New Branches Are Rarer, Smaller and More Expensive Than Ever

Branches are getting smaller, and there are fewer and fewer new branches on the horizon. Even though they are one quarter the size they were ten years ago, they still cost about $1.3 to build.

By Steven Reider, Founder of Bancography

Ten years ago, Bancography surveyed banks and credit unions across the U.S. about their branch deployment plans. The study covered the number of planned branches, cost, and size of those branches. Bancography reprised this study in 2006, but skipped a few years as branch building slowed during the recession. Now, the economy reviving. Many institutions are expanding again, and there is significant attention being placed on the efficiency of branch footprints, so Bancography felt it would be appropriate to repeat the study and release an update.

Bancograrphy’s latest “Branch Construction Survey” was fielded in May 2013, with 70 financial institutions — both banks and credit unions — participating from all regions of the country and spanning all asset tiers.

How many branches will your institution add next year?

More than 70% of respondents plan to build only one or two branches in the next year, so most planned growth appears incremental rather than oriented toward widespread expansion. 72% of institutions plan to build traditional branches, 51% plan inline facilities, and 13% plan to add in-store branches (the proportions sum to more than 100% because some institutions plan to deploy more than one format). Non-traditional branches — inline plus in-store — represent 42% of all new planned branches.

What is the average square footage of the planned new branches?

The average size for planned freestanding branches was reported at 3,040 square feet, down significantly from 3,500 sf in 2006 and 3,900 sf in 2003; the median was 2,950 sf. Still, not all institutions are embracing smaller branches. One in four respondents said they are planning branches of 4,000 sf or more.

Among the planned inline branches, the average reported size was 1,950 sf, with the median at 1,800 sf. Planned sizes ranged from 750 sf to 4,000 sf.

What is the average construction cost of the planned branches (all inclusive, minus land costs)?

Reported freestanding branch costs ranged from $700,000 to $2 million, and averaged $1.3 million, down slightly from the $1.4 million in the prior survey. However, keep in mind that average square footage declined from 3,900 to slightly more than 3,000, so branches got significantly smaller while costs only decreased some. That means cost-per-square-foot for freestanding branches increased to $440, up from $360 in 2006 and $310 in 2003. Costs ranged from $220 per sf to more than $600 per sf.

For inline branches, reported costs ranged from $250,000 to nearly $1 million, averaging $530,000. Cost-per-square-foot ranged from $90 to nearly $500, and averaged $275 (median $250), up from $190 in the 2006 survey.

What is the average land cost of the planned freestanding branches?

Reflecting the wide regional disparities in land costs, the answers to this question exhibit the greatest variance. Responses range from $250,000 to $1.4 million. Costs tend to be much higher in the larger metros, especially in the Northeast corridor and the Great Lakes region. Consistent with a nationwide decline in real estate values, average cost was reported at $675,000, down from $1.1 million in the 2006 survey.

Read More: Poof! Branch Transactions Drop By Half in 20 Years

Other findings

Remote video tellers. 11% of institutions surveyed will use video remote tellers at all new branches, and 32% will use the technology at some new branches. However, 57% have no plans for video tellers.

Universal staffing. The universal agent model is under consideration at many institutions. 42% of respondents plan integrated teller-CSR (universal agent) workstations in all new branches, although 30% plan to install traditional teller lines in all new branches. The remaining institutions plan a mix of operating models.

Image-enabled ATMs are fast becoming standard equipment. 68% of respondents planning to use the technology in most or all new branches.

Teller Cash Recyclers (TCRs) are increasingly common. 53% plan TCRs in all new branches; and 16% in some new branches; but 31% have no plans to use TCRs. Teller cash dispensers (TCDs) are slightly less prevalent, with 54% of respondents planning to use TCDs in at least some new branches.

Safety deposit boxes. Only 31% of respondents plan to install safe deposit boxes at all new branches; another 20% plan to install boxes in some new branches. Traditional dual key vaults were 2.5 times more common than single key self-service vaults.

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