision. Nor does it limit the local board’s ability to make a
decision on the lease at the appropriate time.
31. If
the local board’s direction is to not extend the lease, the centre will
be closed. If the local board indicates their wish to renew
the lease, decisions on the provider of the service offered within that site
will continue to form part of the VFM decision.
Options analysis
32. Council has identified three options relative to the lease at Marina
Fitness.
Option 1:
Choose not to enter into a new lease at Marina Fitness (recommended)
33. Council has no right of renewal under the current lease, and the new
lease options provided by MMF have a considerable increase in nominated rent.
This will significantly impact the financial performance of the site.
34. As one of only two sites in a leased building, and one that only
provides a fitness offering, the provision of the service is, to some extent,
an anomaly in the leisure network.
35. It is possible that if council were to exit the site, another
leisure provider would take a lease on the site with the owner. As no direction
on the lease has been sought to date, and council is not the site owner, no
analysis on this likelihood has been undertaken.
36. Council has two other pool and leisure facilities within a 4km
radius, providing a larger, more comprehensive range of services. These
facilities would benefit from increased visitation should customers from Marina
Fitness transfer their membership (noting that 382 members already have access
to these sites).
37. Staff note that the peak periods for the
centres are complementary.
Table 1: Comparison of peak visitation times
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Centre
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Peak
AM
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Peak
PM
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Marina
Fitness
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7.45am - 10.15am
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4.00pm
- 6.30pm
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Lloyd
Elsmore Park Pool and Leisure Centre
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7.30am
- 10.00am
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4.00pm
- 6.30pm
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Howick
Leisure Centre
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8:30am
- 11:00am
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4:00pm
- 6:30pm
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38. Existing staff could be relocated to other leisure facilities in the
pools and leisure network. This can be done without exceeding staff expenditure
budgets.
39. However, Marina Fitness has 665 members, many of whom have used the
facility for a considerable period. Changing this service would be disruptive
and potentially unwelcome.
40. There will be a requirement to return the premises to the same
condition it was in, prior to council taking the lease. Council has made
significant changes to the inside of the facility in order to operate as a
fitness centre, and reversing these changes is likely to incur costs.
41. There is budget available for this purpose, and the large one-off
cost would be offset by the longer-term savings of exiting the lease. If the
landlord issues a lease to another fitness provider, this may reduce the cost, however this is outside of
council’s control.
Option 2: Seek an extension to the
current lease for 12 months
42. Council has engaged with MMF to understand if there is an option to
extend the current lease by 12 months. This will allow time for the outcome of
the VFM proposal to be known and planning to be implemented. A 1-year extension
will include a further five per cent CPI increase, taking the lease to $141,561
per annum.
43. This option would minimise disruption to the existing customer base
for the next 12 months. However, delaying the decision has no discernible
strategic or financial benefit for council, and is likely to introduce
additional complexity to the VFM process. For these reasons, this option
is not recommended.
Option 3:
Seek to renew the current lease for three years
44. Council could renew the current lease under the following conditions
outlined by MMF:
· a 3-year contract
renewal, with a five per cent price increase in year one
· then two additional
CPI reviews for years two and three.
45. Assuming a 3.5 per cent average yearly CPI increase, this would
equate to $141,561 for 2024, $146,516 for 2025, and $151,644 for 2026. The
operational levy expenses should see a similar increase.
46. To offset these additional costs, the centre would need to increase
its membership base and/or fees.
Options comparison
47. The following table provides a high-level assessment of each option
against shared criteria.
Table 2: Options analyses
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Option
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Financial
impact
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Customer
Impact
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Strategic
objectives
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1
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✓
Financial impact
is positive due to council not needing to meet rising lease and utility
costs.
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û
Customers will
likely be initially unhappy with the decision to close, and this will need to
be carefully managed and mitigated.
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✓
Due to the
bespoke fitness nature, and leased approach, the site is an anomaly in the
network, and an uncomfortable strategic fit, noting that finite council
resources could be better employed to achieve strategic outcomes on a larger
scale elsewhere. There are two additional centres less than 4km away.
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2
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û
Financial impact
is negative as council will need to meet increased rent and utility costs,
which will impact net position.
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✓
Customers will
continue to receive current levels of service.
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û
Due to the
bespoke fitness nature, and leased approach, the site is an anomaly in the
network, and an uncomfortable strategic fit.
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3
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û
Financial impact
is negative as council will need to meet increased rent and utility costs,
which will impact net position.
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✓
Customers will
continue to receive current levels of service.
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û
Due to the
bespoke fitness nature, and leased approach, the site is an anomaly in the
network, and an uncomfortable strategic fit.
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48. Council has finite resourcing to invest in growth, facilities and
service retention, and operations. Council must therefore carefully consider
where to invest resourcing to best achieve agreed community outcomes.
49. The small size of Marina Fitness, coupled with the additional
investment required via rent, limits the return on investment with regards to
the achievement of community objectives. Noting that the strategic purpose of
Active Communities is focused on encouraging participation and accessibility,
resources may be better employed where they can achieve more scale.
50. Based on the details in the options and analysis, Option 1 is
recommended.
Tauākī whakaaweawe
āhuarangi
Climate impact statement
51. The council's
climate goals as set out in Te Tāruke-ā-Tāwhiri:
Auckland’s Climate Plan are:
· to
reduce greenhouse gas emissions to reach net zero emissions by 2050 and
· to
prepare the region for the adverse impacts of climate change.
52. This is an administrative
report and has no direct effect on climate change. The proposal and the
recommended option is not anticipated to have any broader climate impact.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
53. Active
Communities has engaged with staff involved in the Value for Money proposal, to
ensure alignment of advice and sequencing of timeframes.
54. Council’s
finance team have also reviewed the financial statements of Marina Fitness and
concur with the recommendation of this report.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
55. A workshop
was held with the Howick Local Board on 14 March 2024. Views were sought on the
options available, and a range of valuable feedback was received.
56. In
particular, insightful questions were asked on availability of other
recreational services within the local board catchment area. A comparison of
peak times across Marina Fitness, Lloyd Elsmore Park Pool and Leisure Centre
and Howick Leisure Centre, to consider whether the different user groups were
complementary was also requested.
Tauākī whakaaweawe
Māori
Māori impact statement
57. The Active
Communities Māori Outcomes Diversity and Inclusion Plan – Te Pou
Arahi, enables Active Communities to be responsive to Māori by
incorporating tikanga and te reo Māori, fostering relationships with mana
whenua, and celebrating Māori identity. This aligns with Auckland
Council’s Māori Wellbeing Outcomes Framework – Kia ora
Tāmaki Makaurau.
58. Operation of
the Marina Fitness site has not been identified as a factor that has a notable
contribution to the achievement of Te Pou Arahi outcomes. The site closure is
not anticipated to have negative impacts for Māori.
Ngā ritenga
ā-pūtea
Financial implications
59. Marina
Fitness has mostly run at a net deficit since its inception in the 2009/2010
financial year. The centre’s peak financial performance came in the
2017/2018 and 2018/2019 financial years, where it ended the year with a net
surplus of approximately $50,000 in both years.
60. This dropped
significantly in the 2019/2020 financial year due to Covid-19. Marina Fitness
has since rebounded, but its membership is still 16 per cent below its peak in
October 2019.
61. More recently,
in financial year 2022/2023, Marina Fitness ran at a net deficit of $18,501.
62. Year to date
(as of March 2024) Marina Fitness is running cost neutral. Although Marina
Fitness’ revenue has increased against the same time last year, so has
expenditure due to increased staff wage and lease expenses.
63. Of note,
these figures do not consider extra expenses (corporate overheads) absorbed
within other departments of Auckland Council. Departments such as Finance,
People and Culture and Health and Safety.
64. Corporate
overheads contribute to understanding the total costs of operating any council
facilities. A general allocation of overheads is performed centrally for the
purposes of preparing local board financial reporting. They do not, however, form
part of local board asset-based services (ABS) or locally driven initiatives
(LDI) budgets.
65. In reviewing
the methodology used to determine corporate overheads, and their allocation to
local boards, it is clear that this is not sufficiently detailed for the
purposes of charging local boards for a specific service/facility. Any
potential reduction in corporate overheads would require further investigation
and is not representative of an actual saving.
66. If
council is to renew the lease to a 3-year contract, there will be a five per
cent price increase in year one, with two additional CPI
reviews for years two and three. Assuming a 3.5 per cent average yearly CPI
increase, this would equate to rental charges of $141,561 for 2024, $146,516
for 2025, and $151,644 for 2026. The operational leavy expenses should see a
similar increase. Noting that the rent is paid from the centre budget (and not
LDI or a regional fund), to offset these additional costs, the centre would
need to increase its membership base and/or fees.
Ngā raru tūpono me
ngā whakamaurutanga
Risks and mitigations
1. The
table below highlights identified risks and the intended mitigation proposed to
off-set those risks.
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Option 1: Risks and mitigations
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Risk
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Mitigation
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Customers unhappy with closure of
Marina Fitness
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Offer transfer of membership to
nearby facilities: Lloyd Elsmore Pool and Leisure Centre and Howick Fitness
Centres.
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Loss of staff
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Staff offered relocation to nearby
facilities wherever possible.
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Lack of fitness provision in the
immediate Half Moon Bay area
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Identify opportunities for outdoor
active recreation in the Half Moon Bay area.
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Ngā koringa ā-muri
Next steps
67. If the Howick Local Board determines not to renew the lease, council
staff will need to remediate the site using available budget. The site is in
good condition, the extent of changes required will likely depend on whether
another fitness operator takes over the site. Remediation budget is available,
within the Parks and Community Facilities Department.
68. Staff will also work closely with members to transfer memberships
where applicable (noting that a large number are on multi-site memberships
already).
69. If the decision is taken to extend the lease, either for one or
three years, council will initiate a new lease agreement with the
landlord.
Ngā tāpirihanga
Attachments
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No.
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Title
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Page
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a⇩
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Active Communities: Marina Fitness Lease Expiry
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13
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b⇩
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Marina Fitness lease agreement
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21
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Ngā kaihaina
Signatories
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Authors
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Matt Nash - Senior Centre Manager as an Author.
Sam Sinton - Leisure Network Services Manager
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Authorisers
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Victoria Villaraza - Local Area Manager
Claire Stewart – General Manager Active
Communities as an Authoriser
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