Top 5 Things to Know about Retail Banking

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By: Guy Ponticello Managing Director of Capital Markets, JLL Guy Ponticello, Managing Director of Capital Markets, JLL

  1. RETAIL BANKING FINDS ITS FOOTING: Under the weight of the Great Recession, retail banking was forced to streamline operations and reallocate capital but the industry is once again on solid ground.  While nearly 5,000 bank branches closed following the downturn, the number of bank branches currently in the United States is within striking distance of pre-recession levels at 95,000.    Bank branches per capita have even increased by 1.3 percent since 2003—yet another indication of stabilization within the market.
  1. PROTECT YOUR REP: In 2014, more than 86 percent of bank transactions no longer required the service of a traditional bank teller.  Theoretically, customers can do their banking anywhere—from a phone or mobile device.  But they still want personalized service when they want it and they still value the reputation of the institution almost as much as quality service.  Banks would do well to implement strategies to ensure strong brand recognition.
  1. SHOW ME THE MONEY: A lack of investment-grade product and limited new development of bank branches is causing significant value appreciation in the industry as well as record levels of transactions.  In 2014, more than $1 billion worth of bank branches traded, an increase of 30 percent over the previous year.  Sales volumes in 2015 are not expected to be as strong as in 2014, but will remain robust. Institutional investors are buying national and regional sale-leaseback portfolios, while private investors are snapping up single branches.  Low-cost debt is also facilitating greater yields.
  1. BANKING HOT SPOTS: Markets such as California, Texas, Florida and New York are considered the retail banking “hot spots” with aggressive pricing and significant cap rate compression.  Branches there, featuring high credit tenants and longer term leases (10-15 years), are boasting a 25- to 50-basis-point premium relative to the respective country at large.  Pricing is driven by interstate migration, with the population attracted to higher employment and warmer temperatures (in some cases).  While cap rates are expected to soften (in line with long-term Treasuries), pricing is forecasted to continue its upward trend.
  1. BRANCH NETWORKS BLOOMING: Your local bank branch has been forced to evolve over the past few years, featuring smaller footprints and more flexible space.  In the future, pop-up branches and mini-bank branches will be increasingly popular.  And your proximity to your banker is expected to increase as well:  a recent study by EHS Design revealed that 92 percent of banks believe branch networks will expand in five years.

Stay tuned for more from JLL’s “5 Things to Know” about the retail real estate market mini-series, and follow @JLLRetail #RECon15 for more insights.

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