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News release


Talent Demands and Supply Constraints Changing Law Firm Office Norms

JLL’s Law Firm Perspective shows that 10% of Boston market is occupied by law firms as rightsizing continues

BOSTON, Oct. 30, 2014 – Space reduction continues to guide the office strategy for the U.S. legal sector, with firms giving up an average of 17 percent of their space upon relocating in 2014. Office leasing transactions for the sector have seen a consistent trim this year as 15 of the top 17 U.S. law firm leasing transactions were rightsizing moves, according to JLL’s newly released Law Firm Perspective.

But the influence of rightsizing has started to slow, with a new challenge on the horizon – supply shortage. It’s an obstacle that may offer a great opportunity for the industry. Law firms battling supply constraints and the war for talent may finally start to mimic workplace strategies of their corporate peers.

“Lawyers have always needed their own space, and the industry, as a result, has held on to very traditional workplace needs and strategy,” said Elizabeth Cooper, co-lead of JLL’s law firm practice group. “However, you have to be creative with your office strategy when the model changes. The industry is dealing with fee compression, a rapidly changing workforce and changing work styles. The workplace has to evolve, and it is changing to meet these challenges.”

“In Boston law firms are continuing to right size facing the same forces that are driving other professional service firms to be leaner and meaner,” said New England Research Manager Lisa Strope. “As Boston area law firms are reconfiguring offices to be more in line with trends in the industries they serve, they are looking for flexible, more efficient spaces. Many are considering moves from more traditional and suburban locations.

“Across Massachusetts legal employment is still down nearly 2,600 jobs from prerecession peaks,” Lisa continued. “In Boston, we have seen a modest decline in legal employment over the past year. However, the intellectual property and corporate law sectors are growing, spurred on by the area’s rise in the high-tech and life sciences fields.”

Revenue for law firms is up by 4.4 percent, according to The American Lawyer, but that growth must now contend with rising rents. A JLL study predicts 77 percent of North American cities will see a rise in rents due to scarcity of available office product. This means law firms will no longer look solely at trophy or Class A office space in central business districts when they move or expand. Secondary locations are the next option.

According to JLL’s report, law firms are beginning to reach the limits of what efficiency can offer. A review of the top 35 U.S. law firm markets indicated that market-by-market 55 to 90 percent of law firms have already devised substantial efficiency measures in new or restructured leases. In Washington, D.C., for example, 82 percent of firms have already embraced rightsizing strategies. The stat is telling as law firms in the nation’s capital comprise the largest segment of the tenant base with 45 percent of the core Class A market.

Rightsizing will reach a plateau in the next couple of years, so the industry will be forced to try different approaches to location strategy. New neighborhoods near amenities that attract and retain younger talent and secondary-city locations providing valuable cost savings are slowly pulling U.S. law firms into uncharted territory.

On average, law firms have seen rents rise 3.3 percent year-on-year and pay an 18.1 percent premium for trophy space. In some markets such as Boston, Houston and San Francisco, rents have jumped more than twice that rate. Rentals conditions in most core markets are expected to worsen next year, without much relief until late 2015 through 2017, when new developments under construction will start to free up space.

There are unique resource models such as Fish & Richardson shifting a substantial part of its non-revenue functions to Minneapolis, Minnesota, or White & Case recently doing the same in Tampa, Florida. Innovative workplace strategy has driven examples like Foley & Lardner providing 12,000 square feet of space and pro-bono office hours for a digital co-working community in Chicago’s River West area, potentially creating new revenue for the firm.

“Growth may be back in the law firm sector, but firms are keeping productivity, efficiency and innovation front and center as they continue to re-define who they are and how they operate,” Cooper said. “Following years of retrenching, they are proceeding cautiously and strategically to become more nimble in meeting client demands.”

Follow the Money
In markets like Silicon Valley, Seattle and Austin, Texas, law firms find themselves competing for prime space with fast-growing tech companies. Law firms have flooded Silicon Valley, occupying 20 percent of the market today, compared with eight percent in 2011. But prime office locations are limited, especially in Palo Alto where law, venture capital, private equity and growing tech firms are all jockeying for the same space until anticipated new development becomes available in nearby Menlo Park.

A similar story is playing out in Seattle where law firms now occupy 12 percent of the market, up from eight percent in 2011 and developers are looking for tenants to prelease space so they can kick-off massive proposed projects. Meanwhile in suburban Los Angeles, entertainment and media law firms are flocking to locate near their clients in Playa Vista rather than corporate-heavy Century City.

In Dallas, several national law firms have opened offices recently, including McGuireWoods, Holland & Knight and Schiff Hardin. While the percentage of law firms occupying the market has held steady at 14 percent since 2011, they are taking over larger blocks of space, indicating growth. Currently, 31 firms have more than 50,000 square feet, compared with 22 firms in 2011. New construction is already underway.

“A good real estate strategy is central to overcoming some of the key challenges law firms face in managing costs and productivity,” said Tom Doughty, co-lead of JLL’s law firm practice group. “As the real estate market continues to strengthen, larger firms are considering moving some employees to less costly fringe areas of cities. And in all their locations, they’re exploring ways to use space more efficiently.”

Luring Talent
As firms follow pockets of growth and stretch beyond core city centers, they are recognizing the benefits of moving to locations closer to where their top young attorneys live, work and play. Hiring is expected to pick up for law firms in the second half of 2014, especially among candidates with three to seven years of experience who can “hit the ground running,” according to legal staffing firm Robert Half Legal.

These emerging law firm locations help attract and retain talent. In Washington, D.C., more firms are considering options located in the emerging Mount Vernon Triangle segment of the East End. New office developments in Denver hope to attract more firms to the city’s LoDo district, the lower downtown area that has seen major renovation and restoration in recent years. In New York, law firms have increasingly shifted their office searches west and downtown, including new developments in the Hudson Yards neighborhood.

Focus on Efficiency & Innovation, But With Limits
Law firms on the whole remain somewhat hesitant to fully adapt more contemporary open-office plans – reversing strides made in recent years to provide more “we” versus “me” space. More than half of U.S. cities still report law firms retaining offices for partners as well as associates, with the former occupying larger offices, and a smaller number giving them both offices, but with equal sizes.

However, renovations for law firms are taking small steps toward more contemporary work styles, with more open plan areas than before. The new spaces also tend to feature interior glass-fronted offices, multi-purpose collaborative space and lawyer lounges to more closely mimic clients’ working style.

For example, firms in Boston are already reconfiguring offices to align more closely with the high-tech and life sciences industries they serve, looking for more flexible and efficient spaces just outside of the city center in the Seaport District. In Seattle, many downtown buildings are getting an overhaul to expand amenities, such as bigger conference rooms and athletic facilities.

Relocating Non-Revenue Functions
Law firms continue to re-shuffle the people they house in urban centers, placing revenue-generating attorneys in these prime locales and moving other staff to less expensive locations. Baker & McKenzie recently launched a second global service center in Belfast, Northern Ireland, that will provide technology and legal support to the firm's network.

Pillsbury, which leased more than 250,000 square feet of space in Washington, D.C., expects to save significant costs as it downsized and moved its headquarters a few blocks east this year, occupying approximately 105,000 square feet in D.C. and moving lower-revenue and non-revenue functions to Nashville, Tennessee.

“For law firms with upcoming lease expirations, market timing is critical,” said John Sikaitis, JLL Director of Office Research.  “Much of the new construction will not hit the market for another 24 to 36 months and repositioned buildings are picking up pace, but slow to come to the surface.

“A combination of continued efficiency measures – not just better space utilization but also offshoring – and tenancies in new construction will be the best bet for firms to combat an increasingly competitive real estate landscape.”

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About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $53.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit​