CHICAGO-Law firms are reading the signs of the current economic slowdown, and have been for the most part just renewing in place to gain the best lease deal. While easy-to-move tenants that have 50,000 square feet or less have some advantage with a lot of availability, most firms with leases due are adopting a more passive approach to growth, according to Jones Lang LaSalle’s recently released annual Law Firm Office Perspective report.
Tom Doughty, head of the locally-based company’s Law Firm Group, tells GlobeSt.com that nearly two-thirds of all national firms with leases expiring are deciding to stay in their current location. He said law firms tend to lag the rest of the office market. For example, nationally, firms cut about 600 jobs from October 2010 to April 2011, but added 400 jobs in the late spring and summer months this year.
“Today law firms are more on the risk-averse end of the scale,” he says. “Most firms have had a better year than 2010, but they’re now going to carefully guard cash, and strike a deal that will either preserve rent at the same level or drop it a little.”
There are law firms of less than 50,000 square feet that are relocating, but these are usually the companies that were able to get a good enough deal to outweigh the cost of the move, Doughty says. “Most firms today don’t want to spend the cash it would take to share the new space renovation costs,” he says.
Whether there’s space to move about depends on the geographic area. Of the top five firm-filled cities, New York City has the most space available, whereas Los Angeles has the most space in blocks of less than 100,000 square feet, with more than 25 locations.
“In Chicago, only three available blocks of Class-A space larger than 200,000 square feet are currently on the market and a variety of firms including DLA Piper, SNR Denton and Latham & Watkins, as well as a variety of other corporate users, are in the market with large requirements” Doughty says. “New York on the other hand, has nearly 100 law firms occupying more than 50,000 or more square feet, accounting for 42% of the total market. Law firms actively looking for space include Arnold and Porter, Pillsbury and Sullivan & Cromwell.”
Usually, as in the case of Chicago where there’s few blocks of large space available, that’s when new building announcements start, Doughty says. However, in this economy, it’s not likely that a developer can gain the price point needed, or the large enough tenant, for new construction, he says.
The three largest relocations were all in New York City, including WilmerHale’s lease of 210,841-square-feet at 7 World Trade Center; Morrison & Foerster’s 180,000-square-foot move to 250 W. 55th St.; and Baker & McKenzie’s 140,000-square-foot relocation to 452 Fifth Ave.
The biggest deals done this past year include Skadden’s 402,445-square-foot renewal at 1401 New York in Washington, DC; WilmerHale’s 300,000-square-foot renewal at 60 State St. in Boston; and Fulbright & Jaworski’s renewal of 299,676 square feet at 1301 McKinney St. in Houston, with the latter two deals seeing companies giving back space.
Law firms also lag behind in the current trend of gaining the most efficiency from space, such as technology and accounting firms having shared workspaces. Doughty says. However, the legal industry is putting forth an effort, such as cutting back secretarial ratios from one employee per two lawyers to one secretary for six lawyers, and creating new dual-associate offices.
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