LOS ANGELES—Although there is still a demand for bricks-and-mortar, banks are continually increasing the amount of their services available online and via mobile devices, and are subsequently decreasing their locational size requirements. That is according to locally based Kyle R. Gulock of Charles Dunn Co., who, over the past couple of years has worked on numerous assignments where banks have downsized, leaving owners seeking advisement. Globest caught up with Gulock to talk with him about this trend.
GlobeSt.com: Retail banking locations are seeing a trend in downsizing their space, can you tell me why this is happening?
Kyle R. Gulock: Historically, financial institutions occupied approximately 5,000 square feet or more per location, with regional banking center locations exceeding 10,000 square feet. With many customers choosing to do either all or the majority of their banking online, these larger spaces—originally intended to accommodate heavy pedestrian traffic—have become obsolete. Although there is still a demand for bricks-and-mortar, banks are continually increasing the amount of their services available online and via mobile devices, and are subsequently decreasing their locational size requirements. For example, five years ago, banks began downsizing to one-half the square footage, but today, in the California market specifically, 2,500-square-foot spaces in the newer urban corridors—plus or minus—are now the desired size requirement.
GlobeSt.com: How does this trend affect owners of these property types?
Gulock: This downsizing trend has challenged property owners searching for the best long-term solution for their real estate as their financial institution tenants choose to exit or reduce space in search of a smaller option, or have requested to downsize their space within the current location. But, the good news is, the thought of impending vacant space doesn't have to be a nightmare for the ownership. Now more than ever, single-tenant, NNN-leased properties are highly sought after by investors. An ideal environment for sellers has been created that combines investor demand, low interest rates, and record low cap rates on in-place or projected rents (in our recent experience we have seen cap rates ranging between 3.95% and 6.2%.)
GlobeSt.com: In your experience, how are these situations playing out?
Gulock: Each situation is unique and needs to be assessed based on the location, geographic market demands, and the overall needs of the owner. However, in many instances, restaurant groups have been attracted to these properties given appropriate parking availability. The majority of bank pads can be ideal for a restaurant user as they are in busy centers and offer high visibility in retail corridors. We have also observed strong interest from medical-related users.
Some owners simply don't want to address the potential tenancy space issue. Accordingly, a year or two before the lease ends, they choose to sell the property and trade into another retail asset or even a different property sector.
Finally, other assignments include re-working in-place leases to downsize space for the bank, and lease the remaining space to a co-tenant. This is a great value creator when possible.
GlobeSt.com: Who is buying these properties?
Gulock: Overall, the buyer pool for net lease properties is growing and this goes for bank-occupied or formerly bank-occupied properties as well. This expanded buyer pool creates increased competition and allows the seller to select the ideal, qualified buyer. The owner-user market is growing in strength too as many businesses seek to hedge against rental increases by owning their space. We see offers come in from 1031 exchange buyers, private entities, family offices, foreign investors, and institutional investors that are seeking to build up their net-lease portfolio by aggregating more real estate.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
