In a volatile retail banking environment, banks of all sizes need to maintain flexibility to ensure they can move quickly to meet rapidly changing consumer expectations. Top banks are re-evaluating their real estate portfolios, restructuring their own-vs-lease and capital redeployment strategies to achieve competitive advantages.

1. Evolving retail banking strategies
present opportunity for monetization
Corporate Finance Net Lease Perspective I Retail banking industry Spring 2015

2. Key takeaways
Number of bank branches now stabilizing at pre-recession levels. Although the number of bank
branches across the U.S. decreased during the Great Recession, this number has stabilized at 2008
levels. Since 2003, the number of bank branches per capita has increased 1.3 percent.
Structural shifts driving service diversification and flexibility within branch networks.
Evolving technology has created a multitude of channels in which customers can access their
accounts. This has forced banks to rethink their branch strategies to continue to draw customers.
Superior customer service is paramount.
Bank branch capital values on the rise. Strong capital markets fundamentals are driving activity in
the net lease sector. Greater liquidity in debt markets and the lack of available product is pushing
competitive pricing. In 2014 a 30.0 percent annual increase in investment volumes was recorded.
Pricing across the U.S. varying by region and lease term. Hot spots in California, Texas, Florida
and New York are experiencing aggressive pricing, reflected in a 25 to 50 basis point premium.
Positive outlook for net lease banking sector. The banking industry is expected to grow
organically, with service diversification, cost management and customer experience enhancement
continuing to drive firms’ real estate strategies.
1.
2.
3.
4.
5.

3. Reasons why banks are optimizing their portfolios
Strong
capital flows
Occupancy
flexibility
Unlock
Value

4. In 2013, 53.0 percent of banking transactions were
conducted through an online medium, rather than in
a branch
8.0%
53.0%
14.0%
25.0%
Mobile Online Branch Teller ATM
Source: JLL Research

5. However, the number of bank branches in the U.S. has
returned to pre-recession levels
2,000
2,258
2,709
2,522
1,889
387
-1,031
-326
-853
-999
-1,616
80,000
82,000
84,000
86,000
88,000
90,000
92,000
94,000
96,000
98,000
100,000
102,000
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Totalnumberofbankbranches
Bankbranchchange
Source: JLL Research

6. Although branches have closed, 92.0 percent of banks
believe their branch networks will be larger in five years
46%
23%
23%
8% 10% 18%
45%
27%
0% to 10%
smaller
10% to 30% larger
30% to 50%
larger
0% to 10%
larger
3,500 square
feet or more
2,000 square
feet or less
2,000 to 3,000
square feet
3,000 to 3,500
square feet
Will your branch network be larger or
smaller in five years?
What is the average size of your newer
branches in square feet?
Source: JLL Research, EHS Design

7. Increased compliance applying pressure on banks
Since the recession, banks have been required to comply to more financial regulation and
compliance
• The Dodd Frank Act aimed to protect the financial services industry to avoid a recurrence
of the factors that led to the recession.
• This has led to approximately 300 additional regulatory requirements in 2014 alone.
• The implementation of the Dodd Frank Act has forced banks to allocate more resources to
compliance, forcing the finance industry to create efficiencies and streamlining in other
areas, including real estate strategies.
• In response, branches are becoming more flexible
Source: JLL Research

8. Customers value service quality, reputation of the
institution over investment performance
13%
15%
28%
48%
51%
51%
58%
65%
69%
75%
81%
Reccomendations from family/friend
Rewards offered
Type of institution
Convenience
Investment performance
Familarity with the institution
Types of products/services
Clarity of communication
Priciing and fees
Reputation of the institution
Service quality
Source: Deloitte

9. Investors paying a premium for credit and term
90 to 120 basis point premium on a cap rate basis for strong credit and term
7.1%
6.4%
6.1% 6.0%
5.9%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
8.00%
BBB+ BBB AA- A- A
7.1%
6.1% 6.0%
5.9%
6.2%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
8.00%
0-5 years 6-10 years 11-15 years16-20 years 21+ years
Source: JLL Research
Average yield by credit rating Average yield by remaining lease term

10. … With retail bank cap rates notably compressing for
assets with 10+ years of remaining lease term
6.3%
6.7%
6.4%
7.0%
6.1%
5.8%5.8%
5.9%
5.6%5.7%
5.4%
5.2%
6.1%
5.5%
5.3%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
6 - 10 years 11 - 15 years 16 - 20 years
Yield(%)
2010 2011 2012 2013 2014
Source: JLL Research

11. A geographic divergence in pricing exists across the regions…
Northeast Region
10-year: 5.50% - 6.50%
15-year: 5.25% - 5.75%
Mid-Atlantic Region
10-year: 5.75% - 6.75%
15-year: 5.25% - 6.25%
West Region
10-Year: 5.25% - 6.25%
15-year – 4.75% - 5.75%
Southwest Region
10-year: 5.50% -6.50%
15-year: 5.00% - 6.00%
Southeast Region
10-Year: 5.50% - 6.50%
15-year – 5.00% - 6.00%
Midwest Region
10-Year: 5.25% - 6.25%
15-year – 4.75% - 5.75%
Source: JLL Research

12. …along with a 25 to 50 basis point pricing premium for select
hot spots across the U.S.
California Hot Spots
10-year: 5.00% - 5.75%
15-year: 4.25% - 4.75%
Texas Hot Spots
10-year: 5.25% -6.25%
15-year: 4.75% - 5.75%
New York Hot Spots
10-year: 4.75% - 5.75%
15-year: 4.00% - 4.75%
Source: JLL Research
Florida Hot Spots
10-year: 5.25% - 6.25%
15-year: 4.50% - 5.50%

13. Retail cap rates forecasted to soften… in line with long-
term treasuries
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
Yield(%)
Retail cap rate 10-Year Treasury yield
Source: JLL Research, Oxford Economics
Forecast

14. COPYRIGHT © JONES LANG LASALLE IP, INC. 2015
Guy Ponticiello
Managing Director – Capital Markets
+1 312 228 2645
Guy.Ponticiello@am.jll.com
Sean Coghlan
Director – Investor Research
+1 215 988 5556
Sean.Coghlan@am.jll.com
Brittany White
Associate – Capital Markets
+1 312 228 3616
Brittany.White@am.jll.com
Rachel Johnson
Analyst – Investor Research
+1 312 228 3017
Rachel.Johnson@am.jll.com
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