Law Firms Pull Back on Office Leasing

The pace of office space leasing by law firms slowed in the fourth quarter of 2022, falling by 31% compared to the same period in 2021. But whether this is a sign of a trend or a blip caused by economic uncertainty is not clear, according to a new report on law firm activity by Savills, a global real estate services advisor.

And some of the new leasing that did occur resulted from law firms expanding into new markets such as Miami, Salt Lake City, and cities in Texas.

Despite a slight increase in activity mid-year, only 1.1 million square feet nationally was leased in Q4 22, compared to 1.6 million in Q4 21. “It is likely that real estate is one of the many cost items being considered as avenues for potential savings,” Savills noted.

For 2022 as a whole, U.S. law firms leased 5.3 million square feet of office space. Two-thirds of that represented relocations or new leases – the highest share since 2018. And of the relocating firms, 58% moved to newer office buildings. “Now firms are seeking high-quality buildings again in hopes that they will not only retain top talent but encourage more regular attendance in the office,” Savills commented.

Even the 42% of firms that moved into buildings the same age or older demanded more from their landlords. “Of these buildings, 95% have sustainability certifications, 71% of buildings are being upgraded with new amenities, and over half (52%) of buildings were selected for their prime locations,” the report stated.

Almost 38% of new leases signed in 2022 was for less square footage. The report did not address whether this is a result of the number of major law firms laying off associates because of reduced demand, as widely reported. 

An additional 38% of law firms did not change their space requirements. “This is likely a result of these firms growing their attorney population but not taking more space as they grow more efficient over time,” Savills commented. A further 16 percent of new leases constituted expansions.

The report also highlighted the expansion of major law firms to dynamic new markets. The law firm Kirkland & Ellis led the field with a new 100,000 square foot lease on a “trophy building” under construction in Miami, in addition to a smaller move into a new market, Salt Lake City, and a third office in Austin. At least four other big firms also leased new office space in Miami. Austin and Houston also saw new market entrants.

“In addition to chasing the migration of talent since the start of the pandemic, these firms are chasing business and following the wave of financial services, tech firms, and others that have moved to these new markets in recent years,” the report concluded.