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Law Firms Hold Upper Hand in Office Lease Negotiations for Next 18-24 Months

Jones Lang LaSalle’s first Law Firm Index reveals top five U.S. locations for law firms

CHICAGO  —Washington D.C, Los Angeles, New York, Chicago and Dallas are ranked as the top five U.S. cities for law firms according to Jones Lang LaSalle’s  inaugural Law Firm Index, which ranks the top U.S. markets for law firms. The Index is part of the firm’s seventh-annual U.S. “Law Firm Office Perspective” report. The study, an annual barometer of the legal sector real estate market, also found that law firms across the nation are balancing caution and economic uncertainty—with the need to renegotiate expiring leases. The good news is that law firms have the upper hand in office space negotiations for the next 18 to 24 months while favourable conditions continue.

The report also reveals that:

    Law firms are downsizing space, but not people - This year, law firms reduced their space requirements by an average of 15 percent through “rightsizing” workplace strategies not correlated with headcount reduction.
    Large spaces are becoming harder to find - Twenty markets have fewer than five blocks of space greater than 100,000 square feet available in law firm concentrated markets.
    Law firms currently occupy 16.6 percent of total U.S. urbanized top tier office space

Text Box: Figure One: Top 10 U.S. Cities for Law Firms 1. Washington, D.C. 2. Los Angeles 3. New York 4. Chicago 5. Dallas 6. Atlanta 7. Boston 8. Philadelphia 9. Houston 10. Minneapolis Legal Powerhouse Regions: Top U.S. Cities for Law Firms

As a new feature in its 2012 report, Jones Lang LaSalle added the Law Firm Index, the first time U.S. real estate markets have been ranked for location attractiveness for law firms. Based on a combination of potential business growth, strong local legal employment volume and the availability of premium space at a discount, the inaugural index ranks 36 U.S. cities.[See Figure One: Top Markets for Law Firms]

“The top cities for law firms represent metropolitan areas where our research has determined that law firms have the most potential to achieve overall success,” explains Tom Doughty, Jones Lang LaSalle Managing Director and co-chair of the firm’s law firm practice.

“In those markets, the lease negotiation conditions are still favorable to them. Exceptions to these tenant-favorable conditions are Northern California and parts of Texas thanks to strong economic activity in the technology and energy sectors. While we still see landlords offering significant concessions, incentives and free rent, that dynamic may change as early as early 2014 in some places where market conditions are tight and many top firms have a presence, all seeking to be in core, urbanized, Trophy and Class A space.”

Is the Leasing Party Over? Not Yet.

Law firms have had the upper hand in office lease negotiations since 2008. While the window may be closing, today most markets continue to be characterized as “tenant’s markets.” Underscoring those conditions, the report says that average rents continue to be discounted by 10 to 20 percent from peaks in 2007. Landlords are also granting an average of eight months’ free rent on a 10-year lease, and average tenant improvement allowances continue to be historically generous at $47 per square foot. Trophy space in key markets continues to command around a 20 percent premium over other Class A space, consistent with previous years, but expected to rise as the economy improves.

“Uncertainty in the economy has led law firms to delay major investment decisions,” said John Sikaitis, Director of Office Research, Jones Lang LaSalle. “This isn’t happening to law firms alone, but the majority of corporate users are also delaying these decisions. As a result, the lack of competition breeds greater bargaining power for the law firms looking to move and this should persist over the near term.”

Creative Thinking

“Law firms are lowering their overall space needs by reducing the size of perimeter offices – but also in creative ways by transforming empty interior support spaces and secretarial carrels into flexible work spaces and associate offices,” said Elizabeth Cooper, Jones Lang LaSalle International Director and co-chair of the firm’s law firm practice. “In 2012, 29 percent of all large (more than 50,000-square-foot) law firm leases involved rightsizing.”

When relocating to a new space, law firms are cutting approximately 14.8 percent of their space due to increased efficiencies.

“As the scales begin to tip in favor of landlords, law firms looking to move should think beyond the largest cities, especially for back-office operations and non-attorney functions” added Sikaitis. “There may be an opportunity to rebalance office sizes, and consider sister city in secondary locations.”

For more news, videos and research resources on Jones Lang LaSalle, please visit the firm’s U.S. media center webpage. Bookmark it here: http://www.us.am.joneslanglasalle.com/UnitedStates/EN-US/Pages/News.aspx.

About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit www.joneslanglasalle.com.

Contact FacilitiesNet Editorial Staff »   posted on: 1/23/2013

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