In a sluggish commercial office leasing market, the legal sector is an outlier. Last year, leasing activity surged to levels not seen since 2019, with volume reaching 2.8 million square feet (msf) in Q4. As other industries trim their real estate portfolios to account for larger numbers of employees working from home, law firms continue to see the value in physical office space for their attorneys and staff. 

Against this backdrop, Steelcase recently hosted an Evolving Legal Workplaces event in Chicago. I spoke to an audience of about 120 as part of a multidisciplinary panel drawn from my peers in commercial real estate, interior design, and construction. Together, we shared our observations and exchanged ideas on space and leasing trends across this active sector. The discussion was thought-provoking and audience questions made this session highly engaging and interactive. Here were some of my takeaways from this important conversation:

1. Quality ranks higher than cost for most law firms…

Amid higher leasing and tenant improvement costs for the occupier, law firms are still in search of high-quality, commute-worthy work environments that draw attorneys and staff back to the office. The number of newer, high-quality building options with large blocks of space is limited as new development has come almost to a complete standstill amidst decreased demand, higher construction costs, and extremely limited and expensive financing. Flight-to-quality amid limited inventory has contributed to an increase in asking rents for top-tier space, despite national office availability sitting at an all-time high of 25.1%, according to Savills Research.

Applying further upward pressure on costs, many landlords may have reached the ceiling on offering concessions (such as tenant improvement allowances, free or discounted rent, beneficial occupancy, or discounted parking). Landlords of high-end properties feel that the limited amount of available space is allowing them to be more aggressive with their deal terms while construction costs have surged to all-time highs and project timelines have extended significantly. 

Yet the desire for high-spec, trophy-like office space in Class A buildings persists. The role of the workplace in attracting and retaining talent also influences the legal sector’s flexibility on real estate expenditures. 

2. …but for other firms seeking to contain costs, second generation space is a go-to.

As top law firms vacate their existing spaces to seek the next new trophy building, other law firms are taking advantage of this relocation trend to upgrade their own offices by moving into those vacated spaces. In Q1 2024, 54.1% of legal sector leasing activity over 20,000 sf was made up of relocations, revealing a preference for relocating over improving existing space.

The savings and convenience to law firms choosing second generation space is wide-ranging as legal tenants re-use previously-occupied prime law firm space or law firm subleases. Many of these offices are in Class A buildings or in some cases, originally developed with legal tenants in mind. This makes it more likely that the right infrastructure is in place and the floor plan is favorable for typical law firm needs, ensuring significant cost savings on tenant improvements for the occupier.

3. Law firms are still searching for balance in their hybrid models.

Attorneys and staff still want to work from home for some of the time, and law firms have, for the most part, been willing to accommodate that flexiblity. Two of the most profitable years for the legal industry were at the height of remote work during the pandemic in 2020 and 2021. This supports the idea that, at least in the short term, working from home does not impact productivity, and yet, the need for in-office presence persists for several reasons: 

• Young lawyers need mentorship and guidance to grow in their careers.
• Offices are also better equipped than home for meeting with clients and collaborating with teams.
• Burnout continues to affect attorneys working long hours, and the flexibility to work from home helps with work/life balance.

Yet, trips to the office are still lagging behind pre-pandemic levels. According to data from Placer.ai analyzed by Savills through Q1 2024, nationwide office building visits stand at 59% relative to a January 2020 baseline. In premium office buildings, Miami and New York City are leading in the return to office, achieving 82% and 73% of their pre-pandemic levels, respectively.

Law firms are in search of the formula that supports teamwork, mentorship, and company culture while retaining top talent – adequate home working time balanced with the idea that the office is still a weekly destination.

4. Flexibility reigns supreme in all aspects of legal workplace.

From lease negotiations, to conceiving the workplace, to using the workplace, law firms are seeking flexibility across the board. 

Legal tenants want a lease with built-in flexibility for as many options as possible, from expansion to contraction to early termination without penalty. As they think about the design and planning of their new workplaces, law firms also want workplace strategists to think well beyond Day 1 to enable tenants to make modifications over the lease term with minimal capital outlay. How they structure hybrid working and whether they are mandating a return to the office impacts what the workplace looks like today, but also requires flexibility for changes in the future.

5. As law firms seek to right-size their footprints, they are rethinking inboard space.

While some law firms are reducing space, others are looking to make their offices bigger (in terms of rentable square feet), better, and more marketable to their attorneys and employees. Savills Research found that expansions in occupancy made up 43.6% of transactions by law firms over 20,000 sf in 2023, with downsizing accounting for less than 30%. 

Traditionally, inboard space, or the central area away from exterior walls, was the least desired due to lack of direct daylight exposure, and therefore was reserved for storage, IT servers, or support staff. But because law firms are making a concerted effort to draw people back to the office, they are exploring new approaches to inboard space, especially for accommodating summer associates, young lawyers, and other non-attorney professionals in more collaborative environments.

From introducing glass-fronted interior offices to increase daylight exposure, to incorporating video-conferencing facilities with state-of-the-art collaboration tools, law firms hope to leverage inboard space as part of a right-sizing strategy that offers a desirable mix of amenities and useful workspace that the home can’t offer.

The range of perspectives expressed at this Steelcase event made one larger point clear: as law firms continue to navigate a post-pandemic shift in working, the value of a strategic approach to workplace planning cannot be understated. By prioritizing the needs of their attorneys and staff, remaining open to change, and relying on flexible planning and real estate strategies, law firms will continue to drive productivity and deliver superior client services competitively.