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For years, Washington law firms have drifted east, opening new offices in the areas east of 15th Street Northwest. But as more space becomes available in D.C.’s traditional business district, that trend might soon change. Although the vacancy rate for large parcels of premium office space remains low, opportunities in the so-called central business district in Northwest — bound by 15th and 22nd streets, Dupont Circle, and Constitution Avenue — are opening up, according to D.C.-based real estate brokers specializing in the law firm market. “We are seeing a re-emergence of the CBD,” says Creighton Armstrong, a vice president of the brokerage firm Staubach. “There are more suitable options for large law firms than there have been in the past several years.” This just may signal the reversal of a trend that started in the 1990s, as a number of law firms in search of buildings with larger floor space moved to the East End, an area of Northwest bound by 7th Street to the east, 15th Street to the west, M Street to the north, and Pennsylvania Avenue to the south. But the central business district is getting new attention because of several factors: redevelopment, zoning changes, and moves that are opening up more space. Quite a few of the buildings in the area are 20 or 30 years old and slated to be renovated or redeveloped, which will create new opportunities for law firms, says Sherry Cushman, a senior vice president of real estate brokerage firm CB Richard Ellis and a member of the company’s law firm practice group. One example is 1717 K St., which is being torn down and redeveloped. The new building going up on that site, to be known by its new address of 1000 Connecticut Ave., will offer 394,000 square feet of new office space, Armstrong says. Another possible tear-down is 801 17th St., although Armstrong says that building may end up undergoing a renovation instead. Another renovation will take place at 2101 L St., recent home of Dickstein Shapiro. The building — with nearly 400,000 square feet available — will be taken down to its skeleton, renovated, fitted with a new electrical system, and given a new fa�ade, Cushman says. Also, 1225 Connecticut Ave. will be renovated after accounting firm Ernst & Young moves to 1101 New York Ave. in late 2006 or early 2007, leaving 225,000 square feet open, Armstrong says. Zoning changes have also added to the amount of space available. Buildings close to residential areas were once limited to eight floors, but some in the area have benefited from rezoning, which has allowed them to tack on additional floors, Armstrong says. For example, 1909 K St. and 2020 K St. — not far from the city’s residential West End and Foggy Bottom areas — have each added three floors. Meanwhile, the entire block of buildings on K Street between 21st and 22nd streets is undergoing renovations, with several buildings adding floors already and other building owners considering that option, says Philip Leibow of Jones Lang LaSalle‘s law firm practice group. ON THE MOVE What brokers predict and what law firms actually do might be two different things, however: Three big upcoming law firm changes involve firms either staying in their current location or moving to the East End. The D.C. office of Jenner & Block, for instance, is moving to a new 175,000-square-foot building being developed by Tishman Speyer at 1099 New York Ave. The firm, which will move to its new home in 2008, is taking 86,000 square feet but has options on the remaining space. The new building, designed by Thomas Phifer and Partners, will feature a fa�ade of individual shingle-like overlapping glass panels. Although happy with its current location in the Homer Building at 601 13th St., Jenner & Block needed a major infrastructure upgrade and was faced with the tough decision of whether to move or do a renovation in place, says Leslie Lepow, a D.C.-based partner and a member of the firm’s management committee who was involved with the search and negotiations. In fact, many firms are choosing to work with their tried-and-true location and suffer through a renovation in place. “It can be a very attractive option for firms to stay put and renovate their space,” says Peter Larson, an executive vice president of Transwestern Commercial Services, “but it depends on how much work needs to be done to retrofit.” Larson, along with Staubach’s Armstrong, represented Jenner & Block in the move (at the time, both brokers were with GVA Advantis). In Jenner & Block’s case, the renovation would have required the firm to cordon off half a floor at a time and send people to swing space for four to five months, which the firm ultimately decided would prove too disruptive, Lepow says. And there are signs of continued eastward movement in the next year or so. Dewey Ballantine will move from 1775 Pennsylvania Ave. to 975 F St., Armstrong says. And Orrick, Herrington & Sutcliffe just signed a deal for an approximately 140,000-square-foot space on 15th Street between L and M streets because it didn’t have enough space to expand at its current Washington Harbor location, says Tony Gould, a managing principal at Newmark Knight Frank, the firm that brokered the deal. Brokers say Greenberg Traurig, which is currently housed in several buildings at 800 Connecticut Ave., is looking for a new lease where it can consolidate its space. Mayer, Brown, Rowe & Maw is also in the market, looking for bigger digs. EXCESS SPACE Then there is the reality that not every firm is looking to grow, or at least not at a rapid pace. Some firms will be deciding whether to offload excess square footage. “A lot of firms are sitting on excess space,” says Aaron Katz, a managing principal at Newmark Knight Frank and head of the firm’s law firm advisory services practice. A number of firms that negotiated their leases between 1998 and 2003, the most active period for law firm mergers among AmLaw 100 firms, were bullish on the amount of space they would need, Cushman of CB Richard Ellis says. During that period it was common for firms to bet that they would have between 5 percent and 10 percent compounded growth and take on space that would accommodate that rate of expansion. Many firms signing leases now are taking a more conservative approach and are estimating their growth rates at between 2 percent and 4 percent, Cushman adds. Predicting growth can be tricky, especially because firms need to be in the market looking for spaces years ahead of their projected move, brokers say. A firm looking for space in the range of 100,000 square feet needs to start its search two to three years in advance, and a firm looking for a 200,000-square-foot space should be in the market four to five years out. Moreover, law firm leases usually run for a 15-year period. Options for expansion on the lease are usually available at five-year intervals. So when firms think they will need extra space sooner than that, they often take on extra square footage — sometimes with the intention of subleasing it in two- to three-year increments. “The question is, How many firms are going to be successful at executing their strategic plans for growth?” Katz says. And for the firms that aren’t, the question will be how long they will continue to sit on their extra space and allow it to be a drain on their finances. Firms are under pressure to make efficient use of their space, considering that real estate constitutes the second-largest fixed expense for a law firm after payroll, says Earl Segal, a principal with Newmark Knight Frank. Rising costs, such as escalating associate salaries, just increase that pressure, according to Segal, who has practiced real estate law with Akin Gump Strauss Hauer & Feld. Nonetheless, firms can be wary of subleasing their space because of the perception it creates, Katz says. At the same time, firms tend to be less concerned about the message they are sending to the market if they are subletting only a small portion of their space — say, 10 percent of a 100,000-square-foot space — or if they took on the space well aware that they would sublease part of it, Cushman says.
Alexia Garamfalvi can be contacted at [email protected].

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