With increasing frequency, banks find themselves losing out to national and international high-profile retailers in a battle for desirable branch locations. And as the retail market continues to rebound, competition for these prime locations will increase all over the country.
For example, at Fifth Avenue and 57th Street in New York, an exceptionally high-visibility location, Warner Brothers has opened a Studio Store on a site previously occupied by a branch of a major commercial bank. Warner Brothers is willing to pay two to three times the previous rent for the high-traffic site.
Also in New York, large retail spaces in prestigious Rockefeller Center, many vacated by banks within the past two to three years, are now being filled by retailers coming into the area for the first time.
Optimum Space Available
Do these economic and real estate trends spell doom for banks seeking to secure prime space for retail branches? Not at all.
Banks are finding optimum space for branches either by moving just adjacent to the high-traffic locations favored by retailers, by consolidating existing large locations into smaller units and thereby realizing the value of below-market leases (with more branches converting significant portions of their space to ATM use, net space requirements have decreased), and by using new tactics in successful negotiations with landlords.
Alternate locations may be considered when a landlord supports his high asking price by stressing the "high-traffic" nature of the location.
Avoid Retail Traffic
At this point the bank needs to understand the specific characteristics of such locations because it seeks a very differnet set of demographics than does a retail clothing store, for example.
If the site is on a prime retail street, then you are looking at shopper traffic, and the bank may be competing with retailing's heavy hitters.
The most prudent move, in this case, may be to investigate other nearby locations.
A bank branch is usually a destination, not dependent on browsers or impulse shoppers. A location a block away might deliver the desired benefit at lower cost because this location would be of less value to retail stores.
Bargaining Strategy
Many bankers are not aware that the leasehold that controls their space has hidden value in today's competitive and changing retail environment. This value is illustrated through an assignment recently completed by my firm.
A major bank was seeking an early renewal of the lease on a valuable location, and was having difficulty with a landlord who wanted to reposition the space to attract retail tenants at higher rents.
The below-market lease was for well over 15,000 square feet, significantly more space than would meet the bank's current and projected needs.
After consultation and negotiation, the bank agreed to give up the surplus portion of the space, in return for a renewal at the existing, below-market rental rate. The landlord was now in possession of space easily divisible into several retail boutiques, which would be occupied at the current market rents projected by the owner.
Intangible Assets
This "win-win" result was achieved through an understanding of the local real estate markets, banking industry trends and the specific needs of both the tenant and landlord.
Even in lease negotiations for a suitable location in a less competitive retail environment, banks and landlords sometimes overlook the intangible but important assets that a bank brings to a building.
The image of a bank is universally considered to be superior for corporate tenants, especially when compared, for example, with a store selling sports shoes.
A realization of these intangibles, plus the stability and prestige that a rock-solid bank projects as a tenant, gained for Citibank the lease renewal it sought at Park Avenue and 57th Street, and at a very reasonable rent.
Don't Downplay Strengths
Our experience has been that banks sometimes fail to forcefully present these more intangible strengths when competing with retailers for choice locations.
Landlords, meanwhile, need to recognize that the face and nature of bank branch operations are changing. Banks are adding a broader range of services and capabilities and are delivering these services in new ways: through ATMs, investment specialists, and personal banking. These benefits are passed on to the building in which the bank branches are located.
At the Citibank branch on Park Avenue, a new look was developed, and extensive improvements and renovations planned, reflecting the bank's strategy for a broader range of services aimed at upscale customers.
The renovation plans, the forerunner of a new look for the bank, were well received by the building ownership and helped sway the decision to forgo higher rents and renew the bank's lease.
The result is an innovative, contemporary facility that adds to the character and appeal of both the neighborhood and the building where the branch does business.
