Law Firms Have Opportunity in Class A Office Market

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Oct. 31, 2016

By: Steve Burkett, Executive Vice President, JLL Houston

law firms

While the U.S. economy has managed to remain relatively stable despite global economic uncertainty, decelerating AmLaw 100 gross revenue has left law firms looking for ways to increase revenue and lower costs. One way to do that is in the efficiency of their real estate footprints.

Cost-containment will be increasingly important as firms are likely to experience more of the same muted growth in 2017, based on global economic forecasts. In response, law firms have been rightsizing aggressively this cycle, with utilization falling by 22.2 percent to 760 square feet per attorney, bringing rent per attorney down by 12.1 percent. As efficiency remains critical, drives to target usage of 625 square feet per attorney will help firms save an additional 23.3 percent on rent per attorney. This decrease represents a substantial downsizing from a historical average of 976 square feet per attorney. This reduction will enable reallocation of capital for newer work spaces.

Houston law firms are following the national trend of rightsizing, however benchmarking figures like square feet per attorney remain above national averages.

Square feet per Attorney in Houston:

  • Historically: 1,200 – 1,400 SF/Attorney
  • Currently: 950 – 1,050 SF/Attorney
  • Target: 700 – 800 SF/Attorney

Due to the correction in energy markets, Houston is firmly tenant-favorable across nearly all submarkets. With increasing supply, rising concessions and flat or falling rents, Houston presents the legal sector with significant opportunities. Long-term, trophy-quality sublease spaces in the CBD, continue to arrive to market as energy firms shed excess space, allowing law firms to occupy traditionally sought after buildings at a discount. Concessions, such as tenant improvement allowances and rent abatements, have increased as landlords compete to maintain occupancy and attract credit-worthy tenants.

Across the U.S., law firms with upcoming expirations will have greater leverage at the end of 2016 and the beginning of 2017 to negotiate better deal terms and find blocks in premium locations. While sublease space in Houston continues to saturate the market, subleases from downsizing and relocating tenants in markets nationwide have become increasingly important and monitored.

Broken out by class, 98.4 percent of the rise in sublease space across the U.S. has been in the Class A segment. Organic tightening in commodity product by cost-conscious tenants and movement within the top tier of the market is impacting Class A landlords and properties. Over the next four to six months, this relatively small portion of space, which represents a mere 1.1 percent of the total CBD Class A vacancy nationwide, will represent one of the most important emerging opportunities for firms in the market.

To download JLL’s 2016 U.S. Law Firm Perspective, click here.

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Steve burkett color webAbout the Author

Steve Burkett is an Executive Vice President within JLL Houston’s Office Tenant Representation group. His market knowledge, strong finance and analytical skills, extensive negotiation experience and knowledge of the development process enable him to serve clients in straight lease, lease-equity and ownership transactions. He is regularly a top producer within the firm and has previously been named Office Broker of the Year by NAIOP.

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