SAN DIEGO-Today's successful law firms recognize how technology is reducing their need for office space. From the ever increasing telecommuting to utilizing the efficiencies created by electronic storage of pleadings and documents, firms are finding opportunities to eliminate wasted office space. So says Colliers International's Ron Miller, member of Colliers' law firm services group. GlobeSt.com exclusively chatted with Miller on trends shaping the law industry's usage of office space.       

GlobeSt.com: What significant change have you seen with San Diego's Law Industry over the last 10 years?

Miller: San Diego's demographics are changing. In 2000, 95% of the major law firms were doing business from downtown's Central Business District. Today, more than 50% of the major law firms are doing business 20 miles north of the San Diego Courthouse. Being closer to where emerging industries, high and bio-tech companies are located along with proximity to where partners live has necessitated establishing offices in the North City West area (UTC and Carmel Valley). 

GlobeSt.com: Which of the larger law firms have relocated from the CBD and what has been the impact on the office leasing markets?

Miller: In Q2 2014 Latham Watkins consolidated their offices into Carmel Valley, the highest priced class A office building in San Diego, while vacating 77,000 square feet at One America Plaza. In 2010, Foley & Lardner relocated to Kilroy Centre Del Mar (Carmel Valley) leaving behind 31,000 square feet at Emerald Plaza, which has been vacant for almost four years. McKenna Long also vacated 44,000 square feet in downtown and moved to UTC in 2010.

GlobeSt.com: Does the Law Industry still require close proximity to the San Diego Courthouse and Downtown in general? 

Miller: Yes and no. Many of the larger law firms that have their main office in North City West also maintain a satellite office in the CBD. Procopio decided to make the CBD their primary location with 100,000 square feet spread over several floors at 525 B St. while adding a 29,000-square-foot satellite office in Carmel Valley. Latham Watkins and McKenna Long both will continue to maintain a presence downtown with satellite offices at One America Plaza. 

GlobeSt.com: What are the biggest opportunities and challenges facing the Law Industry?  

Miller: Fivetrends that are shaping the future for law industry's office space usage include:

>  75% of applications will be in the cloud by 2016

>  100 billion + mobile devices globally by 2015

>  50% of the workforce will be Gen Y “Millennials” by 2018

>  80% of the work is highly collaborative

>  40% of the workspace is occupied at any given time

These implications are staggering, especially for law firms, as workspace decisions also impact the brand and culture of the firm, and its ability to recruit and retain top talent. These trends will also contribute to reducing the amount of square feet required per attorney. 

GlobeSt.com: Explain any challenges that Law Firms encounter when relocating their offices?  With the high cost of upgraded tenant improvements, landlords are requesting longer initial lease terms (seven to 10 years) to justify the upfront cash investment. Furthermore, landlords are requiring additional security whether it is in the form of larger security deposits or other means of securitizing the lease. This burden must be worked out ahead of time as law firms' dynamics are constantly changing with the ownership structure and who will be left “holding the bag”at the end of the day.

GlobeSt.com:  With San Diego's class A office market improving, can law firms still find good leasing opportunities?

Miller: Opportunities and favorable lease terms still exist. In mid-2015, The Irvine Co.will complete One La Jolla Center, a new 300,000-square-foot class A office tower in UTC providing first generation space choices in the mid $4.00 per square foot per month range.

However, discounted lease rates can be found as a result of companies that are right-sizing or relocating out of San Diego leaving high-end second generation space options available in the Class A submarkets. There are sizable sublease options in Carmel Valley as Santarus and Trion have placed their respective spaces at Kilroy Centre Del Mar on the market. Latham Watkins' former office at One America Plaza (Downtown) and Cushman Wakefield's former offices at Sunroad Corporate Centre (UTC) are both directly available with their respective landlords. 

With an 18% CBD vacancy rate, leasing incentives are still available in Downtown's CBD as Landlords backfill law firm space from companies that have merged and/or migrated to North City West.  By moving into previously built-out space, law firms can avoid Landlord's additional lease securitization normally required for their significant tenant improvement investment.  Executive Suite operators are also competing for former law offices where densely built-out executive offices lends itself to cost effective solutions with minimizing their tenant improvement investment and avoiding unnecessary securitization.  For example, Premier Executive Suites recently leased Latham Watkins' former offices in the Carmel Valley area.