Please Note: This Article is 9 years old. This increases the likelihood that some or all of it's content is now outdated.

When was the last time you visited your bank branch? If we are being honest, for most of us, and for around 80 per cent of the UK population, the answer must be, “I can’t remember.”

As if the high street was not in enough trouble from a four pronged attack: aggressive parking wardens / high council parking charges, high business rates, out of town shopping and Internet online shopping, we can now add a fifth: bank closures.

Many of Britain’s high streets, which are already blighted with empty and boarded-up shops, are now likely to face even more disruption as the main banks start to cut costs by targeting bank branches that are no longer performing.

The costs involved in maintaining bank branches are one of the highest costs banks face. With property costs, business rates and staffing costs together it’s hard to justify these if the branch is not doing much day to day business.

The dilemma the banks face is maintaining their brand presence before the public when they know that only around 10% of their clients use a branch, knowing that now most transaction business can be done on-line. The transition is bound to be a slow process as no one bank wants to be absent from high streets when their competitors still have a prominence, but slowly but surely closures are chipping away at the edges.

Valued added activities such as insurance, mortgage and investment advice and sales can more easily be conducted in a branch, with experts in eye to eye contact, but is it any longer economic to keep the smaller branches open when clients are willing to travel to bigger centres on the few occasions when they need this type of service?

Whilst it’s unlikely bank branches will disappear altogether, it is very likely they will shift locations away from the traditional high street, to smaller premises where the new footfall is located, major cities, supermarkets and shopping malls. With fewer transactions needing cash or even cheques, there’s no real need any longer for the reassuring security of the traditional, imposing bank building architecture.

One idea that’s being tried in the US, with some indications of success, is combined or shared branches. Multi-bank buildings it seems are not an option here, at least not for now. Post offices would seem to be an ideal location for this concept, but again mass post office closures seem to defy this move.

However, some communities could be left bank-less and ghost towns as they face the prospect of closures by all of the main UK banking groups. This will not only inconvenience many small businesses who rely on their local banks to provide cash for change and to keep takings safe overnight, shoppers will drift elsewhere to withdraw their cash and do their shopping.

In 2012 the big four: NatWest, HSBC, Barclays, Lloyds and TSB, many of which operate the “last branch standing” in small towns and communities, between them closed 156 branches. The figures for 2011 and 2010 were 178 and 193 respectively.

One of the most aggressive closers appears to be HSBC with 30 of its 1,187 high street branches slated to close over the next 12 weeks. Barclay’s branch network fell from 1,593 at the end of last year, to 1,577 in June, and the Royal bank of Scotland (RBS) which includes nearly 1,400 NatWest branches – closed around 50 branches in the first half of 2013.

For landlords these changes in retail and consumer behaviour have implications for their investments if they own retail shops and offices on high streets in many of the small to medium size towns. Most of the major banks have been steadily selling off their branches through property auctions to small and medium size investors over many years, leasing them back on long (10 to 15 year) leases. As a commercial landlord you’ve got to ask yourself, why did they adopt this strategy and what’s the long-term outcome for the investor?

By Tom Entwistle

Please Note: This Article is 9 years old. This increases the likelihood that some or all of it's content is now outdated.


  1. One answer to the question in your last paragraph is that the banks realised they could capitalise on the demand from investors for secure and mortgageable income and at the same time off-load buildings that would otherwise not have fetched anything like the prices investors would pay. Anyone who now owns an ex-bank building in some remote location will I\’m sure be well aware how hard it is to find a new tenant. There comes a time when even the demand from restaurants and bars dries up.

    In most cases, I think the banks had in mind that the rent on first review would not go up, possibly even not increase for subsequent reviews, given how the wording of the lease is broadly in the tenant\’s favour. Also, depending upon the construction, rent review of bank premises tends to include a valuation allowance for the \’hard frontage\’ which is often as much as 10% discount. In some areas, however, there is scope for increases, often substantial and there the banks have come a\’cropper through underestimating.

    What is interesting is how the banks have gone about their sale-and-leasebacks. It all started with Lloyds who not wanting to be left with unsold properties instead sold tranches at a discount to full value to some shrewd property traders who immediately put them up for sale as individual lots in auction, in the process making a hefty profit. Barclays learnt from that so didn\’t copy Lloyds but put their buildings into auction one by one.

    Sale-and-leaseback is a well established capital releasing/raising exercise but the investor has to be careful that the initial rent is not over the top and the terms of the lease landlord favourable. or at least not unduly tenant-oriented. Over-the-top is less common now investors are more clued up but the initial rent should be analysed to allow for the valuation discount for \’hard frontage\’.

    An important point to bear in mind is that the higher the price paid for the investment the more important it is for rent to increase during the contractual term so as to offset the depreciating value of the investment as the number of years remaining on the lease gets fewer. For example, a building let to Barclays for 20 years with 5 yearly reviews, all other factors remaining constant, is unlikely to be as attractive to investors when the lease has only 10 or 5 years remaining.


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