Article

Why banking real estate is getting a makeover

Bank branches and offices are changing alongside broader industry shifts

March 24, 2022

Major banks are rethinking how they map out their real estate portfolios, with impacts stemming from customers’ increasing comfort with mobile apps to the emphasis on brand trust and the changing role of retail outlets.

Banks’ corporate offices, meanwhile, are realigning to meet the demands of the best talent in a competitive labour market.

“Banks’ real estate strategies are now heavily influenced by a single word: ‘flexibility’,” says Belinda Quinn, head of accounts leasing – Australasia, JLL.

Globally, banks have been reducing their branch numbers for years. In the U.S., 5,752 branches closed in 2019 and 2020. In Australia, the Department of Treasury’s Banking Taskforce found bank branches nationally declined to 4,500 last year from 5,800 in 2017.  

These closures come amid a wave of consolidation for banks, with flexibility defining views on how their flagship retail sites should be designed.

“Fit-outs have traditionally been cost prohibitive to update or relocate for banks, but they recognise this critical juncture they are at now for earning and maintaining customers, talent and brand trust, which has a lot to do with being accessible to the communities they serve,” Quinn says.

“The narrative has now shifted from traditional bank branches to how retail bank space can remain agile and better connect with customers.”

Trusting a brand has become more vital than a brand offering high quality customer services, according to a 2021 Edelman report.

Flexible branch design is building “a reuse capability” into fit-outs, says David Purves, Executive Director, Financial Services, Resources and Infrastructure, at JLL. This means designs that can be reshaped to meet the changing demands of customers, services, and distribution strategies.

“The new designs allow the various elements within a branch to be moved around quickly to meet the changing needs of customer interactions. Digital acceleration is enabling customers to self-serve simple transactions, whereas the branches now need to focus on the complex needs of customers whether it be for products, issues or advisory,” Purves says.

At the same time, banks are leveraging pop-ups.

“A bank may install a pop-up branch in an emerging neighbourhood or in a shopping centre where there are a lot of land sales happening,” he adds.

Leveraging reputation

As banks reassess their branch locations, particularly within shopping centres, there is one reputational aspect supporting their negotiations with landlords.

“During COVID, banks did something not a lot of retailers did: continued to pay rent. That’s a positive from a landlord’s point of view and it also demonstrates that, in real estate terms, banks continue to be a blue-chip investment,” Purves says.

Though at the same time, banks are reassessing their tenures. Where five years might have been the minimum assumption in the past, banks are now asking for greater flexibility through a two-to-three-year lease tenure with options.

Meanwhile, banks are responding to the rapid acceleration of technology triggered by the pandemic.

Quinn is watching the trend closely: “In regard to meeting regulatory and security requirements, banks ensured employees who previously worked in a team environment in the office were able to work from home with access to secure, reliable technology that also met security and regulatory requirements. In tandem, they responded to overwhelming demand as customers grappled with uncertainty, while adapting to online services,” she says.

At the corporate office level, Purves says the new bank office is shaping up to be more agile, flexible, technology-driven and focused on outputs.

“It still needs to attract and retain staff by being welcoming, having a sense of community, driving collaboration and offering outstanding amenities,” Purves says. “These are opportunities still to be seized.”

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