The race to be a cashless society means 1/3 of all high street banks have disappeared
Exclusive research by the Local Data Company and specialist property advisory firm Fraser Real Estate has found that the presence of high street banks is dwindling at their fastest rate yet, with 8% of all high street banks closing in 2017, increasing to 9% in 2018.This compares to just 2% in 2013 and 1% in 2014. In fact, over half of all these closures have been in the last two years.
Tim Malthouse, chairman of real estate solution experts Fraser Real Estate, said: “The move towards a cashless society has taken its toll on the need for physical banks. Younger consumers seem to place more importance on the online banking capabilities of their bank, forcing European banks to launch new products and adjust their digital strategies to compete.
Similarly, market traders, small cafes, clubs and sole traders are increasingly using phone-based apps to receive payments. Bank visits have reduced dramatically and the challenge for banks is to maintain a service for people less able to adopt new technology.”
The research found there were clear regional disparities in bank closures. London & South East saw the largest quantity of banks close overall, however they also re-let more to other occupiers at 23 and 24% respectively. The only other area with a similarly successful re-leasing ratio of 24% was the East Midlands. Scotland had the lowest ratio of banks being re-leased, with just 16 out of 262 going to other occupiers in the last three years.
Tim Malthouse says: “From our understanding there is a lot more opposition to bank closures outside of the South East of England. Every closure in Scotland has a huge reaction, whereas in London, the high density of alternative banks on offer, as well as the ability re-lease former space more efficiently, means closures tend to go largely go un-noticed. It is often only the closure of the last bank in town which causes a real issue to those who do still like to or rely on access to a physical bank.”
Lucy Stainton, head of retail and strategic partnerships at LDC says:
“Numbers of high street banks declined at a faster rate in 2018 than any other retail category that we track at the Local Data Company, taking over the previous number 1 spot for closures from pubs. In the service retail category we have seen a significant polarisation in fortunes as businesses offering services that are increasingly completed online, including estate agents and banks, fall in number.
Other services however, that are more experiential, such as barbers, hairdressers and nail salons, have continued to grow despite increasing headwinds for occupiers.”
Traditional vs challenger banks
For traditional banks, only 20% of closures have resulted in the space being re-leased to another occupier in the last three years.
The most common new tenants of traditional banking space are coffee shops – Costa in particular, funeral care, pizza outlets and charity shops. Specsavers also came out high on the list.
Another disparity is found between re-leasing of the traditional banking units (such as taken by Lloyds Banking Group, Natwest and Barclays) and those that the challenger banks (such as Metro Bank and Virgin Money) formerly occupied with the traditional group seeing just 20% of space being re-leased, while the challengers have seen 60% of leases taken by other occupiers.
Our research highlighted that challenger banks have typically built their profile in 2 ways:
Solely through an online presence and heavy advertising (or use of social media) eg Revolut, Monzo, Monese, N26.
Physical presence, believing that their customers want on-line functionality with traditional banking servicing, which can require face to face interaction, eg Metrobank.
Tim Malthouse said: “High Street banks in the UK were designed to demonstrate that your money was secure, so they were often impressive buildings with secure (brick /stone) frontages. Typically, they were purpose built and held freehold. Less important buildings or locations were often subsequently the subject of sale and leasebacks in the early 2000’s to take advantage of the high price being paid for such properties/covenants.
Many of the more impressive (often freehold) former bank properties have been reused as pubs and restaurants. The smaller properties often convert to all or part residential use, or change to become barbers, vape shops, convenience stores, charity shops, cafes/restaurants, gyms or undertakers. Smaller properties are often vacant for c3 years.”
The Government’s proposals to ease planning restrictions on change of use on the high street should be welcomed – consumers’ needs are changing and high streets have to respond quickly; nothing puts off shoppers more than a row of vacant shops.
Former banks; with their traditional ‘hard’ frontages do not always appeal to ‘standard’ retailers; so anything which promotes economic re-use should be welcomed.”
Reinvention and solutions
Banks need to appeal to both the traditional customer and the new customer who often requires more information and ease of use, without the requirement for face to face contact.
Tim Malthouse comments: Traditional banks often occupy too much floorspace so, given the need for high street retailers to reinvent themselves with increasingly experiential offers, perhaps this ‘dead space’ could be better utilised to attract different customers and help repurpose part of the unit earlier on, thus increasing footfall and a ‘reason to visit’ before needing to close down indefinitely?”
Lucy Stainton agrees: “Whilst it is very tricky for banks to re-create this experience element within their stores, there is an opportunity here for banks to share units with other retail types, as we are increasingly seeing across other market sectors with the likes of Next housing Virgin Holidays and Costa concessions within their larger units. This boosts income for the host from subletting superfluous space, and the other brand benefits from increased footfall and access to space in a prime location for a more affordable price.”
The research highlights that there are now three types of purchase which determine consumer habits:
Stuff – customers know what this looks like and cannot be bothered to go shopping = online purchase
Special – customers wanting something for a special occasion or experience = somewhere large e.g. Westfield, Meadowhall, Central London, Metro Centre etc
Daily – essentials picked up regularly = local
Tim Malthouse said: “Most in-house property directors typically appoint their usual supplier to deal with disposals as well as their acquisitions. This can be a mistake because acquisitions are generally focussed on the towns which the retained agent knows well, disposals are often not. Disposals of properties owned by private landlords in smaller or unfamiliar towns should not be dealt with in the same manner as acquisitions.
One of our core activities at Fraser Real Estate is property problem solving, we are used to providing solutions involving complex re-leasing, repurposing or other challenges and have surrendered over 1000 leases to mostly private landlords throughout the UK. We would advise banks not to sit on vacant leases, but to actively engage experts and/or local agents in order to get these repurposed for the good of our high streets.”