Law Firm Office-Leasing Activity Hit Milestone In 2023
The legal industry leased more office space last year than it has since the Covid-19 pandemic.
In 2023, U.S. law firms leased a collective 16.9 million square feet, according to Cushman & Wakefield. That’s not only more office space leased by the sector since the Covid-19 pandemic, but exceeds the amount leased nationally by law firms in 2017, 2018 and 2019, as tracked by Cushman.
The legal industry has bucked the broader trend of office-market leasing since the pandemic upended norms around office-space usage. While law firms, like other industries, have taken a hard look at their office real estate, they on the whole are using the office more regularly than other industries. Therefore, they’ve occupied a more robust segment of the leasing market while other industries have slowed their deal activity, put spaces on the sublease market or exited big chunks of space.
For those in commercial real estate who work with law firms on their office-space needs or otherwise track the industry, the legal sector’s recent leasing activity is indicative of its new normal.
Many law firms that saw their leases expire in 2020 or 2021 inked a short-term extension because of the uncertainty during the height of the pandemic. But in the past two years, law firms have gone back to the office more frequently and overall feel more confident making longer-term decisions about their space, said John McWilliams, senior research analyst at Cushman.
The biggest relocation signed by a law firm since the pandemic, according to Savills, was Paul, Weiss, Rifkind, Wharton & Garrison LLP’s deal inked late last year. The international law firm agreed to take 765,931 square feet at 1345 Avenue of the Americas in Manhattan. Not only was it the largest law office relocation since the pandemic, it was also the largest office lease signed across all industries and the U.S. last year.
What Law Firm Leasing Activity Says About The U.S. Office Market
Although it’s only one sector — and legal tenants only made up 8.8% of the national leasing market in 2023, according to Savills — how this industry is making office-space decisions is somewhat indicative of broader trends affecting the U.S. office market.
For example, like many professional-services tenants, law firms are largely seeking to be in the top 10% of office buildings in the markets they’re in, McWilliams said. Many law firms that have made leasing decisions in the past couple of years have departed office buildings that, while not necessarily Class B or C space, are no longer considered the top-tier towers in town.
Notably, a growing share of legal-industry tenants have decided to renew their leases in their current buildings rather than relocate, which may be indicative of the shrinking amount of top-tier office space available in a given market. That’s especially true of office tenants that require 100,000 square feet or more.
Data from Savills found, in 2023, 56% of leases signed within the legal sector were stay in place, compared to 33.9% in 2022.
And as office space at the high end of the office market is leased, and buildout construction costs are growing, a greater number of legal tenants are considering higher-quality sublease space on the market, experts say.
“Law firms are continuing to put value in office space as part of their recipe for being successful,” said Tom Fulcher, chair of the legal practice group at Savills. “It feels like we’re establishing the new normal in terms of (which industries) want to work in the office or remote … those things are calcifying into what it’s going to be moving forward.”
Source: SFBJ
