CHICAGO — Los Angeles is the place to be for law firms, according to a new report from Jones Lang LaSalle. The City of Angels has been ranked the top U.S. city in Jones Lang LaSalle’s inaugural law firm index, which ranks the top U.S. markets for law firms.
The index is based on a combination of potential business growth, strong local legal employment volume and the availability of premium space at a discount.
The index ranks 36 U.S. cities, and Los Angeles posted the highest score with 69.2.
The law firm index was featured in Jones Lang LaSalle’s seventh annual Law Firm Office Perspective report. It marks the first time U.S. real estate markets have been ranked for location attractiveness for law firms.
The top 10 markets and their scores are as follows:
1. Los Angeles (69.2)
2. Washington, D.C. (68.2)
3. New York City (61.5)
4. Chicago (58.3)
5. Dallas (52.9)
6. Atlanta (52.8)
7. Boston (51.1)
8. Philadelphia (50.3)
9. Houston (49.7)
10. Minneapolis (48.4)
“The top cities for law firms represent metropolitan areas where our research has determined that law firms have the most potential to achieve overall success,” explains Tom Doughty, managing director and co-chair of the Jones Lang LaSalle’s law firm practice.
“In those markets, the lease negotiation conditions are still favorable to them. Exceptions to these tenant-favorable conditions are Northern California and parts of Texas, thanks to strong economic activity in the technology and energy sectors,” adds Doughty.
Major gateway markets such as Los Angeles, Washington, D.C., and New York City tend to be near the top of the index because law firms seek to maintain offices in international gateways, according to Jones Lang LaSalle.
Law firms currently occupy 16.6 percent of total U.S. urbanized, top-tier office space, highlighting the office demand from the legal industry. Most markets are experiencing declining levels of legal employment, though, both in overall volume and as a percentage of office-using total employment.
Controlling occupancy costs
This year, law firms reduced their space requirements by an average of 15 percent through rightsizing workplace strategies not correlated with headcount reduction, according to Jones Lang LaSalle.
“Law firms are lowering their overall space needs by reducing the size of perimeter offices — but also in creative ways by transforming empty interior support spaces and secretarial carrels into flexible work spaces and associate offices,” says Elizabeth Cooper, Jones Lang LaSalle international director and co-chair of the firm’s law firm practice.
“In 2012, 29 percent of all large law firm leases (more than 50,000 square feet) involved rightsizing,” adds Cooper.
The Law Firm Office Perspective report found that law firms have the upper hand in office space negotiations for the next 18 to 24 months while favorable conditions continue. Doughty feels that the landlord/tenant balance may swing to the landlord’s favor earlier than that.
“While we still see landlords offering significant concessions, incentives and free rent, that dynamic may change as early as 2014 in some places where market conditions are tight and many top firms have a presence, all seeking to be in core, urbanized trophy/Class A space,” says Doughty.
Inventory is lessening with 20 of the 32 cities having less than five blocks of space greater than 100,000 square feet available in law firm-concentrated markets. With declining space and limited construction, it’s interesting that the office market is more tenant-friendly for law firms.
Landlords are granting an average of eight month’s free rent on a 10-year lease, and average tenant improvement allowances continue to be historically generous at $47 per square foot. This phenomenon could be attributed to ambiguity in the overall economy.
“Uncertainty in the economy has led law firms to delay major investment decisions,” says John Sikaitis, director of office research at Jones Lang LaSalle. “This isn’t happening to law firms alone, but the majority of corporate users are also delaying these decisions. As a result, the lack of competition breeds greater bargaining power for the law firms looking to move and this should persist [during] the near term.”
— John Nelson