2019 Law firm
Law firms are being presented with both broadening opportunities and rising uncertainty
Law firms are being presented with broadening opportunities as well as rising uncertainty and challenges of increasing complexity. Record M&A activity leading to greater scalability and a resilient domestic macroeconomic environment contrast with geopolitical challenges ranging from trade disputes to Brexit. At the same time, succession planning and talent shortfalls are hampering the opportunities presented by a widening array of large-block options across price ranges and markets in the United States. In the near term, however, firms will still be able to take advantage of a combination of broad-based growth and a more favorable leasing environment.
Firms’ extensive concentration in CBD Class A space disproportionately exposes them to the first major segment to register meaningful inflection in office market conditions. Since early 2017, asking rents for law firm–specific product have wobbled around the $51-per-square-foot mark as give-backs of lower-priced blocks outpace newer, high-priced options hitting the market and sublease space now exceeds 12 million square feet. More importantly, growth in concession packages is far outpacing that ofasking rent growth in order to account for spiking build-out costs, exerting significant pressure on effective rents and leveling the playing field in many instances between firms and landlords.
As 2020 approaches, firms should see little change in this dynamic as economic growth is balancing out what would otherwise be a near-oversupplied market. Large-scale pipelines will be most useful for firms in New York, Washington, DC, Houston, Chicago and Atlanta, while firms in San Francisco, Los Angeles, Bostonand Seattle will continue to run into fierce competition from tech and other growth users for limited blocks of space at top-end pricing. Over the longer term, however, cooling employment growth and broader stabilization and correction from some larger users will benefit law firms as they negotiate a structurally changing real estate landscape.