Banks continue to open new branches, but in a controlled fashion, resulting in limited new construction bank assets. Experts believe that branches located in affluent communities will have the strongest likelihood of remaining viable. But Blankstein does not “believe they will be separated strictly by affluence. However, I think they will be separated into bank branches with strong deposits and weak deposits.”

The on-market supply of bank ground leases has increased 20% year-over-year, but 72% of the sector's supply consists of older properties with shorter lease terms. Boulder finds that the median remaining lease term in the first quarter of 2016 within the sector was 11 years compared to 15 years in 2013. But investor interest in banks should remain constant because buyers have no landlord responsibilities to credit tenants and the leases frequently have rental escalations throughout the primary lease term. Still, “with a shrinking bank footprint, investors will be more selective in bank ground lease acquisitions going forward.”

CHICAGO—Net lease investors have for some time considered bank branches one of the best investments on the market, pushing down the cap rates for these properties to historically low levels. In the past year, however, things have changed, and rates took a big jump upward, according to a new study by the Boulder Group, a net lease firm in suburban Chicago.

Rates increased to 4.75% in the first quarter of 2016 after reaching a previous historic low of 4.35% one year ago. During the same time period, rates for the entire net lease retail market fell 22 bps. For its study, Boulder considered both national and regional banks, regardless of credit.

The fact that bank rates had sunk so low was just one of many contributing factors to the increases over the past year, Randy Blankstein, president of Boulder, tells GlobeSt.com. “The other main factors were bank branch overexpansion from 2003 to 2007 and bank consolidation in the past few years.”

New mobile technologies that connect customers directly to their accounts, along with the expanded capabilities of many ATMs, have caused banks to consider cutting back on their brick and mortar presence. A recent report by Citigroup projects that one-third of all existing bank branches in the US could close within the next ten years.

Banks continue to open new branches, but in a controlled fashion, resulting in limited new construction bank assets. Experts believe that branches located in affluent communities will have the strongest likelihood of remaining viable. But Blankstein does not “believe they will be separated strictly by affluence. However, I think they will be separated into bank branches with strong deposits and weak deposits.”

The on-market supply of bank ground leases has increased 20% year-over-year, but 72% of the sector's supply consists of older properties with shorter lease terms. Boulder finds that the median remaining lease term in the first quarter of 2016 within the sector was 11 years compared to 15 years in 2013. But investor interest in banks should remain constant because buyers have no landlord responsibilities to credit tenants and the leases frequently have rental escalations throughout the primary lease term. Still, “with a shrinking bank footprint, investors will be more selective in bank ground lease acquisitions going forward.”