Tech companies are fiercely competing for space in Orange County, and according to research from JLL, law firms are feeling the heat. According to JLL's law firm report, “Law firms are facing increased competition from tech firms and co-working providers who continue to gobble up class-A space, primarily in the Irvine micro-market.” While this has been an overarching trend, impacting many industries competing for quality space in the market, Ryan Hawkins of JLL, says that it he hasn't seen the issue impact leasing activity, yet.
“Law firms are certainly bumping into tech and co-working firms in the market the like everyone else is given those two sectors have been so active, but tech firms are predominately focused on low to midrise buildings, while generally speaking, law firms, especially Am Law 200 firms, tend to prefer class-A trophy buildings,” Hawkins, an EVP at JLL, tells GlobeSt.com.
Because both law firms and tech tenants are desirable occupants, competition often comes down to quality and is on a case-by-case basis. In other words, one group isn't frequently winning space over another. “In situations where law firms are competing directly with tech for space, a number of factors come into play, including financial condition, credit, brand, phase of funding, employee demographics, etc,” says Hawkins. “Landlords will continue to pursue firms with established credit, which often times will favor law firms, especially Am Law 200 firms. Bottom line is it is critical for firms and their brokers to understand who they are competing with for space and utilize the competitive advantages available to secure the space at the best possible terms.”
The same is true in a pricing competition—there is rarely a clear winner. “It really depends as certain law firms are not as price sensitive as others depending upon their practice group or specialty,” adds Hawkins. “Differing types of specialties are more profitable than others. National firms tend to be less price sensitive than local firms. For technology firms it depends upon how they are funded as to their price sensitivity.”
This trend isn't exclusive to law firms. All industries are seeing increased competition for office space because of the tech expansion in the market. “Competition for space among companies from all industries has intensified as the Orange County economy continues to diversify,” explains Hawkins. “Increased competition for space typically favors landlords, however, the amount of sublease space is on the rise, while recent new developments including The Boardwalk, 400 Spectrum, and The Quad are working to balance supply and demand. This also contributes to increasing asking rental rates in the market, however, the growth rate is steadily slowing down.”
The Airport Area and Irvine submarkets have seen the most competition for office space among these groups, likely because there is a large stock of quality class-A space. “Law firms in Orange County are primarily located in the Airport Area, specifically, Irvine, Newport Beach, and South Coast Metro,” says Hawkins. “Proximity to clients, housing, hotels, retail amenities, and John Wayne Airport contribute to this demand. Maybe most importantly, they want to be where their competitors are and with 90% of Orange County law firms in the Airport Area, the submarket will continue to be a sought-after location for law firms. Additionally, nearly 60% of class-A office space in Orange County is located in the Airport Area, which are typically the properties that law firms lease space. The new premier class-A product in the Irvine Spectrum, along with its housing and amenity options, has caused some firms from the Airport Area to consider a move south, but thus far we have only seen a couple of firms make the move.”
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Kelsi Maree Borland
