JLL: Law Firms Seeking New Office Space
The law firm real estate market is entering a new phase that gives law firms a better choice of location and office space than ever before, reported JLL, Chicago.
Continued economic growth is driving law firm expansion at the same time more than 65 million square feet of new office supply is under construction across major U.S. markets, the JLL Law Firm Perspective report said.
More than half–54 percent–of the new supply is currently available for lease in the top six legal markets: Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C., JLL said. And as large law firms relocate into new space, more second-generation, lower-cost space will also become available.
“During the last few years, law firms pursued non-traditional office locations because of space constraints, the desire for greater efficiency and reduced real estate costs,” said JLL Law Firm Group Co-Lead Tom Doughty. “With so much construction underway, law firms of all types can target their specific needs, whether they are pursuing trophy or less expensive second-generation real estate.”
JLL cited a “positive” global economic outlook, with 3 percent growth projected for 2018. “With stable growth projected over the next few years, companies are projected to continue adding staff to keep pace with their expanding businesses,” the report said.
CBRE, Los Angeles, said law firms are adjusting their real estate strategies in response to advances in technology, shifting client demand, aging workforces and intense competition to attract and retain skilled talent. Many law firms are contracting their space, resulting in a 27 percent reduced footprint on average between first-quarter 2016 and second-quarter 2017.
“Despite being rooted in tradition and precedence, many law firms are employing new real estate strategies when lease expirations present opportunities, in particular, space contraction and workplace strategy,” said CBRE Law Firm Practice Group Global Chair Jamie Georgas. “Law firms with leases expiring in the near term are reconsidering long-held assumptions about how their attorneys work and, when determining their space needs, the services and technology they need to be most effective.”
Class A central business district office rents have increased 35.7 percent since 2010 and markets with high concentrations of law firms are responsible for most of the 65 million square feet of premium office space under construction in urban cores, said JLL Law Firm Group Co-Lead Elizabeth Cooper.
“The urban cores where the majority of law firms reside will have the upper hand in attracting much-needed talent,” Cooper said. “Millennials–a core demographic in these markets–are primed to assume new positions as they are vacated by retiring Baby Boomers. With so much office supply on the way in top legal markets, rents will begin to flatten–a welcome trend for expanding and cost-conscious firms alike.”
Indeed, JLL noted concessions for tenants in central business districts are up 15.3 percent nationally since 2015. Tenant improvement allowances for new construction have also jumped substantially. In the six largest legal markets, TI allowances average $85.83 per square foot, nearly 38 percent higher than the national average.
Office landlords in nearly one-third of U.S. markets now provide 12 or more free months for tenants moving to new developments with a typical 10-year lease term. Firms in the top six legal markets receive 9.3 free months on average compared to 7.1 months for the U.S. overall.
“Through year-end and into 2018, the real estate environment for law firms will shift markedly,” Doughty said. “With new supply nearly doubling since just 2015, competition among landlords is leading to increasingly higher concession packages, a trend which shows no sign of slowing in core legal markets.”
