Law firm leasing activity continues to be healthy, building on leasing demand that returned to pre-pandemic levels last year. In 2024, legal sector leasing volume from Q1 to Q3 is up 29.9% compared with the same period last year, according to Savills Research & Data Services’ Q3 law firm activity report.
Year-to-date law firm leasing totals 6.4 million square feet, exceeding the 2019 levels of 5.6 million square feet. Quarterly leasing volume has averaged 2.3 million square feet over the past four quarters, a notable increase from the 1.5 million square feet from the three-month average between 2020 and 2023.
Earlier in the year, law firms appeared to be leaning toward relocations, but by the third quarter, renewals were becoming more common as the pool of high-quality options diminished. Improvement costs escalated and landlord financial constraints made relocation less feasible. Nearly 56% of law firms have chosen to stay in place this year, said the report.
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The top law firm lease year-to-date was signed by Willkie Farr & Gallagher, which reaffirmed its commitment to its headquarters at 787 Seventh Avenue in New York. The lease was a renewal and expansion transaction, and the firm is planning a comprehensive renovation of the space. In Q3, New York accounted for 25.7% of leasing activity by square footage, but Chicago led with four of the top ten transactions and the highest number of deals overall, according to the report.
Occupancy changes were fairly evenly distributed among expansions, negligible size adjustments, and downsizing. Expansions were down slightly during the third quarter, while downsizing transactions increased 6.7% compared with 2023, which reflects law firms’ efforts to adapt to their space utilization amid shifting market dynamics, the report said. On average, downsizing firms decreased their footprint by 26,504 square feet, while expanding firms grew by an average of 22,110 square feet.
Due at least in part to record-high construction costs, there has been a steady shift back to longer lease agreements, according to Savills.
“For many occupiers, tenant improvement allowances increasingly fall short of covering build-out expenses,” said the report. “To bridge this construction cost gap, longer lease terms are being incorporated more frequently into agreements. This trend is likely to intensify as more landlords face challenges securing the capital required to fund elevated tenant improvement allowances.”
Some firms are opting for longer-term leases to secure desirable locations in markets where prime office space is in high demand. Conversely, in tenant-favorable markets with abundant prime space options, law firms often have greater flexibility to negotiate shorter lease terms or include more options within their agreements, allowing them to maintain adaptability throughout the lease term, said the report.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
