The recession triggered by the pandemic has come quickly and could have the tailwinds to be as severe as the 2008 Financial Crisis, although we won't know for sure until the event is our rearview mirror. The silver lining, however, is that many industries are better poised to weather the storm, which could help stave off job loss business closers. In Los Angeles, the legal industry is a primary example. The legal industry was hit hard by the 2008 financial crisis, but this time, the industry is well positioned to handle the economic dislocation ahead.
"This time, most law firms have better managed their leased space and have been carrying a lot less growth space," Stephen Bay, vice chairman at CBRE, tells GlobeSt.com. "Over the past cycle many firms have embraced efficient and flexible office space strategies. This fundamental change is definitely benefitting them today, as we move through a period of substantial economic volatility."
Los Angeles is the second largest legal services market in the country, and it has rapidly expanded over the last decade. Since 2015, the industry has expanded more than 12% in Los Angeles. "The industry was buoyed overall by the U.S. economic expansion in the past cycle," Danny Rees, first VP at CBRE, tells GlobeSt.com. "Plus, in Los Angeles specifically, the growth of streaming business, especially over the past 5 years or so, has created significant ancillary growth across all professional services companies, including law firms."
Certain pockets of Los Angeles have benefitted from the market expansion. You see it in Century City and Downtown Los Angeles. "Century City has particularly benefitted from this growth. In that submarket, a dozen law firms have signed long-term, multi-floor leases in the last three years," Clay Hammerstein, vice chairman at CBRE, says. "Also, to a large extent, many national or global firms that have opened an LA office for the first time chose Century City during the last cycle.
While the industry is entering the recession from a place of strength, this particular recession is coming with a lot of unknowns that could have unpredictable impacts. For example, more work-from-home activity could negatively affect office leasing in legal services markets. "It is too early to tell, if any changes today will be permanent going forward but virtually all of our law firm clients are considering incorporating a remote working policy for their attorneys and staff," says Bay. "If this takes effect, we expect that it would enable law firms to decrease their leased space footprint in the future."
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Kelsi Maree Borland
