Positive economic headwinds have picked up force across the U.S. creating increased optimism for 2014 and 2015. However, the outlook for most law firms remains muted driven by stagnancy across most practice areas and continued fee compression.
On the real estate side, firms encounter markets with shrinking quality options, fueling heightened rents, diminished incentives and increased landlord confidence ahead.
Trends to watch:
- In 2014, law firms will face landlord-favorable conditions across 71 percent of U.S. cities.
- Law firm leverage will hold through 2014 in the four largest law firm markets – New York, Washington, Chicago and Los Angeles.
- New developments and second-generational backfill options will present opportunities in supply-constrained markets.
- Firms will cap real estate costs through greater space efficiency measures; larger firms will have the opportunity to shed 15 to 25 percent of their real estate occupancy.
San Diego’s law firms continue to right-size in reaction to downward pressure on fees and competition in the marketplace. Outright growth in the industry – especially in this secondary market – has slowed to a crawl thanks to the commoditization of services and fee compression. Furthermore, because of systemic improvements in space utilization, increased attorney-to-secretary ratios and the digitization and elimination of onsite records and libraries, the number and size of tenant requirements have continued to contract. Large law firms continue to migrate north, leaving the once legal-heavy Downtown submarket in the recession doldrums.