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While online services are becoming a core component of any bank’s offering, smaller, community-focused branches have a place in any expansion strategy.
The banking climate is far different than it was a generation ago. Today’s banks have much more expansive hours, branches that are open on weekends and offer a myriad of online banking services.
You might be tempted to think that with the emphasis on online banking services, the importance of physical locations might be diminished.
Not so. The brick–and–mortar bank building is far from dead. Location still matters – in some ways, even more than ever.
Consumers Still Value Branches
Competition is intense in the industry today. Still, with all the technological advances of apps, online banking and more, physical locations remain important, which reminds us of the old real estate slogan of “location, location, location.”
From a commercial real estate perspective, we see the expansion efforts of banks as a combination of online and a physical presence that leans more toward smaller, community–focused branches, rather than the large, full scale additional locations. This can lead to a much more cost–effective expansion while still achieving the goal of a physical presence. In short, they do what a bigger branch would do but at a significantly lower cost.
For many of the banking customers, a physical presence and location still matter. Accordingly, banks and credit unions continue to expand their physical presence through these branches, which often means going into a new community or opening an additional location in a community where the financial institution is already established. For the bank CEO seeking to expand her or his institution’s footprint, location matters.
In planning the establishment of a new branch, there are factors which go into the decision. The single most significant asset of any lending institution is branding. Everything, including the architectural design, factors into the bank’s brand. There’s a reason why “designing the structure from the inside out” has become a catch phrase; it captures and reflects all the identifying visible factors that differentiate one bank from the next.
Due Diligence Prevents Overpayment
For the bank executive seeking a new location, there are the options of new construction, leasing and even purchasing and renovating an existing structure. Efficiency and productivity are typically the guidelines which boards of directors prefer to follow. The last thing anyone wants to show up on an annual report is a cost for construction that far exceeds the anticipated budget.
In order to avoid going down that road, a comprehensive due diligence initiative is required. Research, research, research that location, location, location! That goes for both the specific neighborhood where the branch will be situated and the community in general.
Examine the past history and present climate; find out if new businesses are coming into the area; become familiar with the attitudes municipal officials have regarding zoning and commercial growth – this may be of particular importance should the considered location require a zoning relief. A local commercial broker or others with strong community ties can work as trusted resources when conducting due diligence and may open your eyes to other, better potential locations.
Your banking team members may be networked in the community through chambers of commerce and other organizations with their fingers on the pulse of the community. Ask some questions; find out what they have to say about the neighborhoods and their viability.
Keeping within the “location” theme, keep in mind that the location should be one where borrowers and depositors would like to visit. It should be welcoming, efficient, and safe. Again, despite the strong trend toward online banking, all bank officials would likely agree that a branch serves many purposes, including meaningful, one-on-one interactions with bank personnel.
Jay Nuss
In beginning the search for property, it may make sense to partner with a commercial real estate professional who knows the neighborhood, market, and pricing. The right person can be an effective partner in your search.
We may live in the high-tech age, but that doesn’t minimize the importance of the brick and mortar bank branch. With the right location and a brand of substance, customers will find their way through your “good old days” doors.
Jay Nuss is the founder and principal of Braintree-based commercial real estate brokerage Jay Nuss Realty Group LLC
