Banks are chasing population growth, and property investors are chasing increasingly scarce net lease bank ground leases.

Bank branch closings have accelerated during the past five years. The number of locations as of the end of 2020 totaled 85,050 in the U.S., according to JLL’s recent United States Bank Branch Banking Update. In 2020 alone, banks pulled the plug on 2,958 branches, the firm reports. And according to the FDIC, the number of bank branch closings eclipsed the number of bank branch openings for each of the past 11 years.

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In 2020, the number of bank branches declined by 5.2 percent in Hartford, Connecticut; by 4.7 percent in Sacramento, California; and by 4.1 percent in each Portland, Oregon, and the New York City-Newark, New Jersey, area.

But the biggest national banks are opening new branches in high-population-growth, Sunbelt markets even as they shutter branches in major metros where the population is declining, according to JLL.

The top 10 banking institutions account for 23 percent of all openings in the country since 2019 but for 44 percent of all closings. They’re moving to new markets and opening stores that cater better to modern customers, according to JLL. “We expect additional net bank branch losses in large metropolitan areas with flat or negative population growth projected by 2025,” JLL managing director of research and strategy Christian Beaudoin wrote.

Despite these closures, banks have plenty of money to fund expansion. Total deposits grew in 2020 at the fastest pace on record — since 1975 — by over 20 percent. But consumers increasingly are using mobile banking services, making some stores obsolete. New branch designs reflect the need to solve complex issues in person while providing digital solutions for simpler tasks, according to the report.

Thanks to their population growth, several Sunbelt markets recorded a net increase in bank branches in 2020. These included Austin, up 1.1 percent; Charlotte, up 2 percent; and Tampa, up 0.7 percent, according to JLL.

Investors bank on new single-tenant ground leases

Many new bank branches are freestanding net lease properties, and these are in high demand among commercial property investors, according to The Boulder Group’s first-quarter 2021 Net Lease Bank Ground Lease Report.

Cap rates for the single-tenant bank ground-lease sector decreased by 12 basis points to 5.35 percent year over year in the first quarter. Long-term-leased bank branch properties, which are typically the most modern prototypes and are sometimes relocations, were the most sought after and therefore expensive investments in the sector in the first quarter. Bank properties with leases longer than 18 years commanded cap rates of 4.3 percent, a 10 basis-point decrease from the prior year, according to The Boulder Group.

Scarcity is contributing to the low cap rates, too. “With negative net branch openings throughout the years, the supply of bank ground leases is heavily concentrated with short-term leases,” The Boulder Group senior vice president John Feeney wrote. “For the third consecutive year, the median term remaining for the bank ground-lease sector was below 10 years.”