Why American banks need adaptable office space

Banks have been scurrying to get with the digital age – creating apps that allow friends and family to send each other money in milliseconds and deposit checks remotely.

August 02, 2018

Bank’s hiring practices have followed the same trajectory. Tech-related jobs now take up 43 percent of the industry, according to JLL’s report on Financial Services Operations Centers.

Information technology (IT) positions such as software engineering and cloud development are expected to expand in the short term, JLL forecasts, with the amount of “back office” space that banks lease growing along with it. However, these jobs may begin to contract within ten years, when automation transforms the banking industry, says Christian Beaudoin, Senior Director of Research at JLL.

This push and pull will have a direct impact on how much real estate they need. Banks will add up to 15 million square feet of new, purpose-built operations hubs nationally, over the next three years, Beaudoin predicts. But five years later, up to 25 million square feet of existing headquarters and operations space could be resized and reconfigured.

“Their real estate needs are expanding now, but that will likely reverse, so the space and lease terms need to be agile,” Beaudoin says.

How banks can plan for changing space needs

Banks can plan for less-than-certain space needs by baking flexible terms into leases. For example, they might sign a ten-year lease with options to expand or contract the space after five years.

The design of the office itself should be flexible, with modular walls and workstations that can be easily reconfigured as staff needs change and organizational structures evolve, Beaudoin says.

Thorough analysis of what functions are best performed where – at home, in the office, in off-site locations — will help this cause.

“Many banks are already starting to test programs of flex locations for certain tasks,” Beaudoin says. “Allowing people the freedom of choice to work where they are most effective has the dual benefit of increasing employee satisfaction and retention, while managing increases in real estate costs.”

Why banks are expanding now

Some of the tech jobs that banks seek to fill involve streamlining functions that are duplicated or complicated. A wave of mergers and acquisitions over the past decade consolidated the industry into a smaller group of much larger organizations – and the residual complications are still vexing the industry.

“Many institutions are still working through melding their legacy acquisitions and functions into a cohesive whole,” says Beaudoin.

Another factor fueling tech hiring is the drive toward digitization. Technology advancements continue to accelerate and transform the financial services sector, from mobile bank deposits to the continued automation of trading and investment banking.

At Goldman Sachs, for example, computer engineers alone now represent 25 percent of the workforce.

The banking sector is not alone in its immediate need for tech talent that will change over time.

“What we’re seeing in banking is a foreshadowing of what we can expect in real estate demand in general,” says Beaudoin. “Every industry is on a path toward increased automation. In the near term that will lead to greater demand for talent and space, but ultimately many job functions will be completed more reliably and efficiently by technology rather than people.

“This could lead to a net reduction in office space further down the road,” he concludes.

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