Law Firms in Drivers Seat in Renters Market
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LOS ANGELES-Los Angeles ranks as the second-best city for law firms to rent space, according to Jones Lang LaSalle’s recently released first “Law Firm Office Perspective” report. The index ranks 36 U.S. cities on a combination of potential business growth, strong local legal employment volume and the availability of premium space at a discount. Based on these numbers, JLL anticipates large downtown relocations in the next couple of quarters as law firms occupy nearly 20% of the class-A office space in L.A.
“What we’re seeing is that downtown L.A. is becoming more attractive to firms because of what’s going on in entertainment and cultural developments,” Tom McDonald, JLL’s EVP in the law-firm practice group in L.A., tells GlobeSt.com. “Some firms are moving downtown because that’s where their people are saying they want to be.”
McDonald says firms such as Akin Gump Strauss Hauer & Feld LLP, Seyfarth Shaw LLP and Goodwin Proctor LLP are establishing secondary offices in downtown L.A. to their primary offices in West L.A. Also, some firms based in other cities are setting up offices in downtown L.A.—including Washington, DC-based Crowell & Moring and Philadelphia-based Dechert LLP and Pepper Hamilton LLP—in order to have a presence here.
“There’s a big draw to people: L.A. Live, the cultural element,” says McDonald. “If you’re a big law firm, Century City or downtown L.A. is where you’re going to be.”
McDonald adds that 60% of the class-A office inventory here is controlled by three landlords: MPG Office Trust, Brookfield Properties and Thomas Properties. “Nowhere else in the country or in any urban environment do three landlords control that much of the market. Downtown L.A. is very different, but when you have that kind of greater landlord control over the inventory, then you have greater landlord control over the price and lease transactions in the marketplace.”
Still, with a 20% direct office vacancy rate in downtown L.A., one can assume tenants have some wiggle room, making the area even more attractive for law firms. And, as GlobeSt.com has previously reported, there is much speculation the MPG is preparing to sell off the bulk of its office portfolio here, which could indicate that the firm is disposing of assets that perhaps aren’t performing up to standard. McDonald says the firm controls 37% of the market in six buildings, outright owning five and having 20% ownership in the sixth.
John A. Karaczynski, a partner in charge of Akin Gump’s Century City, CA, tells GlobeSt.com, “Law firms continue to recognize that there’s a need for multiple offices in L.A., and we’ve opened up an office in downtown L.A. last year for a number of reasons. The renewables group joined us, but we also felt as part of the expansion of our business in Southern California, it would be a real positive to have an office in downtown L.A. as well as Century City.”
Karacynzski adds that over the years, the firm tried to build an office downtown here, so the opportunity to open one up and immediately house 18-20 lawyers was viewed as a real positive. “Some firms view that [it is important to establish an office in downtown L.A.] to the extent that there is a business center in L.A. that is non-entertainment related. I also think that the entire development of DTLA over the last 10 years has made it a more attractive place to be, with the Staples Center, L.A. Live, restaurants, etc. The principal reason for some firms being in Century City is if your practice is more entertainment focused. There’s also some sense from a litigation-practice perspective that it helps to have an office downtown near the federal and bankruptcy courts.”
Downtown L.A. does have a long-standing history of firms outside of L.A. setting up offices here in anticipation of DTLA becoming a “kind of second New York,” Greg Koltun, managing partner with law firm Morrison Foerster in L.A., tells GlobeSt.com. “There were a lot of law firms that thought L.A. was going to become a second major financial center, and a lot of firms built out toward that goal. Within the last four to five years, that has received some renewed attention.”
L.A. is and always will be at the forefront of new and different lawsuits being filed, whether they’re consumer class-action lawsuits or patent cases, Koltun adds. “A lot of plaintiff lawyers live in L.A. and therefore file a lot of lawsuits here. There’s a lot of activity generated just by the litigation that happens here.” Private-equity and business activity are also prevalent here, “but it’s not connected to major companies being based here like it used to be a long time ago.”
Koltun says that L.A. has been a fairly stable legal market—not boom or bust, but space needs have decreased due to enhanced attention to operational and space efficiencies within firms. “There’s a lot more attention being paid now to things like not having wide hallways or dead space just to look at it. People don’t value that like they did back in the ‘80s and ‘90s. So, when we’re looking to move, we end up taking a lot less space than we used to—that’s a trend.”
A market that was built out for a lot of growth in the 90s that never happened is another reason for excess space, Koltun says. “Firms are taking less space per attorney now than they used to, so it’s a buyer’s market—that was our experience.”
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