For law firms, real estate costs has been a challenge for some time, as recessionary woes have been replaced by a landlord’s market when it comes to class-A office space, pushing up rents and leaving some markets with very few blocks available.
Attorneys are making money again, according to a recent report from commercial real estate services firm JLL. The top 100 law firms claimed recently that gross revenue is up to $81 billion, an increase of 4.6 percent from last year. Revenues have increased by almost 5 percent for the past five years, and firms that had previously cut back on growth and experienced consolidations and layoffs are now looking to expand.
The problem is that there’s no more cheap expansion space available, says Elizabeth Cooper, co-lead and international director at JLL’s law firm group. Competition for office space is hot in every market as available class-A and remodeled class-B space is tight, and new buildings aren’t scheduled to come on-line until the end of 2016/early 2017. In primary markets, rents are typically 25 percent higher than usual, and up to 40 percent higher in the best areas of those markets, according to JLL.
“Some of these firms haven’t even looked at their 10- to 15-year leases since before the recession, and they’re trying to figure out what to do,” Cooper says. “There’s tremendous pressure still, even after the recession, to contain costs. Law firms are forced to look even harder at whether they want to be in that shiny new building—the only way to make it worth it may be to further shrink space.”
Consolidating space for efficiency is still a major trend for attorneys, agrees Steve Levitas, chairman of the law firm services group with Colliers International, while firms are also trying to adapt space for new technology and workplace strategies. Millennial workers, he says, prefer more collaborative spaces, resulting in more small conference rooms instead of the large, stodgy boardrooms. For example, law firm Lowenstein Sandler recently announced it will include conference rooms, collaboration areas, coffee bars, exterior lounges and support areas to its 170,000-sq.-ft. new lease at 56 Livingston Ave. in Roseland N.J., a consolidation of two separate offices.
“We’re also waiting to see which firms adopt the in-boarding strategy of placing junior associates into interior offices rather than in offices on the outer ring,” Levitas says. “While two-to-an-office has been in place at some firms for some time, in-boarding, which is already done at many other professional firms, can make a law firm even more efficient as the need for storage rooms and libraries disappears.”
Another way for firms to save on real estate, Cooper says, is to find emerging hot spots in previously unexplored neighborhoods. Technology tenants have been doing this for some time, and these areas are now gaining enough amenities to attract other office users, she notes. Examples include Boston’s Seaport District, New York’s Hudson Yards and Washington, D.C.’s Mount Vernon Triangle. Boies, Schiller & Flexner announced in July that it will relocate its New York City headquarters into 83,000 sq. ft. at a new building at 55 Hudson Yards, away from the traditional law firm area of Midtown.
“Firms are considering these places, which had not been traditional legal services areas, as new live, work and play environments,” Cooper says. “When the traditional downtown areas don’t have a lot of space, you have to get creative and pioneering.”
Levitas, however, says he has heard of this trend, but hasn’t seen it play out in most markets. Too many firms want to stay downtown near the main action, he says. In Chicago, for example, there have been some firms that have toured spaces in the Fulton Market area, where Google has taken a large lease, but there’s not a lot of space left over from the tech firms.
“I think there are firms out there kicking the tires in tertiary areas, but then they’re realizing, boy, this is further out than we thought,” Levitas says. “I think unless you have all the partners on board, it’s a little too radical a move. The proof, I think, is that several of the new large buildings being built in major markets have major law firms as anchors.”