by Brianna Crandall — December 10, 2014—The 2014 Law Firm Perspective from global commercial real estate services firm JLL (Jones Lang LaSalle) found that New York law firms continued to prioritize efficient space utilization and remained in contraction mode during the past year, illustrating larger real estate trends in managing office space, particularly for legal offices.
Manhattan’s legal sector occupies 11% of the city’s Class A office market, down slightly from 11.4% in 2013. According to the report, 119 law firms occupy more than 50,000 square feet of office space each throughout Manhattan, compared to 125 law firms one year ago. Activity among New York’s legal sector over the past year has resulted in three firms committing to leases greater than 100,000 sq. ft.—two relocations and one renewal—compared to four renewals larger than 100,000 sq. ft. at this time in 2013.
Nationwide, many mid- to large-size law firms have already rightsized their space needs and renewed their leases, according to the report. The U.S. legal sector gave up about 17% of its space on average upon relocating in 2014, up from 14% in 2013. The rightsizing trend appears to be slowing, depending on the city, with JLL finding that anywhere from 55% to more than 90% of law firms in primary and secondary markets have already devised substantial efficiency measures in new or restructured leases.
“Law firms have typically preferred renewing to reduce their capital outlay, but several factors today are converging in favor of relocation,” said Kenneth Siegel, international director, JLL. “Older, inefficient installations, the cost and disruption of renovating in-place, and the space efficiencies that can be achieved in newer buildings have all contributed to relocation decisions. In New York specifically, law firms seeking both a cost advantage and state-of-the-art facilities are considering relocations westward within Midtown and into relatively newer stock Downtown where pricing for trophy space is on par with Class A space in Midtown.”
According to the report, New York boasts the most law firms leasing 50,000 sq. ft. or more, followed by Washington DC (92), Chicago (54), Los Angeles (36) and Boston (28). Meanwhile, geographies with the greatest percentage concentration of law firms include Washington, DC; Silicon Valley, CA; Fort Lauderdale, FL; and Austin, TX, all areas in which law firms account for 30% of total occupancy in Class A core submarkets.
The Law Firm Perspective report found that law firms face more supply constraints than nearly any other industry because of the sector’s concentration in core assets in central locations, the tightest segment of domestic office markets.
In Manhattan, for example, the inventory of trophy office buildings most frequented by law firms commands a 17.6% premium in Midtown and an 11.1% premium Downtown compared to Class A space. However, with market dynamics shifting and employee commuting patterns evolving, the New York metropolitan region’s geographically diverse workforce has opened up the opportunity for law firms to relocate outside of the city’s traditional submarkets.
