Economics and Technology Are Reshaping Financial Services Real Estate

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As banks continue to recover from the last financial crisis, they also face heightened regulation, potential for security breaches and a squeeze on expenses. This is having a major impact on their real estate decisions, says a JLL’s new North American Banking and Finance Outlook. While banks still represent the largest occupiers of trophy Class A office space in most cities, the financial services industry is changing its office and retail footprints. Banks are consolidating personnel in less expensive locations; new financial tech companies, or “fintech” players, are emerging; and retail banks are evolving altogether.

In Atlanta, banking and finance tenants have been particularly impacted by rising Class A rental rates, as they typically locate in some of the metro area’s most expensive buildings. Buckhead, the traditional submarket of choice for banking and finance firms, saw average rental rates increase by 6.9 percent on a year-over-year basis in 2014. And although a majority of requirements are targeting office space in Buckhead, buildings in the city’s affordable Northwest are seeing a surprising amount of attention.

Furthermore, according to the report, Atlanta’s fintech sector, which processes 70 percent of the world’s non-cash payment transactions, views real estate decisions much differently than traditional banking and finance firms. Driven by the desire for access to a vibrant workforce, firms like WorldPay US have elected to move intown to be closer to the millennial population, shedding real estate in the city’s suburbs.

The report reveals how economic, regulatory, security and technology factors are reshaping the financial services industry and its role in cities across the United States and Canada:

  • The front office shrinks, the back office grows and relocations rule the day. Large institutions continue to rein in real estate expenses in response to tight profit margins. Corporate offices are shrinking rapidly, from 52,356 square feet in 2013 to only 44,768 in 2014, with the average office now 14.5 times smaller than it was in 2013. Much of the space reduction is coming from front-office space. Banks continue to reduce the ranks of research analysts, traders and investment bankers as risk guidelines make these divisions less profitable. In contrast, back-office staff has grown to accommodate increased legal, regulatory compliance and cyber security requirements.
  • Exploiting the market for new office space. One factor driving relocations is new office construction, which surged by nearly 65 percent in North America in 2014 over 2013 and created more location choices and therefore an opportunity to negotiate favorable lease terms at brand-new Class A facilities.
  • Fintech drives growth. The rapid growth of the fintech sector is also fueling the financial industry landscape. London and Silicon Valley are the most active fintech markets, with New York quickly catching up, as the city reached its highest record for fintech deals in early 2014. Like many other technology concerns, fintech companies seek access to talent. WorldPay US, for example, recently relocated from the suburbs to downtown Atlanta to gain better access to the millennial workforce.
  • The bank branch isn’t obsolete—it’s evolving. Despite the growing popularity of mobile and online banking, nearly 80 percent of consumers visited a bank teller in the past year, according to a 2015 FDIC survey. Many are testing new branch formats to focus less on everyday transactions and more on higher-margin advisory services such as wealth management and mortgage lending.

Download a copy of the 2015 North American Banking and Finance Outlook here. To view the Atlanta section of the report, click here.

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