The second quarter of this year brought good news for property managers who lease to legal tenants. In an analysis of law firm transactions of more than 20,000 square feet across the country, leasing activity for the first half of this year represented the strongest on record since the start of the pandemic, according to Savills.
Activity increased 22.3% in the first six months, compared to the same period a year ago. The 1.6 million square feet leased in the second quarter is above the 1.4 million square feet quarterly average since the start of the pandemic.
More key may be that law firm leasing volume is normalizing as firms commit themselves to long-term needs for office space unlike some other industry sectors that prefer to lease short-term.
Most, or 69.1%, of law firm leases transacted this year represented a decision to stay put while 42.5% reflected relocations and renewals with expansions in size, again year-to-date in 2023.
In the second quarter, five significant leases encompassing more than 100,000 square feet were signed. Three were transacted in New York and made up 40.3% of the quarter’s legal activity by square footage. Other markets saw multiple transactions of more than 20,000 square feet in the second quarter, namely in Washington, D.C., and Los Angeles. Among the top three firms leasing were Paul Hastings which renewed and expanded 277,227 square feet in New York City; Wachtell, Lipton, Rosen & Katz also renewed 249,228 square feet in New York City; and Hunton Andrews Kurth expanded with 115,000 square feet in Washington, D.C. Also, this year, new-to-market leases by major law firms in cities such as Salt Lake City and Miami have begun to slow. Most activity is occurring where firms already have a legal presence.
Staying in Place
Before the pandemic and as recently as last year, firms were showing a strong preference to relocate and upgrade the quality and efficiency of their quarters, the report said. This changed during the pandemic when uncertainty pushed firms to sign short-term extensions and renewals and stay put. But in 2021 and 2022, the trend shifted back to pre-pandemic norms. Now, more are remaining again for two main reasons: newer, higher-quality building options are limited and the cost of tenant improvements has increased.
When they do relocate, many or 61.9% seek newer buildings but 38.1% move to similarly aged or older buildings, but which have gained new amenities or been upgraded. Only 25% downsized from their previous lease.
And when they picture their ideal space, what do many firms envision? Yes, it may resemble a variation on the swank offices in the TV series Suits. According to Gensler, an architecture, design and planning firm, many law firms want a progressive, non-traditional aesthetic to promote more comfort and embrace a hybrid way of working. A modern law firm office that incorporates residential comfort and hospitality-design elements also provides greater opportunities for casual interaction, networking, cross-selling, and building trust among colleagues.