“You can never have too many banks.”
That more or less sums up commercial real estate’s motto over the past few years. A case in point is the corner of 59th Street and Third Avenue, where in mid-February a Citibank branch joined Wachovia and Bank of America branches. However, commercial brokers are now pointing to a slowdown in the trend that some have called “banksteria.”
They say there’s still healthy expansion activity, but its ferocity is waning. “It’s not over,” says Cushman & Wakefield’s senior director Joanne Podell. “But in the last year, it’s been ebbing.”
“Banks can only do so much before they start cannibalizing themselves,” says Fred Posniak, a senior vice president with W & M Properties. According to Andrew Mandell, who has handled many bank deals for Ripco Retail Real Estate, the bank expansion trend appeared most competitive about 12 to 18 months ago.
During the height of branch openings, some banks — which almost always want to occupy a corner location — were setting up shop in the middle of a block. “They just wanted to be near their competitors,” says Posniak.
Now the wave has crested, though it may not look that way at street level. Mandell points out that when mergers or acquisitions take place, like with Bank of America and Fleet, banks have to change signage, which gives a false impression of increased expansion.
Brokers note two signs that the trend is maturing: One is that the better-known chains aren’t opening as many branches in developed areas, and the other is that banks have turned their attention to pioneering in developing neighborhoods.
As far as expansion, there have been periods when Commerce Bank, Bank of America, Wachovia, Citibank and Washington Mutual have each been the most competitive in their own right. Currently, brokers agree that Chase has been on an expansion binge, but Posniak now sees the market opening up to the lesser-known banks. W & M Properties recently leased a space to Metropolitan Bank at 1359 Broadway, and others, like Amalgamated Bank, are also establishing a Manhattan presence. “Those aren’t household names,” he says.
Certainly, there’s only so much vacant space in Manhattan’s densest areas, which means banks have to consider the saturation factor. “If you take a map of Manhattan and draw circles wherever there are banks, you would be shocked at how many there are in even a three-mile radius,” says David Green, an executive director at Cushman & Wakefield.
Mandell notes that the concentration has been part of a customer-service push. “In New York City in particular, people are accustomed to having their services convenient,” says Mandell. “Starbucks is the perfect example. One can open 200 feet from another and people won’t care. They’ll go to the very closest.”
New Yorkers who want their banks close by have been good news for landlords, who love banks as tenants because they have the best credit, says Podell.
Green notes that banks look at the number of deposits and mortgages they expect to come in to determine what kind of rent they’re willing to offer, which makes them different from most other tenants. “Other retailers say, ‘We have to sell this much to make renting this space worthwhile,'” he says.
In the city’s most expensive areas, like on Fifth or Madison avenues, there aren’t many banks because they are either not allowed or they don’t want to pay the kinds of rents those avenues command. But in other sections of Midtown, rents range from $200 to $1,000 per square foot.
Also, with banks running out of potential locations in Manhattan’s business districts, the most recent openings have been in neighborhoods getting multiple new development projects. “More residential expansion means an increased need for banks to open up in newly developed neighborhoods,” says Mandell.
A good example is Harlem: three years ago, there were seven major bank branches along 125th Street, the neighborhood’s main drag. Now there are 18.
Eugene Giscombe, president of Giscombe Henderson in Harlem, says the average retail rents in the 125th Street shopping corridor are around $125 per square foot, but banks are renting space for $150. Banks like Wachovia, Commerce Bank, Washington Mutual and North Fork are opening up directly across from one another.
Giscombe attributes the influx of banks to the influx of new residents into Harlem as developers continue to build new apartment and condominium projects. Giscombe himself just leased the ground-floor retail space of his office building at 125th Street and Park Avenue to Washington Mutual.
Podell says that despite the increased number of branches in Harlem, the neighborhood is actually an example of major bank expansion slowing in New York. “As banks expand, they’ll go to areas like Harlem that had been underserved and under-retailed. The first targeted zones were the business districts and the banks are now fanning out in all directions,” she explains. “Harlem is the end of the trend.”