Bank Branch Demand Continues Its Decline

Periodically, we see news stories about this or that bank cutting back on its branches. The enormity of the demand decline, however, is fundamentally changing the economics of these facilities.   According to a Crain’s Chicago Business January 12, 2022 article, there are, as of June 30, 2021, 2,074 bank branches in the six-county area.  In the past five years, the number of bank locations have fallen by almost 16% or approximately 400 branches.

We reported in the past that the footprint of new bank branches is also continuing to decline.  A recent JLL 2020 Branch Banking Report reported that the best modern branches are designed to a size of 2,000 to 3,500 square feet which would support a full-service operation.  This compares to 5,000 to 7,000 square foot branches of the past.  The report also indicates that 76% of all branches that are more than 15 years old increases the likelihood of obsolete layouts. Flexibility in design is increasingly more critical in bank design. Future-proofing new branches against evolving technology is necessary to keep them from becoming obsolete in this rapidly changing environment.

Bank values are being hurt because another bank would be the most likely to pay top dollar for a facility on the market.  The JLL report found only 7.5% of closed facilities were used by other financial institutions.  Those facilities were in well-located suburban areas with stable or growing demographics. Alternative uses include 14% of bank branches sold to convenience stores, 12% to dollar stores, 9.5% to boutique fitness facilities, 5.5% to temporary retail and 15% for other general uses.