For years, banks have waged a nationwide race to open up as many bank branches as possible as competitors have tried to one-up each other in building their retail banking business. The top 20 banks in the U.S. alone will open 1,000 new branches in 2006, according to research firm www.bankstocks.com—growing their combined networks by 3 percent.

Yet at the same time, the industry is in a period of consolidation. The result of bank mergers has been overlapping networks, leading to branch closings, in some cases just months after they’ve opened. Many times, the locations have been taken over by other expanding banking chains, but consolidation has reached a point where there isn’t enough demand for these shops. Now, they are emerging as prime space for other retailers—particularly those like drug stores or fast food restaurants that look for single-tenant net lease deals.

“Lately we’re seeing much more interest from retailers,” says Jarrett Wells, managing director of branch sales and leasing with American Financial Realty Trust. AFRT is a Pennsylvania-based REIT that deals exclusively with financial institution real estate. In the past, he says, 70 percent to 75 percent of the time a vacant bank would be filled by another bank.

The former banks are well suited to other uses, he says. “We’re talking about well-located freestanding locations between 2,400 square feet and 5,000 square feet that are fully improved with drivethroughs and most likely on a corner location,” Wells says. “The idea of converting a building like that is very palatable when compared with developing a new space or leasing an inline space at a shopping center.”

Almost certainly there will be adequate supply. In April, for example, JP Morgan Chase acquired the Bank of New York Company Inc.’s retail banking business and soon after announced it would close 50 branches in the New York City tri-state area. Early indications from local brokers are that those locations will not go to competitors, but instead will be converted to other uses.

AFRT worked through Wachovia’s merger with Southtrust, which was completed in October 2004, which has resulted in 175 closed branches in the past two years. Of those, Wells says 75 percent went to other banks and 25 percent went to retailers, including Chipotle, Starbucks and SuperCuts.

- David Bodamer