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Fintech, omni-channel strategies re-shaping real estate demands, re-defining financial centers
CHICAGO, April 6, 2015 – As banks continue to recover from the last financial crisis they also face heightened regulation, potential for security breaches and a squeeze on expenses. This is having a major impact on their real estate decisions, says a new report by JLL. While banks still represent the largest occupiers of trophy Class A office space in most major cities, the financial services industry is changing its office and retail footprints. Banks are consolidating personnel in less expensive locations, new financial tech companies, or 'fintech' players are emerging and retail banks are evolving altogether.
"From a real estate perspective, the financial services sector has become much more complex than it used to be," said Peter Riguardi, president of JLL's New York Tri-State Region office. "We're seeing divergent needs among different segments, impacting the office, retail and call center markets. The financial and technology industries are converging and this is changing real estate demands."
JLL's North America Banking Outlook report found that the 'fintech' sector is one to watch. These financial services firms whose product or service is built on technology saw a 26 percent year-over-year growth in 2014. Global investment in the sector is on track to reach $8 billion by 2018 as the financial industry embraces companies that could guide future mobile, cloud and cyber security developments. These companies are locating in major financial centers.
JLL's report reveals how economic, regulatory, security and technology factors are reshaping the financial services industry and its role in cities across the United States and Canada:
1) The front office shrinks, the back office grows and relocations rule the day. Large institutions continue to rein in real estate expenses in response to tight profit margins. Corporate offices are shrinking rapidly, from 52,356 square feet in 2013 to only 44,768 in 2014, with the average office now 14.5 percent smaller than it was in 2013. Much of the space reduction is coming from front-office space. Banks continue to reduce the ranks of research analysts, traders and investment bankers as risk guidelines make these divisions less profitable. In contrast, back-office staff has grown to accommodate increased legal, regulatory compliance and cyber security requirements.
Many are choosing to relocate rather than renew their office leases. In 2014, nearly 46 percent of financial services office transactions involved relocations, mostly in-market, while only 24.8 percent were lease renewals.
2) Exploiting the market for new office space. One factor driving relocations is new office construction, which surged by nearly 65 percent in 2014 over 2013 and created more locations choices and therefore an opportunity to negotiate favorable lease terms at brand-new Class A facilities. In Minneapolis for example, Wells Fargo opted to construct and lease back a 1.1 million-square-foot campus in Downtown East and consolidate operations from multiple Class B locations rather than renovating a facility currently in its portfolio.
3) Fintech drives growth. The rapid growth of the fintech sector is also fueling the financial industry landscape. London and Silicon Valley are the most active fintech markets, with New York quickly catching up, as the city reached its highest record for fintech deals in early 2014. Like many other technology concerns, fintech companies seek access to talent. WorldPay US, for example, recently relocated from the suburbs to downtown Atlanta to gain better access to the millennial workforce.
"Fintech companies are driving many positive changes in the industry, including how banking and financial services firms think about their real estate," Riguardi said. "Innovation is key for any industry, but particularly in this sector because this kind of evolution will be key to determining their long-term footprint and business strategy in today's market."
4) The bank branch isn't obsolete—it's evolving. Despite the growing popularity of mobile and online banking, nearly 80 percent of consumers visited a bank teller in the past year, according to a 2015 FDIC survey. Many are testing new branch formats to focus less on everyday transactions and more on higher-margin advisory services such as wealth management and mortgage lending.
"Banks continue to be very visible users of retail real estate," said Joe Brady, Chairman, JLL Banking Industry group. "However, new branch network strategies are changing where and how banks use their branches and are focussing on creating a seamless omni-channel customer experience."
Download a copy of JLL's 2015 North American Banking and Finance Outlook report here.
For more news, videos and research resources on JLL, please visit the firm's U.S. media center webpage. Bookmark it here: http://bit.ly/18P2tkv.
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $53.6 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.
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