There’s No One Size Fits All to Bank Closings

A lot of observers see banks closing more branches in the future. The challenge is picking where those branches will be.

There are a lot of guesses, but few known strategies.

“There is no one size fits all as to what bank branch is going to close,” says Noah Shaffer, senior director of asset management for Confidant Asset Management. “People say, ‘If it doesn’t have a $100 million in deposits, they’re going to close it.’ That’s not true, and sometimes they don’t close branches with far less than $100 million in deposits. And sometimes they’ve closed branches with more than $100 million in deposits.”

In this environment, it’s going to be challenging for landlords as banks consolidate branches. “There’s really no rhyme or reason to it,” Shaffer says. “They’re saving money because they’re closing three locations and keeping the highest-profile one open. But those three are never going to reopen.”

An argument for banks to close branches is cost. “Banks pay the second-highest rent per square foot—right behind pharmacies,” Shaffer says. “Pharmacies have had their struggles and challenges with real estate over the last five years.”

In the past, banks were a destination for people because they knew where the bank was located. But now Shaffer says people value bank branches for convenience. As this happens, banks see their locations as places that can provide visibility for their brand.

“If you can put a bank on a corner with a 100,000 cars passing by in a day, you’re getting your bank branch out in front of a 100,000-plus people, which is a phenomenal form of marketing,” Shaffer says.

Even if that bank is paying $150,000 in rent, the exposure can be worth it. “You’re basically paying marketing dollars,” Shaffer says. “People are seeing your bank branch in their community as a symbol of community involvement. The customer experience must be streamlined and flawless once a customer enters the bank. Otherwise, they will refuse to come back, or change banks. There will be consolidation in this sector.”

There are only some of these high-profile locations to go around. So if a landlord owns one of those properties, they may be able to increase rent.

“Now all of the banks are doing the same thing and competing for that high-profile space,” Shaffer says.

On the other hand, the landlord that loses that bank branch could be facing problems. “If you’re losing your bank tenant, you’re losing a lot across the board,” Shaffer says. “Banks have the highest credit quality, even more so than pharmacies. So you’re losing high rent per square foot and high rent in total dollars. Then you’re losing their credit rating. And so how do you replace that?”