Los Angeles is the second largest US metro for law firm employment and it ranks number three for law firm real estate transaction activity, according to a new report from CBRE. Law firms are changing their workplace strategies in response to new technology, and many are downsizing or right sizing their office space. Los Angeles saw 1.1 million square feet in law firm transactions from Q116 to Q217, and 36% of those transactions were contractions, while 36% were stable and 28% were expansions. We sat down with Steve Bay, vice chairman at CBRE, for an exclusive interview to talk about the transaction activity for law firm real estate and how firms are changing their workplace strategies.

GlobeSt.com: Why has there been an increase in law firm transaction activity?

Steve Bay: Los Angeles is the second largest market for law firms, so it isn't a surprise that we do a lot of law firm transactions. However, technology has caused firms to change the way that they are using their space. Years ago, everyone digitized their libraries, and today, firms are digitizing their files. Not all firms have done this yet, but they are transitioning in this direction. So, the large file rooms and the libraries are all going away, and as a result, firms don't need as much space as they used to. The attorneys that come into the workforce are much more tech savvy, and they don't need as many administrators. Now, you have firms with five attorneys to one administered, and some are as high as 10 to one. All of these things—libraries, file rooms and administers—are going away and that means that firms don't need as much interior space. Firms are able to do more with less space, and law firms are changing their real estate strategies to adopt and adapt to this.

GlobeSt.com: Compared to the other top markets, Los Angeles has a lower percentage of contracting leases. Why do you think there are fewer law firms right sizing in Los Angeles compared to other top law markets?

Bay: We were surprised by that as well. There are certainly major firms that are contracting, but there are also major firms that are—either via acquisition or growth—taking on more space. We were anticipating contraction numbers along the same lines as the other major markets. When I sit with my law firm clients, I describe to them that the typical law firm is shrinking by 20% or 25%. Some firms, however, are hiring, so not every lease is a pick-up and move. Some of these are simple expansions during a lease term to accommodate growth. When the lease is up, they will likely reevaluate and become more efficient. These trends are affecting every single law firm.

GlobeSt.com: How do the changes in workplace strategy for law firms compare to some of the other popular workspace strategy trends, like open workspaces and amenity packages?

Bay: Law firms don't design space the way that tech firms do. Law firms are not ready to move away from private offices, and that is a pretty significant difference from other companies that have gone to a more open space strategy. Because technology enables people to work anywhere, law firms are trying to create a distinct environment that draws employees in. Virtually every firm that I work with wants their employees to work in the office rather than working at home. They are all studying these trends and trying to understand which of them affect their particular firm. Unlike tech firms that have game rooms and private chefs, law firms might have their own barista or a coffee bar. They are very conscious of health and wellness, so they bring a lot more light into the space and create a healthier space.

GlobeSt.com: How far ahead are you working on these lease deals?

Bay: Every firm whose lease is up in 2019 has already signed a lease or is deep in negotiations for what they are going to do. We are working with firms whose leases expire in 2022 to 2025 that are trying to get a handle on this.

GlobeSt.com: How will right-sizing law firms impact the overall Los Angeles office market?

Bay: Lawyers make up a good amount of the occupants in Downtown Los Angeles and in Century City. They are in other locations, but that is where they are most impactful. Downtown Los Angeles has historically been a high vacancy market. Right now, we track vacancy in Downtown Los Angeles as being a little more than 18%, and that is considered a very soft market. I don't have the exact numbers, but, for example, if Downtown is an office market of 30 million square feet, law firms make up 20% of that, and they are contracting by 20% only when their leases expire. So, it has an impact, but it isn't a market driver. Law firms only make up a certain percentage and it is only a percentage of that that is shrinking.

Instant Insights /

Right-Sizing Law Firms Boost Transaction Activity

Related Stories

Recommended For You