CHICAGO—Consumers can quickly alter their behavior in response to technological change, and that can in turn alter the needs commercial real estate tenants and landlords. The banking industry has become the latest sector to begin such a transformation, and real estate providers need to devise ways for banks to evolve with the times.

“Just like with traditional retail, there are a lot of disruptors out there,” Geno Coradini, executive vice president and lead of JLL's retail group, tells GlobeSt.com. Ordinary retail outlets now have to contend with the rise of online shopping, and banks' traditional locations now compete not just with cash-dispensing ATMs, but with mobile apps and FinTech.

JLL just published its 2017 Banking Outlook, and found that even as the recession forced banks to tighten operating costs and halt branch growth, mobile banking picked up momentum. As a result, banks have begun consolidating locations and changing the remaining ones to fit their customers' new desires. The changes have helped lead to a near-eight percent decline in US branch banks since 2009, according to the FDIC. And JLL believes the industry could see a 20% reduction in branch locations as leases expire over the next five years.

“Banks are taking a step back and determining how best to leverage their real estate,” Coradini says. Many banks, for example, occupied enough land to provide several drive-thru lanes, but with so many transactions taking place online, such a footprint may not be necessary. And some banks have started to realize they don't have to leave this space empty. Instead, they ask, “'how can we monetize this property?'”

JLL believes a new business with high foot traffic, such as a coffee shop, could be appropriate in such cases. And Coradini says banks still feel very strongly that their retail locations are useful in building brand recognition and customer relationships. Therefore, a high-traffic business right next door, whether through a reuse or sublease, will provide not just income, but free advertising.

Bankers' attachment to their remaining spaces is just one reason landlords will continue to have tremendous confidence in this kind of tenant. It's hard to beat the financial strength and credit-worthiness of banks, Coradini points out.

Property owners that lease space to banks should not worry too much about losing these valuable clients, he adds. It's true that the number of branches will decline in the next few years, but bankers will still open new sites as they consolidate their portfolios and look to better serve their top markets.

And all of the changes coming to the banking industry won't necessarily happen quickly. Banks tend to be “very methodical,” Coradini says. Only a few, for example, have taken the needed steps to monetize the underutilized portions of their footprints. Furthermore, it will also take time for banks to introduce automated tellers, another factor that could limit their real estate costs. “Technology brings a sea of change to retail banking, but the industry isn't drowning; it's evolving.”

PNC Bank

Instant Insights /

Tech Bringing a Sea Change to Retail Banks

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