As a sign of this more strategic perspective, the report notes that while legal leasing appears to be returning to more typical activities, there has been a significant shift in the areas where companies sign leases. “While companies have a significant footprint in key law firm markets, they are also moving to new cities that previously had little or no presence on the Law 100,” Savills noted. The legal industry sees the impact of the pandemic on office leasing differently depending on the market. The analysis of the five most important current markets in the legal sector in terms of rental volume highlights the impact of the pandemic at the market level. New York saw the biggest difference in law firms` annual rental averages compared to the pandemic — leasing activity in this sector fell 44 percent. Washington, D.C., has seen little difference compared to law firms that signed leases during the pandemic. In Chicago, law firm leasing increased by 32% after the pandemic began, a figure largely impacted by Kirkland and Ellis LLP`s 2021 commitment to a new building of more than 600,000 square feet (sf), a lease that accounted for 55% of 2021 rental activity in that city. Legal tenancies in Los Angeles nearly doubled in 2020 and 2021, but rentals have been spread across businesses of all sizes. Houston has seen a remarkable decline in activity, attributed to almost no activity in 2020, followed by a recovery in 2021. The report compares how legal rents for tenants have remained relatively stable compared to the tech sector, which has absorbed large office buildings to pause as recession fears loom over the economy. Savills points out that “large law firms, which typically enter into 10- to 15-year leases, typically do not make real estate decisions based on short-term economic conditions.” Downsizing or not, law firms are becoming more efficient in their land use, leaving behind extra office space. Of the top 20 legal leases closed in 2021, 45% of transactions were reduced from the previous amount of leased space. On average, companies that chose to contract decreased by 23%.
Nearly one-third of these 20 leases remained roughly the same space, although several transaction-related press releases mention that these businesses are becoming more efficient despite the negligible change in leased space. This may be due to the fact that companies are increasing their population of lawyers, but are not taking up more space, as they have become more efficient in renting space. Those that expanded were all growing businesses with an average increase in floor area of 18%. Of the 3.2 msf leased in the 20 main leases, the total change in space absorbed is negative 0.2 msf. The average lease term in the legal sector shortened significantly as pandemic uncertainty peaked and then increased as businesses took advantage of tenant-friendly market conditions. During the pandemic, the average lease term in the legal sector increased from 110 to 88 months in major legal markets (depending on leasing volume) as businesses grappled with uncertainty about the firm`s future. The only exception to this trend is Houston, where rental terms have increased one after another. However, in Q4 2021, the average lease term not only recovered in declining markets, but also exceeded the deadline observed just before the pandemic. In Washington, DC, the average lease term in the legal industry peaked at 159 months, New York reached a market high of 143 months, and in Houston, the average reached 121 months, as law firms became more comfortable with long-term commitments and tried to secure the exceptionally favorable terms resulting from the gloomy market conditions of the COVID era. The “stay versus go” scenario has evolved significantly to “stay” during the pandemic. The legal tenant analyzed 423 leases signed in the two years before the pandemic and the two years since the beginning of the pandemic, and found a significant change in the types of leases signed by businesses.
Before the pandemic, removals were almost twice as high as the number of extensions. After the pandemic began, renewals increased significantly, so the change between businesses choosing to “stay” and “go” is almost the same. Prior to the pandemic, many law firms were relocated as state-of-the-art offices had changed dramatically from the previous generation. During the uncertainty of the pandemic, the conservative choice was to stay in place until more clarity could be achieved about the future of the workplace, with many companies with shorter leases “throwing the box out on the street” until they figured things out. We anticipate more moves in the short to medium term, as law firms look to get their employees moving by creating workplaces with many amenities, collaborative spaces, and incorporating best practices in wellness and sustainability. Learn more about the latest trends in the legal industry in Lexis As the pandemic enters its second full year, the legal sector is doing better than many industries, but leasing has yet to return to pre-pandemic standards. Law firm leases signed in 2020 consisted primarily of transactions that were ongoing prior to the pandemic, typically in response to future leases. In the first half of 2021, rental volume declined significantly as many businesses delayed their decisions at the height of pandemic uncertainty. The low point in legal leasing was Q2 2021, when rental volume in major U.S.
markets fell below 1.0 million square feet (msf) for the quarter. Looking at Am Law`s top 50, Savills Legal Tenant looked at over 500 office buildings where these companies are located and found that the legal industry as a whole seems interested in looking for LEED and Energy Star certified locations. Read on to learn more. This year marked a return to more normal dynamics for legal leasing, but where companies sign leases has changed significantly in 2022, according to Savill`s U.S. law firms` Q3 2022 activity report. Quarterly leasing activity in the legal sector bottomed out in the second quarter of 2021, but recovered in the second half of 2021. The quarterly average rental in the legal sector was MSF 1.8 in the two years before the pandemic, while in the two years since the beginning of the pandemic, the quarterly average dropped by 23% to 1.4 FSM. While current rental activity is not far from pre-pandemic norms, COVID-19 variants could further slow the steady return of market demand. U. Demand for office space ended 2021 with an 18% year-over-year increase in rental speed, while a flood of contracts were signed in Q4 2021.
Almost all major markets, including New York, Los Angeles, Chicago and Washington, DC, recorded the highest trading volume since the pandemic began. This is likely a sign that tenants are more confident in making long-term real estate decisions and ultimately plan to return to the office, even though hybrid work styles are likely to continue. Third-quarter leasing was 1.7 million square feet, just above 1.6 million square feet in the second quarter, the same number as the quarterly average for the past four years. READ MORE: Inflation raises stakes for office owners Whether your law firm reconfigures your current space when lawyers and staff return to the office, or uses attractive market fundamentals to engage in a new location, technology becomes the undeniable backbone of the new hybrid work model. A proactive and innovative strategy can support talent retention and acquisition, mentoring and culture building, operational efficiency and workflow, as well as improved customer service and business development. It can offer the flexibility to rethink the use of space, connect and streamline support functions, and provide a level of collaboration that was unimaginable just two years ago. Hybrid work is here to stay, and there is no doubt that the workforce is changing. Not developing a holistic approach to technology that considers how your entire business experiences the workday could compromise your ability to meet talent and customer expectations, even in the short term, and limit your ability to work and compete effectively – now and in the future. The pandemic-induced migration of their clients and employees has prompted large law firms to follow them in markets like Miami; Tampa, Florida; Salt Lake City; Austin, Texas; Houston and Dallas. To find out how the country`s largest law firms are approaching flexible working practices for lawyers and employees, Savills Legal Tenant Practice Group recently conducted a survey of AmLaw 100 law firms. The results reveal the evolution of traditional policies and hierarchies, but one problem is widespread in all areas: flexibility is (mainly) the rule, not the exception.
The report notes that this is typical of the quality surge seen in many recent law firm contracts nationwide. In the third quarter, 54.5% of rentals (per square metre) consisted of moves, and of the 16 moves, 11 were for newer Class A buildings. New York saw eight law firms in the third quarter leases of more than 20,000 square feet and three of the top 10 across the country. In this article, our team will help you imagine the right technology strategy and outline key considerations for next steps. Our goal is to show how technology can be combined with refined space design and enable a hybrid work strategy to create an inspiring destination and work experience for your entire law firm.
