Law firms took advantage of healthy concessions from landlords this year to relocate in Manhattan rather than renew in their existing digs.
In the last year, a host of large firms have committed to moving offices, including Latham & Watkins, Blank Rome, Fenwick & West, Perkins Coie, Greenberg Traurig and McDermott Will & Emery.
Concessions from landlords have driven law firm relocations in New York, said Ken Rapp, a vice chairman at brokerage firm CBRE who frequently works with law firms on leasing deals. A CBRE law firm real estate report released in September found a higher rate for relocations than renewals.
The concessions that landlords are giving away include free rent for a period of months and money that landlords give to tenants to build space, Rapp said. As the concession figures rise, it enables law firms to justify a relocation in combination with a change in the arrangement of the office, he added.
Overall, 2018 saw an increase in law firm leasing velocity, meaning law firms leased more space this year compared with last year. That’s due to a high number of lease expirations this year and law firms looking to advance lease renewals, Rapp said. “This was a really big law firm leasing year,” he said.
Law firms are continuing to seek more efficient space, which is often easier to do upon relocation. Large firms in New York that have traditionally have 800 to 1,000 square feet per lawyer are seeking, with the same head count, to get offices with 600 to 700 square feet per lawyer, Rapp said.
Yet, the CBRE report said, there is a “very small supply” of quality built law firm space over 15,000 square feet. Several high-profile law firm leases completed in Midtown markets have occurred at new construction and redeveloped buildings, the report said.
Firms generally are taking offices with less space, even with the same or higher attorney head count, Rapp said. “We’re just in a period of change in the way law firms have utilized their space,” Rapp said.
For instance, he said, at Perkins Coie’s new space at 1155 Avenue of the Americas in Midtown, lawyers will have one-size offices. Such uniform offices are cutting edge for a law firm, he added. Perkins Coie will also be in a so-called side-core building, in which the elevator banks run along the side of the building, instead of the middle, allowing for a deeper open space, said Rapp, a broker on the Perkins Coie deal.
Also, some firms this year announced they were moving to offices with larger floor plates, allowing them to take up fewer floors. That includes Latham and Blank Rome, which both announced this year they will be relocating to 1271 Avenue of the Americas, formerly known as the Time & Life Building, located in Rockefeller Center in Midtown.
Meanwhile, Fenwick was the first Am Law 100 firm in more than a decade to move to Midtown south, Rapp said, when it relocated to 902 Broadway this fall in the Flatiron District.
In one of the largest exceptions to the relocation trend in Manhattan, Wachtell, Lipton, Rosen & Katz renewed for 249,228 square feet in Midtown.
Looking ahead, several firms will move west on the island. A trio of firms is set to move to Hudson Yards in the first quarter, including Cooley; Milbank, Tweed, Hadley & McCloy; and Boies Schiller Flexner. And by 2020, One Manhattan West will be the new home for other firms, including Skadden, Arps, Slate, Meagher & Flom and McKool Smith.
In 2019, Rapp predicted less leasing activity due to the high volume of new leases in the last couple of years. “There will be a little bit of a lull,” Rapp said. “People have taken advantage of the increase in concessions to try to do something a little earlier.”