PRESS RELEASE: Law Firm Office Leasing Reaches Tipping Point: 2013 Final Year of Balanced Negotiations

CHICAGO — Great deals on office space are quickly becoming a thing of the past for law firms – particularly in cities benefitting from energy and technology industry growth. For the first time in seven years, half the U.S. cities with a high concentration of AmLaw100 firms, including cities like Boston, Dallas, San Francisco, Pittsburgh and Denver, now favor landlords in office lease negotiations, according to Jones Lang LaSalle’s (JLL) annual Law Firm Perspective.

This change means that in those cities where landlords have the upper hand, building owners can charge higher rents, present fewer choices and reduce overall leasing concessions. However there is a silver lining for law firms: the cities with the greatest concentration of law firms still offer quality space at reasonable

“Although a lot of secondary and tertiary markets are turning with rent growth and concession compression, primary law firm markets such as New York, Washington D.C. and Los Angeles will continue to offer firms leverage over the next 18 months,” said Elizabeth Cooper, International Director and co-lead of JLL’s law
firm practice group. “This is due to economic challenges and financial service, law and consulting firms continuing to reduce their footprints, which adds second-generation space options to existing supply in these markets.”

JLL’s report says that the number of cities favoring landlords will continue to grow, with only seven percent of cities offering negotiation leverage to law firms over their landlords by 2016. The new market dynamics reflect the pace at which the law firm sector is leasing additional office space, even as firms use an average of one-third less space per attorney (down from 900 square feet to 600 square feet).

Cities where law firms can still make a deal

Rent increases are coming soon: nearly 70 percent of U.S. law firm cities project rents to increase in 2014, and even more in 2015. The good news is that most of the rent increases are happening in smaller cities, not in the largest cities with the highest number law firms. In fact, the major global law firm hubs of New
York, Washington D.C., Los Angeles, Paris, Madrid, Shanghai and Sydney are expected to continue to offer favorable lease conditions for at least one more year.

The few global hubs where the landlords are calling the shots are Hong Kong, London, Boston and Toronto, among others where strong office space demand by law firms and other industries means there are fewer available spaces, and those on the market command higher rents. In the emerging markets, law firms are turning their attention to Africa, where growth in industries including financial services, consumer goods, telecom, infrastructure and energy is driving new business opportunities. For law firms, this is being offset by a slowdown in future growth in other emerging markets such as China, India and Brazil.

Office rents rising; space options declining

Office rents in regions tied to an economic resurgence are surpassing average rental rates across the U.S.

Rent growth is skyrocketing in technology hubs such as San Francisco and Seattle, showing a 12.2 percent and 5.3 percent increase, respectively, in rent compared to a year ago. On average, rents have increased 2.1 percent across the 41 U.S. law firm markets JLL tracks over the past 12 months and are up more than 14 percent from their market low in 2009. The energy sector is driving rental rates in Houston, up 3.5 percent compared to the region’s rents last year, and in Pittsburgh, up 5.6 percent. Dallas, benefitting from the state’s significant surplus and large share of
corporate relocation is one of the top cities for rent growth, coming in at 12.6 percent growth over the past 12 months. Landlords are also less inclined to offer concessions to lure law firms into their buildings (think: free rent, tenant improvement allowances) as freely as they have in the past few years.

In U.S. law firm markets, it is becoming more difficult to find the right office space in the right location. On average in the U.S., available blocks of premium Class A space larger than 200,000 square feet are down by 16.2 percent, while the 25,000 to 50,000-square-foot blocks are also down by 16.5 percent. This means fewer options, in less ideal locations.

 “Despite modest economic growth, we are headed toward a landlord’s market in all global regions,” explains John Sikaitis, JLL Director of Office Research. “This is a potential challenge for firms with expiring leases that are posting stagnant revenues. However, it’s good news that in many cases, revenue growth, practice group diversification and rental rate increases go hand-in-hand, in economically-growing locations such as Houston, Denver, Miami, Minneapolis and San Francisco.”

Spaces changes – less space per attorney

Law firms are looking at their space needs more strategically. While today there might be more windows and larger areas for collaborative work – there is less space per attorney in the typical law firm’s office and usually less space overall. In fact, law firms that relocate to another building or space are shedding an average of 15.2 percent of space, up from 14.8 percent in 2012. This trend is further pronounced among mid-sized and large law firms.

In analyzing completed lease transactions in 2013, JLL Research found that 56.6 percent of firms larger than 100,000 square feet gave back space; 41.7 percent of firms sized 50,000 square feet to 99,999 square feet shed space, and 26.7 percent of firms 25,000 s.f. to 49,999 s.f. right-sized. Firms are migrating from around 900 square feet per attorney to as low as 550 square feet per attorney. This is due to digitalization that reduces the need for spacious law libraries and filing areas, a reduction in the number of administrative personnel (now as high as 8:1, down from a traditional 3:1), smaller attorney offices, and smaller floor

“As law firms seek to recruit and retain talented associates they are seeking the best environmental conditions for their employees,” explains Tom Doughty, JLL International Director and co-lead of JLL’s law firm practice group. “They are using more glass for light and more collaboration zones to foster team work. Therefore we are seeing a trend for demand in shallower buildings with more windows. Law firms are looking at buildings with smaller floor plates, averaging 25,000 square feet, which is somewhat smaller than the typical office building in a typical central business district.”

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About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more
than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.3 billion of real estate assets under management. For further information, visit