The growing momentum in the global economy has forged a new path for the law firm real estate market. With more than 65 million square feet of new office supply under construction in just the U.S. alone, law firms are finding myriad choices for both location and space that’s never seen before.
And that’s not all… as firms relocate into new space, an abundance of second-generation, lower-cost space is also becoming available.
Interestingly, more than half (53.9 percent) of the new supply is currently available for lease in the top six legal markets of Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C. This by no means however, locks up the market.
Things are heating up in Phoenix! After a six-year hiatus, construction activity is on the rise. Over the next 24 months, we can expect to see space options opening up due to an uptick in the development pipeline. For smaller-sized law firms, it’s a buyers’ market with abundant space available throughout all classes.
In addition to the positive global economic outlook, JLL projects a 3 percent growth for 2018. Regardless of where Phoenix currently finds itself on the U.S. law firm office clock, JLL’s newly released 2017 Law Firm Perspective details how law firms can expect to benefit from the following three emerging trends:
- Urban cores will have the upper hand in attracting top talent. With stable growth projected over the next few years, companies are projected to continue adding staff to keep pace with their expanding businesses. In the war for talent, law firms find themselves on the defense: since 2010, law schools have reported a 24.8 percent-decline while tech employment is up 52.4 percent. Being located in the urban core will give the law firms that reside there an upper hand in attracting much-needed talent. Millennials, a core demographic in these markets, are primed to assume new positions as they are vacated by retiring Baby Boomers.
- Rents will begin to flatten. Through year-end 2017 and into 2018, the real estate environment both domestically and globally for law firms will shift markedly. Tenants will see an increase in space options not present even one year ago and with that will come greater competition between landlords of both new and existing buildings, leading to increasingly higher concession packages eventually flattening and falling rents. Throughout year-end 2017 and into 2018, the real estate environment both domestically and globally, for law firms will shift markedly. Tenants will see an increase in space options not present even one year ago and with that will come greater competition between landlords of both new and existing buildings, leading to increasingly higher concession packages, eventually flattening and falling rent—a welcome trend for expanding and cost-conscious firms alike.
- Tenant perks will continue to improve. Since 2015, concessions for tenants in CBDs are up 15.3 percent nationally and 33.8 percent in the top legal markets highlighted in JLL’s report. In the top six legal markets, tenant improvement allowances average $85.83 per square foot, 37.9 percent higher than the national average.
Landlords in nearly one-third of markets across the U.S. are now providing 12 or more free months for tenants moving to new developments on a typical 10-year lease term. On average, firms in the top six legal markets receive 9.3 free months compared to 7.1 months for the U.S. overall.
What can we expect for 2018?
With new supply nearly doubling since just 2015, competition among landlords is leading to increasingly higher concession packages, a trend which shows no sign of slowing in core legal markets.