Digital Growth Is Disrupting Branch Design, Research Finds

Branch counts are shrinking but deposits are growing, and that’s making “location optimization” a key focus for financial institutions, according to new research from Chicago-based real estate and investment management firm JLL.

Research in the company’s recent “Branch Banking 2020” report indicated that banks have closed more than 13,200 branches in the last 10 years, 1,700 closures of which occurred in 2019 alone. The 25 largest banks closed about 1,450 branches in 2019.

“We do not expect this pace to change materially over the next two years as the industry works to integrate physical branches with digital platforms and define how to best serve rapidly shifting customer expectations,” it noted.

However, deposits have grown 68% since 2009. Consequently, deposits per branch have almost doubled in a decade, hitting $148 million in 2019, it said.

“The implication for banks as we move through the late stages of this economic expansion is that the competition to maintain or increase deposits and market share will become keener. This will necessitate that banks, more than ever, proactively manage their networks and focus on location optimization,” the report said.

That could be a lot of work for many financial institutions. According to the report, more than three-quarters of all branches are more than 15 years old, suggesting that many are outdated in terms of size, technology and efficiency.

Regional and community financial institutions opened most of the new branches in 2019, JLL added.

“That means that much of the new development is taking place in regional and community institutions, whose smaller networks allow them to be more nimble, as they expand selectively to address customer needs and work to maintain or enhance market share,” it noted.

The company also said its review of recent branch openings found a variety of development prototypes.

“Some institutions are still working under the traditional hub-and-spoke system of past years. In this development model, smaller branches are positioned around a larger, full-service hub. In some cases, banks are adding more smaller-spoke branches or moving to very limited-service or even virtual offices in these spokes. In contrast, full-service hubs are becoming more elaborate,” it said.

New branches range from under 1,000 square feet to more than 10,000 square feet, it said.

“Overall, we have seen the best modern branches designed to a size of 2,000 to 3,500 square feet to accommodate a full-service operation but within an efficient overall footprint. This is contrast to the 5,000- to 7,000-square-foot branches of the past,” it noted.

JLL also studied what became of recently closed branches in the Chicago market. It found that 19% became fast-casual restaurants, 17% became health clinics, 14% became convenience stores and 12% became dollar stores. Boutique fitness companies, other financial services companies and pop-up retail shops also took over the spaces, according to the data.

The average time to sell a vacated branch was 9.5 months, and it took slightly over a year on average to sublease a vacated branch, it said.