Law firms evolving to new office space strategies — whether they like it or not

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While we haven’t reached a true tipping point, American law firms are finally starting to embrace contemporary workplace strategy. Truth is, they don’t have much choice. Pinched by rising rents and locked in heated wars for young talent, even the whitest of white shoe firms are now eyeing locations and office layouts that senior partners never would have considered just a few years ago.

“Lawyers are a different breed—conservative by nature,” says Bill Walsh, a retired commercial real estate attorney. “But you see the world changing, evolving, so you have to keep up with that. If you don’t, you’re going to find your firm left behind.”

Not surprisingly, economic realities are driving much of this evolution. Historically, law firms have exclusively sought out Class A, trophy office space in the heart of central business districts. In other words, the most expensive space there is.

So now, even as their profits grow steadily, law firms are seeking to hold down their real estate costs. In some cases this means reducing the space they take up. Major firms gave up an average of 17 percent of their space upon relocating in 2014. And 15 of the top 17 U.S. law firm leasing transactions in 2014 involved square-footage reductions, according to JLL research.

But shrinking footprints may not be enough to match rising rents for the short supply of trophy locations in traditional central business districts. JLL research predicts that 77 percent of North American cities will see a rise in rents due to scarcity of available offices. That’s why law firms, which already pay an 18.1 percent premium for trophy space, have seen their rents rise an average of 3.3 percent year-over-year.

So, facing limited options, law firms will soon be forced to enter a brave new world—the micromarket.

 

Looking beyond typical address

It turns out that micromarkets, which can be defined as neighborhoods on the fringe of, but sometimes adjacent to, central business districts, are in many cases evolving real estate characteristics that match lawyers’ needs. Areas like South Lake Union in Seattle, River West in Chicago and LoDo in Denver are actually becoming as desirable as their respective downtowns— and at considerably lower rents. This is true of San Diego, as well.

“Whether you’re talking about Mount Vernon Square in Washington, D.C., the Hudson Yards district in Downtown Manhattan or South of Market in San Francisco, buildings that are going up in these areas are some of the highest quality buildings ever built,” says Tom Doughty, co-lead of JLL’s law firm practice group. “So they’re trophy buildings. They’re just not in the CBD.”

As firms move into these unfamiliar locales they’re finding unexpected benefits, too. Migration can also bring access to new client bases and, crucially, talent. They can even spur innovation.

The shift from the CBD to the suburbs started happening for law firms in San Diego in the early 2000’s with the growth of the high-tech and biotech sectors in La Jolla and Sorrento Mesa. Being that Carmel Valley has consistently been one of the most expensive submarkets in the county, the driver behind this shift was less about cost and more about proximity to clients. San Diego law firms are managing costs today by shrinking their footprints and reimagining the way they use office space, in keeping with the trends we are seeing for many law firms across the country.
Misty Moore
Vice President, Tenant Representation | Law Firm Group

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