Tech Is Disrupting Bank Branch Real Estate
While overall branch numbers have been declining, the approximately 90,000 bank branches in the U.S. represent a robust, mature and evolving industry. New research from JLL shines a light on the disruption making its way through the traditional industry.
Four major trends are sweeping through the industry: the shrinking number of branches, how mobile apps and tech continue to change how customers use branches, shrinking branch sizes and fully automated bank branches.
With the evolution of online and mobile banking services, the branch-on-every-corner model has evolved. It is no longer about which brand has the most locations. It is now about how effectively the bank is delivering services to its customers and their need for remote, anytime, anywhere access for their transactions.
By 2027, JLL estimates there will be 71,000 bank branches, down from 97,000 in 2007.
Rents for bank branches vary significantly by market and micro-locations, as well as freestanding versus ground-floor operations in commercial buildings. Triple net rental rates can range from $20 to $25/SF in small markets to well over $75 to $100/SF in high-demand locations in major metropolitan areas. In dense urban areas like NYC, triple net rents for high-traffic, ground-floor branch space can easily span $200 to $400-plus/SF.
The most significant industry challenge in the evolution of the banking sector is not technology but real estate. Because existing branches all have leases in place (often with five or more years left on the term), optimizing market coverage is neither easy nor quick.
As branch bank consolidation continues, there could be another 20% reduction in existing branches. As banks perhaps move to a dual regional plan with a limited number of large, full-service operations that are complemented by smaller units offering only basic transactions, the average branch will shrink significantly. This dual strategy could easily take the average convenience branch from 5K SF to 3K SF or smaller.
More than likely, concerted efforts will be made to repurpose good locations because they remain competitive. Downsizing and reconfiguring these branches is not easy and could ultimately result in surplus, unproductive space from the bank’s perspective.