The evolution of retail has been accelerated by the pandemic. However, as we emerge into the “next normal” and more consumers return to stores, many traditional brick-and-mortar retailers will be poised to reposition themselves to drive more activity and create new opportunities. One segment that could be a leader in this environment is financial services.
Consumer banks, wealth management firms and credit unions have often been an overlooked segment of the retail market. These institutions are viewed as more commercial in nature and not major drivers of foot traffic. However, these national and regional brands have become a mainstay in retail locations across all markets, offering landlords the option of a strong, credit-worthy tenant.
While electronic banking has gained traction—especially over the past year—financial institutions still see great value in having physical locations near consumers and residential populations.
For one, they offer quality branding and signage, providing excellent visibility to potential customers. Furthermore, bank customers tend to be very sticky, meaning once they have accounts with a major financial institution, they rarely leave. Having a physical location is one of the best ways to attract these customers initially, as most consumers want to have some form of personal interaction with their bank and access to actual cash, checking accounts and other products when needed. Banks also want these locations not just to attract customers initially, but also to upsell services such as mortgages, home equity loans, commercial loans and the like. This process, often done in person, presents a critical revenue stream for commercial financial institutions.
With these goals in mind, these occupiers will look at the post-pandemic world as an opportunity to expand their market share, albeit with a new model and targeted growth in certain regions of the country.
Future of Financial Services in Retail
Financial institutions will realign their physical footprints to meet the changing demands of their customers. Gone are the cavernous banks that housed numerous tellers and significant office space for executives. With online banking and ATMs, staffing in banks and financial institutions has been in the process of contracting. Most banks will do away with traditional tellers and will have specialists on staff to handle the lending side of the business.
As a result, we will see a rightsizing of locations that may follow a hub-and-spoke model. A given trade area will host a flagship that will be the market’s largest location and then several smaller, satellite locations that can operate in neighborhoods and residential markets. These locations may be smaller than in the past but will remain viable tenants for landlords. Drive-throughs have regained popularity during the pandemic, but many banks still want to drive foot traffic into the location to provide a higher touchpoint with their customers and promote the aforementioned special services. We will see them target a variety of locations to serve the market. Geographically, suburban markets are gaining popularity, as banks will attempt to follow the residential migration that has occurred as a result of the pandemic. This migration will play out on a regional scale as well, as population growth has expanded rapidly in areas like the Sun Belt and Texas in recent years. Financial institutions follow residential rooftops, and we should see robust expansion in these areas.
Most of the actual locations that these users will target will be street-level retail in suburban town centers and strip centers in highly trafficked areas. Malls are not typically a target for these occupiers, as many mall owners want to operate on percentage rent deals and do not see financial institutions as major traffic drivers. That being said, financial institutions may target malls that are performing well for the increased visibility, and we may see some transactions at rental rates that compensate for the lack of percentage rent.
The urban market also presents significant opportunity for financial services. As office users come back to major metro areas, ground-floor retail space at commercial properties will offer ideal locations for banks and wealth management providers. They have been in this market for some time and will likely approach it in the future with a smaller floorplan, but the locations remain very viable.
All of these considerations could position financial institutions as a big player in post-pandemic retail and a main driver of activity. They will have a different look and feel, but they will rely on physical locations to drive new customer growth and provide a sense of stability, which is critical for customer confidence.