Law firm leasing levels are up over the last year, after dropping in 2020 and hitting pandemic-lows during the first half of 2021. Over time, leasing volume may no longer consistently reach the highs seen in years past as more firms look to have greater space efficiency. It appears that flexible in-office work schedules are here to stay, and firms are reimagining their offices to best support that change. Moving forward there may be less dedicated offices, and more space for shared use and collaboration space across firms. As densification continues, this will likely leave a surplus of office space available in the market in years to come.

By the Numbers

 Quarterly Leasing Volume

The legal sector’s quarterly leasing volume average for the two years prior to the pandemic was 1.8 msf. The quarterly average has fallen 11% to 1.6 msf as of Q2 2022, pulled down by pandemic leasing lows. 

As we investigate leasing activity this far into the pandemic, what we haven’t seen are many significant sublease blocks coming from the legal sector. Sublease space from the tech, financial services & insurance industry sectors has increased in recent quarters as economic concerns continue to grow. Worries over a possible recession have also begun to stall leasing decisions in other sectors at the end of Q2. We have not seen this effect the legal sector yet but will be watching for any indications of change.

Notable Law Firm Leases Signed in 2022 YTD

In the first half of 2022, seven out of ten of the largest law firm leases were completed in the second quarter. Of those seven leases, all were over 100,000 sf, a sharp uptick in large leases compared to Q1. Half of the top ten leases were relocations, the others chose to stay in place.

How the “Stay vs. Go” Scenario has Changed Over the Years

The pendulum seems to have swung back to pre-pandemic norms in terms of transaction types, with relocations making up 63% of 2022 year-to-date leasing. For comparison, in 2018 and 2019 relocations averaged 62% of total transactions by square footage. At the height of the pandemic, the “stay versus go” scenario shifted heavily to “stay” with relocations making up only 30% of leasing in 2020. This shift back has been enabled by more certainty surrounding the future of the office, soft market dynamics, and flight to quality. 

Even before the pandemic, in a record-low unemployment environment, firms were trying to find ways to upgrade their offices. The pandemic accelerated that trend with an even more aggressive “war for talent” underway. In this employee-first mindset, having high-quality space to attract and retain valuable talent is top of mind. Firms are searching for prime space, in convenient locations, with upgraded amenities, natural light, and even access to the outdoors – which requires top-tier office space. Firms that are choosing to stay in their current locations are doing so strategically by comparing their space to other options in the market and using current, softer, market conditions to push for upgrades within their building or space and renew with tenant-favorable terms.

New to Market Transactions on the Rise

New to market transactions have increased, with firms looking for new office locations outside of core law firm markets like New York, Washington, D.C., and Chicago.

The pandemic caused an enormous amount of change in the labor force – especially in regard to where people want to locate. Firms have watched their employees relocate across the country over the last two years and new law firm graduates are also considering new cities to start their career in after graduation. As a result, firms are looking to enter into these new markets to facilitate the needs of their own employees and capitalize on emerging talent pools.

In Q2, Kirkland and Ellis LLP leased 75,000 sf at 95 S State in Salt Lake City after newly entering the market in 2021 and taking short-term space at 60 E. South Temple. In May of 2022, Kirkland also announced that it would be opening a new Miami office. Similar moves to South Florida come from Quinn Emanuel Urquhart & Sullivan, King & Spalding LLP, and Winston & Strawn LLP. Miami isn’t the only market with a changing legal landscape, Texas is also receiving new market entrants. Kirkland opened in Austin last year, O’Melveny & Myers LLP has announced new offices opening in Austin, Dallas and most recently, Houston, as of July 2022. Sheppard Mullin Richter & Hampton LLP also announced its new move to the Houston market. In addition to chasing the migration of talent, these firms are chasing business and following the wave of financial services, tech firms, and others that have moved to these markets in recent years.

Firms are opening new locations in markets such as Salt Lake City, South Florida, and across Texas.

Looking Forward

In the second half of 2022, the only thing we can absolutely expect is continued change. Law firms, which are typically behind other industries in making significant changes in their real estate strategy, have proven to be adaptable. Firms are evolving to adopt flexibility, rethink space utilization, focus on wellness and culture, put employees first, and move into key talent markets. The Legal Tenant will be watching these trends and more through the end of 2022 and beyond.