Competition in Close Quarters

Big Plans for Expansion, Desire for Prime Spots Drive Local Banks Into a Rush for Real Estate

For more than three years, Chevy Chase Bank has focused its considerable corporate muscle on a shabby wood-frame building at the corner of Hunter Mill and Chain Bridge roads in Fairfax County -- outbidding several competitors for the land, navigating a tortuous rezoning process and agreeing to relocate onto county parkland a small 1890s schoolroom buried inside another building on the site.

The dilapidated Appalachian Outfitters store, a fixture on that site for thirty years, will soon be torn down. The prize for banker B. "Frank" Saul II, Chevy Chase's owner, was the location: 3,700 square feet surrounded by thousands of middle-age, upper-middle-income, mortgage-heavy families that one demographer dubs the "high society" class.

"Within a five-minute drive, there are over 53,000 residents and 30,000 employees," said Wendy Cobrda, founder of demographic research firm Catenate LLC, which advises banks and retailers on where to put new locations. "That's a tremendous source of business alone. Add another five minutes drive time and you're up to 116,000 employees and 122,000 residents. . . . The spending potential [of the neighborhood] for nearly every financial service is two times or more than national average."

In a building frenzy bankers say is unprecedented in this region, banks are tearing down restaurants and gas stations, moving into spaces formerly occupied by delis and gift shops, and paying record prices to snag what they consider the best spots.

With 3,361 people per branch, Washington is already the fourth most-saturated banking market in the country. But the area's economic expansion and rapid population growth have attracted aggressive newcomers to the area, like Commerce Bank, and put pressure on existing market leaders like Chevy Chase to expand rapidly or risk falling behind. Since 2004, banks have opened 124 new branches in the area -- a 9 percent increase compared with 3 percent nationwide.

Dozens more branches are planned for this year. Guided by the type of sophisticated demographic research that the savviest retailers have used for years, banks are zeroing in on locations -- spots in the middle of money or on open land where they think people and money are heading. In fast-growing Loudoun County, for example, the number of bank branches increased more than 80 percent from 2000 to 2005.

And they are spending freely -- even for spots dense with competitors.

Chevy Chase paid $3.65 million for the Appalachian Outfitters lot. Bank of America, Wachovia and BB&T already have branches at or near the same intersection.

In Maryland at a small Potomac shopping center, "There's so many banks here you could spit at all of them in the middle of the parking lot," said owner Bruce Hendrix, whose small development has three bank branches within a few feet of one another. A fourth is on the way: BB&T recently rented the storefront occupied for 28 years by the Potomac Village Deli, a small space in the middle of a wealthy neighborhood.

Chevy Chase bought an old Friendly's restaurant on Lee Highway in Arlington, and Commerce Bank recently bought a long-standing Chili's in Gaithersburg -- both plan to tear down the restaurants.

"In the past, banks were never eager to go head-to-head with each other with dueling sites, like coffee shops, grocery stores, like health clubs are," said John A. Asadoorian, president of Asadoorian Retail Solutions, which represents banks in lease negotiations. "But that has definitely changed. They want to go head-to-head. They feel like they have to. We've never experienced banks being like that. It's very weird and interesting."

The annual rent for a standalone spot in a suburban shopping center is now up to $400,000, double the rate five years ago.