Downtown Office Construction Spikes, Giving U.S. Law Firms Occupancy Leverage
Based on a new report by JLL, the U.S. law firm real estate market is entering a new phase, giving law firms a choice of location and space that's never seen before.
Continued economic growth is driving law firm expansion, and at the same time more than 65 million square feet of new office supply is under construction across major U.S. markets.
More than half (53.9 percent) of the new supply is currently available for lease in the top six legal markets of Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C. And as firms relocate into new space, an abundance of second-generation, lower-cost space will also become available.
"During the last few years, law firms pursued nontraditional office locations because of space constraints, the desire for greater efficiency and reduced real estate costs," said Tom Doughty, International Director and Co-lead of JLL's Law Firm Group. "With so much construction underway, law firms of all types can target their specific needs, whether they are pursuing trophy or less expensive second-generation real estate." Where to find talent
JLL's 2017 Law Firm Perspective reveals a positive global economic outlook, with 3 percent growth projected for 2018. With stable growth projected over the next few years, companies are projected to continue adding staff to keep pace with their expanding businesses.
Rents for Class A space in central business districts (CBDs) have risen 35.7 percent since 2010. Those markets with high concentrations of law firms are responsible for the lion's share of the 65 million square feet of premium office space under construction in urban cores.
"The urban cores where the majority of law firms reside will have the upper hand in attracting much-needed talent," said Elizabeth Cooper, International Director and Co-lead of JLL's Law Firm Group. "Millennials, a core demographic in these markets, are primed to assume new positions as they are vacated by retiring Baby Boomers. With so much office supply on the way in top legal markets, rents will begin to flatten--a welcome trend for expanding and cost-conscious firms alike." The perks of a favorable market
Since 2015, concessions for tenants in CBDs are up 15.3 percent nationally and 33.8 percent in the top legal markets highlighted in JLL's report. Additionally, tenant improvement allowances for new construction have jumped substantially. In the top six legal markets, tenant improvement allowances average $85.83 per square foot, 37.9 percent higher than the national average.
Landlords in nearly one-third of markets across the U.S. are now providing 12 or more free months for tenants moving to new developments on a typical 10-year lease term. On average, firms in the top six legal markets receive 9.3 free months compared to 7.1 months for the U.S. overall.
"Through year-end and into 2018, the real estate environment for law firms will shift markedly," Doughty said. "With new supply nearly doubling since just 2015, competition among landlords is leading to increasingly higher concession packages, a trend which shows no sign of slowing in core legal markets."
JLL's Law Firm Perspective details real estate opportunities and challenges in more than 40 markets throughout the U.S. and Canada. At the national and local-market level, the report provides historical, current and target per-attorney square footage and rent metrics.