As branches shrink, large bank offices are harder to offload

Diving brief:

  • The popularity of digital banking has grown in recent years, and many banks have responded by permanently reducing their physical footprint, according to a research paper published by tax services provider Ryan.
  • In-branch transaction volume has fallen an average of 7% over the past seven years, while mobile payments are expected to grow 25% a year through 2026, according to the study, which cites data from a company management consulting. Novantas.
  • Larger retail stores can be harder for banks to offload than smaller ones, according to real estate market data collected by Ryan. Bank branches under 4,000 square feet are selling at a higher price than in 2015, while branches over 4,000 square feet are selling at their 2015 level or lower, as fewer retail tenants seek larger spaces.

Overview of the dive:

the covid-19 pandemic has exacerbated the growth of digital banking as physical branches have been forced to close temporarily. But it’s likely that the pandemic has accelerated an underlying trend, rather than sparking a new one, Ryan found.

“Most millennials and younger generations prefer fintech companies and neobanks (online or internet-only banks) offering digital payments and higher interest rates on deposits,” the company wrote.

The number of full-service bank branches in the United States jumped more than 40% between 1995 and 2010, and peaked in 2011 at 93,000. Such rapid growth constituted a proliferation of branches, and bank closures exceeded bank openings every year since 2012, according to the document.

The number of bank branches in the United States is down 12.8% from the all-time high, largely due to bank mergers, branch consolidations and the growing popularity of mobile banking. On average, there have been 1,300 bank closures each year since 2012, Ryan found.

The research paper refers to a March 2021 study, commissioned by Self Financial, which predicts that bank branches in the United States will be gone by 2034.

The catastrophism is supported, at least in part, by a general trend in the industry towards the divestiture of bank branches.

The study references research by BAI, which found that 87% of consumers “plan to maintain their digital usage even after regular operations resume.”

As a result, many banks are looking to reduce their physical retail footprint. Ryan discovered that there were now over a million square feet of vacant single-tenant bank branches available to rent, sublet, or sell. The vacant area of ​​bank branches has increased by 38% per year since 2011.

A new study by Ryan has found that large bank branches are more difficult to reallocate to new use.

Bank branches over 4,000 square feet are selling at the same price, or at a discount, from 2015 levels, Ryan found. However, bank branches under 4,000 square feet are selling for a higher price today than in 2015.

But in an effort to avoid obsolescence, the operations handled by bank branches are likely to evolve before the physical bank turns into a dodo.

Ryan expects bank branch activity to focus on “value-added services and less transactional activity” as digital workstations supplant tellers and meeting rooms are added for customers to receive financial and digital assistance, according to the newspaper.

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