Citi, Other Bank-Branch Closures, Spell Trouble for Retail

Last Updated Sep 25, 2009 2:59 PM EDT

Reports that Citigroup might close or sell a chunk of its 1,000 bank branches as part of its plans to scale down its consumer-banking business spells more bad news for the retail real estate industry. And a lot of this type of news is coming from retail banking nowadays.

This summer, Bank of America announced that it is closing about 10 percent of its 6,100 units. The takeover of Washington Mutual by JP Morgan Chase resulted in about 400 closures so far. And a trend of more units shutting is expected in the space.

This development comes after years of aggressive retail expansion by the big banks. In some locales, it even became a joke. Like Starbucks, you were sure to find a bank on every corner. The reason for this was that banks were paying much higher rents for desired spaces than other prospective tenants.

Well, those days of banks paying exorbitant rents are over. And now many of these free-spending banks that landlords couldn't refuse will end up vacating, leaving the spaces empty.

Of course, this couldn't come at a worse time for the industry. With the rash of store closings happening across sectors this year, the likelihood of many of these spaces getting filled is poor. To make matters worse, some say that the former banks aren't configured well for other stores.

"They're not necessarily transferable to other retailers," Scott Burns, a broker at Wilson Commercial Real Estate, told the Wall Street Journal last month. "A lot are square and box shaped rather than rectangular, which would lend itself to splitting up for multiple tenants."

Luckily for retail real estate, deep-discount chains such as Dollar Tree are expanding and the Subways of the world are also adding new units. But vacancies left by the bank world could pose problems for the industry for years to come.