Market Intel – The Latest on Legal: Are Law Firms a Bright Spot in a Lackluster Leasing Environment?

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• Latest Legal Leasing in Chicago, NYC and Washington, D.C. 
• Office Attendance From Law Firms Still Outpaces All Other Industries Nationally According to Kastle Data
• Legal Employment is Up from February 2020 in Washington, D.C. (+1.0%), Chicago (3.3%) and New York City (+4.7%)
• Average Lease Term for Legal Services Transactions is Up from 2019 Levels Among Transactions Inked in 2023 in CompStak’s Data
• Most Valuable Law Firm Deals Inked Since 2022 Include Several Deals in New Construction

Over the last several weeks, major announcements from law firms leasing new offices have occupied the headlines. While many have been focused on the largely negative news coming from the tech sector regarding contracting office commitments, this week CompStak checks in on what has been happening with traditional occupiers like law firms in top U.S. legal markets like Chicago, New York City and Washington D.C.. Are law firms an area of strength for the office market?

Among CompStak’s findings:

• Office attendance from law firms outpaces all other industries nationally, according to the most recent Kastle Data;
• In Chicago, Kastle’s legal occupancy is more than 21.0 percentage points higher than all other industries tracked;
• Legal employment is up from February 2020 in major law firm markets like Washington, D.C. (+1.0%), Chicago (3.3%) and New York City (+4.7%);
• In 2023 so far, the average lease term for new deals and expansions from the legal services industry is up from 2019 levels due to major long-term transactions inked this year in each of these major markets, according to CompStak’s data;
• Most valuable law transactions completed since 2022 have included a mix of activity in new construction but also some significant space contractions.

Latest Legal Leasing in Chicago, NYC and Washington, D.C. 

Several major, long-term deals have been announced this summer from the legal sector in Chicago, New York City and Washington, D.C. In New York City, law firm Davis Polk & Wardwell renewed and expanded its lease in 450 Lexington Avenue and will occupy 700,000 square feet for another 25 years. New York City’s status as a major legal services employment center was also affirmed with news that Kirkland & Ellis is now the largest law firm in New York as well as in Chicago.

Washington D.C. and Chicago also captured significant recent law firm leases with two major tenants committing to sizable footprints in new construction.  Crowell & Moring completed a long-term lease for 198,000 square feet to anchor a new office building under development at 600 Fifth Avenue NW in Washington D.C. in June.  Greenberg Traurig also confirmed it will exit its current Chicago office in the Loop after inking a deal for 90,000 square feet at 360 North Green, a new development in Chicago’s Fulton Market neighborhood. 

Office Attendance From Law Firms Still Outpaces All Other Industries Nationally According to Kastle Data

According to Kastle’s data, office occupancy among law firms outranks other industries and does so by a significant measure especially in top legal markets like Houston, Chicago, New York City and Washington D.C.. This is especially true for Chicago, where occupancy for legal tenants outpaces occupancy for all industries by more than 21.0 percentage points, according to the most recent readings which tracks attendance through the end of July. According to a recent Reuters article, a hybrid schedule requiring 4-day attendance in person is becoming the norm among many law firms. 

Legal Employment is Up from February 2020 in Washington, D.C. (+1.0%), Chicago (3.3%) and New York City (+4.7%)

At the same time as office attendance is on the upswing, legal employment has also gained strength over the last several years and has actually outpaced its pre-pandemic level in each of these markets. Legal employment fell dramatically in mid-2020 in Chicago, Washington, D.C. and NYC, as it did for most sectors across the U.S. economy. However, with the gains seen in 2023, legal employment is now higher than it was in February 2020 in each of these markets. While Washington, D.C.’s legal employment is just shy of its most recent peak reached in November 2019, legal employment in Chicago and New York City is at its highest level since the Great Recession.  In Chicago, legal employment is just 1.8% shy of its most recent peak in November 2008, and in NYC, legal employment is down just 1.6% from the last peak in July 2008.

Average Lease Term for Legal Services Transactions is Up from 2019 Levels Among Transactions Inked in 2023 in CompStak’s Data

In these major legal markets, the average lease term for transactions completed by law firms is recovering to pre-COVID levels after dipping sharply in 2020 and 2021. According to CompStak’s data on legal tenants signing new deals or expansions (includes tenants relocating offices), the average lease term has jumped to more than 117 months in Manhattan and has increased each year since 2020. In Washington, D.C. legal transactions have averaged over 100 months in term length since 2021 and term length has reached upward each of the past three years. Meanwhile, in Washington D.C., other industries have completed lease transactions for an average of 82 months so far in 2023, which is a decrease from last year’s 89 months. With law firms increasing headcount and attendance, some firms may be taking advantage of a ‘tenants’ market’ and the availability of above-average concessions to secure long-term transactions.

Most Valuable Law Firm Deals Inked Since 2022 Include Several Deals in New Construction

According to CompStak’s data, the most valuable deals inked by law firm tenants have included a mix of relocations to new construction and majorly renovated properties across these three major markets, but some of these moves to higher quality space have also included significant space contractions. In Chicago, one of the most valuable deals was inked by Levenfeld Pearlstein at 120 South Riverside Plaza, a property undergoing a major repositioning by owners Ivanhoé Cambridge and Hines. The Chicago law firm will be moving from 2 North LaSalle but will contract by more than 10,000 square feet. In New York City, Clifford Chance completed a major deal to move to 144,000 square feet in 2 Manhattan West but will also contract its New York City footprint by more than 40,000 square feet in its move to Hudson Yards. Finally, Crowell & Moring’s relocation to a newly redeveloped 600 Fifth Avenue NW (former Washington Metropolitan Area Transit Authority headquarters)  will represent a downsizing of more than 191,000 square feet. While some law firms are looking to upgrade their space, they are also taking the opportunity to contract their space footprints in these prime buildings. 

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