Law Firms Adopting New Locations for Changing Client, Employee Landscape

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According to a new report by JLL, despite the fact that the U.S. legal industry enjoyed a record-setting $81 billion revenue year in 2014, many law firms are now focusing on efficiency to define their office layouts and locations. The legal sector is using creative space, development and real estate strategies to assure that today's offices remain practical for the future.

"Even though business is better, our clients are still very focused on creating the greatest efficiencies possible," said Tom Doughty, International Director and co-lead of JLL's law firm practice group. "That means reacting smartly to the market and embracing cutting-edge opportunities within their office space and location strategy. Law firms are still focused on cost, but in today's market, there's an opportunity for law firms to innovate and prepare for their future needs through smart design."

Gone are the days when expansive interior space was needed for support and staff functions. Gone too is the strict requirement to locate only in the core central business district (CBD). According to JLL's 2015 Law Firm Perspective, trophy office towers are experiencing record-high occupancy levels across the United States. This lack of options, coupled with a desire to create a premium office experience for new, millennial generation hires, is pushing firms into locations at the outskirts of traditional city markets. New law firm leases are on the uptick--and many are more creative in their workplace designs than ever before.

However, a lack of space in traditional CBDs is not constraining leasing activity in the big four law firm markets. New York City, Washington, D.C., Chicago and Los Angeles continue to reign, collectively posting 4.3 million square feet of law firm leasing activity, or 50.5 percent of the national total, during 2014. Within those markets and others, it's the neighborhoods and buildings where law firms are moving, that illustrate a historic shift.

Offices off the beaten path

Illustrative of these trends are areas such as Boston's Seaport District, New York's Hudson Yards and the District's Mount Vernon Triangle, which are seeing an influx of law firm tenants. In New York, downtown and Hudson Yards are attracting law firms that once would have located exclusively in traditional Midtown locations. Skadden and Boies Schiller have signed on as anchor tenants for Brookfield's 1 Manhattan West and Related's 55 Hudson Yards, respectively.

Traditional trophy space remains scarce

Downtown Class A office vacancy has fallen into the single digits, and rents are rising at 2.5 times the rate for other types of properties in key law firm markets across the country. The lack of supply for trophy assets has spiked rents by 28.3 percent or $57.97 per square foot in JLL Skyline markets, and according to JLL research, likely will jump at an annual rate of 18.1 percent through the end of the year.

While some law firms are leasing space in premium new developments under construction, those facilities will not be available for another year or more. Construction starts were more conservative than in real estate cycles of years past, as developers and their lenders regrouped from the financial crisis.

Beyond necessity, new locations attract young attorneys

The legal sector occupies approximately 17 percent of Class A office space across U.S. urban cores and accounts for more than 25 percent of occupancy in markets such as Washington, D.C., Palo Alto, Cleveland, Columbus, Fort Lauderdale and Austin, Texas.

"Law firms are finally competing again for talent, and a location outside the traditional 9-to-5 downtown office neighborhood can be part of a recruitment strategy--as well as a market necessity," says Elizabeth Cooper, International director and co-lead of JLL's law firm practice group. "Live-work-play environments appeal to Millennials, and the lower rents in fringe locations appeal to efficiency-focused firms."

Investing in modern workplaces

JLL's most recent United States Construction Perspective indicates many tenants are once again investing in workplace improvements whether that means moving to a brand-new development or an older facility. The same is true of law firms. With legal industry revenues up, success has freed up capital for office modernization, including high-tech features for meetings and collaboration. The focus for law firms remains on efficient utilization of all resources.

"Most traditional office space is outdated, thanks to technology," Doughty said. "Digitization has reduced support staff ratios, and virtually eliminated the need for law libraries and file rooms. The time is now to get creative with location and building options."