Bank branches are consolidating. Landlords, take notice.
The largest bank merger in more than a decade signals that lenders are likely to continue to reduce their commercial real estate footprints.
For landlords, it could pay dividends to think ahead and start reimagining a new life for bank branches.
“If you’ve been leasing your property to a bank, don’t expect that will last forever,” says Ryan Severino, Chief Economist at JLL. “This is the time to find new uses for your older properties.”
BB&T and SunTrust Banks – two large banks in the Southeast U.S. – are seeking shareholder and Federal Reserve regulators’ approval for a US$28 billion deal that would create the sixth largest bank in the country, with assets exceeding US$400 billion and 3,100 bank branches.
Bank consolidation often precipitates branch consolidation, which means less demand for space, Severino says.
This impact of mergers is compounded by shifting consumer behavior as banking services move online. The number of bank branches fell by more than 2 percent annually between 2016 through 2018 to 88,100, according to JLL data.
Thinking outside the branch
Overall net branch space occupied by banks will continue to decline, says Christian Beaudoin, who manages research and strategy at JLL. And because branches are often highly customized spaces, they pose special challenges to re-position.
“Landlords should look to fast-growing industries for conversion ideas, such as healthcare, logistics, food services and coworking,” he says. Many landlords have already converted some former branches into healthcare clinics, outpatient centers, last-mile delivery centers and even craft breweries and whiskey distilleries.
“Meanwhile, branches across the country need to invest in differentiating strategies,” he says.
For instance, some banks are converting outposts into café-branches that can be used by bank members and non-members. Instead of just housing tellers, these locations have free Wi-Fi, outlets to recharge devices and workspaces with the feel of a coworking environment.
“Solutions like this are an opportunity to attract new customers in an age of continuing consolidation,” Beaudoin says.