Say goodbye to the law firm library. Those rows and rows of paper files are going, too. And that luxurious corner office occupied by the top partner? It’s about to shrink.
As law firm expenses continue to rise faster than profits, and technology makes the old ways of practicing law impractical, law firms are increasingly looking to one of their largest expenses—real estate—to find ways to save money, according to a recently released report from real estate brokerage Jones Lang LaSalle. One way to do that, says John Sikaitis, Jones Lang’s Washington, D.C.-based director of office research, is to reorganize space, often ditching as much as 20 percent of it in the process, without making staff cuts.
Equalizing law firm office sizes, using interior space for conference rooms, and moving back office functions to lower cost markets have all helped law firms cut their footprint, says Sikaitis and others in the law firm real estate industry. Releasing space back into an already weak real estate market also helps law firms maintain an upper hand when it comes to negotiating office space deals, Sikaitis says (The exception to that rule comes in Northern California, Denver, and parts of Texas where technology and energy work are booming).
But the advantage won’t last forever, in part because stalled development of new projects could lead to increased competition down the line. “There’s still opportunity there for 12 to 24 months,” Sikaitis says. “That leverage could turn quickly if markets pick up and and there’s no development pipeline.”
Below, we take a look at activity from 2012 in a dozen major law firm real estate markets, as laid out in Jones Lang’s Law Firm Perspective Report, as well as what Jones Lang says firms in those markets should expect in the coming years.
Recent deals: Alston & Bird relocated to 366,000 square feet at 1201 West Peachtree Street, and Paul Hastings moved down the road, to 75,000 square feet at 1170 Peachtree.
Firms on the prowl: Bryan Cave (90,000 square feet), Hunton & Williams (70,000), Burr & Forman (40,000)
Average Class A asking rent: $25.10 per square foot
Outlook: Tenants still have the upper hand in Atlanta, where law firms are one of the most highly sought-after tenants. Compared to years past, 2012 has been a quiet one for law firm movement.
Recent deals: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo renewed its headquarters space at One Financial Center, where it occupies 245,000 square feet. Pepper Hamilton renewed and expanded to 42,105 square feet at 125 High Street.
Firms on the prowl: Goodwin Procter (360,000 square feet), Goulston & Storrs (140,000)
Average Class A asking rent: $52.24 per square foot
Outlook: Law firms take up 20 percent of Class A space in the city, which has a dwindling amount of large blocks of space for firms looking to move. Opportunities still remain, however, in the developing Seaport District.
Recent deals: Foley & Lardner shrunk its footprint to 173,000 square feet when renewing. Latham & Watkins, celebrating its 30th year in the city, is relocating to 137,000 square feet at 330 North Wabash Avenue. And Perkins Coie is expanding to 104,000 square feet at 131 South Dearborn Street.
Firms on the prowl: McDermott Will & Emery (250,000 square feet), DLA Piper (225,000), SNR Denton (125,000)
Average Class A asking rent: $35.87 per square foot
Outlook: Landlords are beginning to regain power over tenants here. Two new office towers in the River North district have drawn law firms across the Chicago River.
Recent deals: Brownstein Hyatt Farber Schreck renewed its 100,000 square feet at 410 17th Street.
Firms on the prowl: Holland & Hart (145,000 square feet), Faegre Baker Daniels (90,000), Snell & Wilmer (40,000)
Average Class A asking rent: $29.84 per square foot
Outlook: Firms trying to stay hip are eyeing Lodo on the west side of downtown, where an edgier landscape and proximity to nightlife and light rail are a draw for younger attorneys, but where landlords also have more sway over pricing. Nearly a million square feet of space is also being vacated soon by major non-law firm tenants.
Recent deals: Morgan, Lewis & Bockius renewed nearly 90,000 square feet in the iconic Wells Fargo Plaza
Firms on the prowl: Susman Godrey (75,000 square feet), Baker & Hostetler (50,000)
Average Class A asking rent: $37.89 per square foot
Outlook: The boom in energy work makes Houston one of few markets where law firms don’t have much leverage over landlords. Law firms looking to move may have to go outside of the central business district, where few large blocks of space remain.
Recent deals: Lewis Brisbois Bisgaard & Smith and Alston & Bird both renewed their downtown Los Angeles space. Morrison & Foerster is leaving Bunker Hill for 707 Wilshire Boulevard in the financial district, where it will occupy 77,300 square feet on the building’s top four floors on a 15-year lease.
Firms on the prowl: Sedgwick (80,000 square feet), Pepper Hamilton (25,000), Polsinelli Shughart (25,000)
Average Class A asking rent: $41.64 per square foot
Outlook: Home to half the Am Law 100, Los Angeles is a city divided, with law firms split between downtown in the east and westside neighborhoods. Santa Monica has become the hot spot for technology and media companies and that popularity may make the beachside town less attractive to law firms than nearby Century City or downtown, which have larger blocks of available space.
Recent deals: Hogan Lovells is relocating to 40,000 square feet at 600 Brickell Avenue. Stroock & Stroock & Lavan renewed 14,500 square feet.
Firms on the prowl: Holland & Knight (100,000)
Average Class A asking rent: $40.77 per square foot
Outlook: A glut of new development has driven down rent in the city, though finding efficient space—and offices with great views—is still a challenge for law firms.
Recent deals: After much speculation, Chadbourne & Parke signed a 200,000 square foot lease in Dewey’s old headquarters, 1301 Avenue of the Americas. Wilson Sonsini Goodrich & Rosati renewed its space in that same building, and Akerman Senterfitt plans to relocate to 666 Fifth Avenue.
Firms on the prowl: White & Case (400,000 square feet), Kaye Scholer (250,000; the firm has signed a letter of intent to move to the under-construction 250 West 55th Street), Mayer Brown (250,000)
Average Class A asking rent: $65.62 per square foot
Outlook: The tightest market nationwide in terms of vacancy, New York is also becoming less occupied by law firms; whereas the legal industry made up 17 percent of leasing activity in 2007, it’s down to 5.3 percent this year. As The Am Law Daily reported earlier this year, law firms are also increasingly moving downtown, lured by cheaper rent and the chance to move into new, efficient space.
Recent deals: Morgan, Lewis & Bockius renewed nearly 290,000 square feet at 1701 Market Street. Cozen O’Connor decided to relocate its headquarters to 1650 Market Street by 2015, and Ballard Spahr is shrinking to 179,000 square feet when renewing at 1735 Market.
Firms on the prowl: Pepper Hamilton (220,000 square feet), Drinker Biddle & Reath (175,000)
Average Class A asking rent: $27.92 per square foot
Outlook: Law firms will have to make do with what this historic city offers, as no new office development is in the works. Small and midsize firms are also being closely watched by landlords here for financial stability.
Recent deals: Lewis Brisbois Bisgaard & Smith will cut space when relocating to 52,000 square feet at 333 Bush Street. Jackson Lewis moved to 50 California Street, and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo moved to town and took space at 44 Montgomery Street.
Firms on the prowl: Gordon & Rees (80,000 square feet), Fenwick & West (60,000)
Average Class A asking rent: $51.74 per square foot
Outlook: The past four years have seen hundreds of thousands of square feet once occupied by law firms released back to the market, partly from the collapses of local firms Heller Ehrman and Thelen. As recently noted in the New York Times, moving to the South of Market neighborhood is also in vogue for firms, as well as technology companies, which has freed up space in parts of the financial district.
Recent deals: Paul Hastings renewed 43,630 square feet of space; Gibson, Dunn & Crutcher renewed on 1881 Page Mill Road; and Kirkland & Ellis is relocating to 32,000 square feet at 3330 Hillview Avenue.
Firms on the prowl: No firms needing a significant amount of space are currently in the market, though lease expirations in the near future may change that.
Average Class A asking rent: $85.56 per square foot
Outlook: In this highly competitive real estate market—with the highest average Class A asking rent of the markets covered in the report—activity here resembles a game of musical chairs, with law firms looking to move in to space vacated by other law firms. Rising rent could lead to new development soon, and firms are considering shifting away from Palo Alto, the traditional center of Silicon Valley, and toward Menlo Park.
Recent deals: Covington & Burling recently locked down 415,000 square feet of new space on 10th Street NW. Gibson, Dunn & Crutcher and McKenna Long & Aldridge chose to stay put, renewing leases for 204,705 square feet and 172,701 square feet, respectively.
Firms on the prowl: Sidley Austin (250,000 square feet), Nixon Peabody (75,000), Willkie Farr & Gallagher (75,000)
Average Class A asking rent: $55.30 per square foot
Outlook: It’s a buyer’s market in the nation’s capital, where landlords are offering unprecedented concessions. The falls of Howrey in 2011 and Dewey & LeBoeuf in 2012 also had a large impact on the city. A slowdown in new construction, however, should turn the market to landlords’ favor by 2015.