Despite the trend to creative office, law firms have continued to gravitate towards class-A, quality real estate—and that trend isn't waning. According to a new report on law firms from JLL, 65 million square feet of class-A office space will deliver in the US this cycle, creating ample opportunities for law firms to get a good deal on new quality office space or look at second-generation options as a low-cost alternative. To find out more about the kinds of spaces that law firms are leasing, we sat down with Thomas McDonald, EVP at JLL, for an exclusive interview.

GlobeSt.com: What types of office spaces are law firms gravitating toward today?

Thomas McDonald: Currently, law firms within the Los Angeles Central Business District have maintained their interest in occupying office space in Class A office buildings that are professional owned, managed and maintained by institutional companies. They are universally focused on occupying more efficient space.

GlobeSt.com: Are second and third-generation space a good fit for law firms?

McDonald: We have seen that second or third generation space, which is defined as space that was designed for and previously occupied by a legal services firm, do not necessarily provide a good fit for a law firm. The common assumption being that the existing improvements offer a significant level of residual value to the next tenant. This has not been our experience, given the legal services sector's more aggressive, contemporary approach to space design.

We recently analyzed how sixty-one (61) firms, located in the Class-A sector of the Los Angeles Central Business District, are using their office space. The average space utilization metric for 3,996 attorneys is a generous 1,035 square feet per person. This value represents 1.5 times the national target design metric for a number of AM 200 firms, 650 to 700 square feet per fee earner.

The construction costs to modify existing improvements and add fixtures to a suite that was designed to accommodate a previous era's service delivery model have risen to the point where existing improvements are often times scraped to a core & shell condition, and built from scratch in order to achieve the sector's new, leaner design metrics.

GlobeSt.com: Although rents are approaching all-time highs, the Downtown market has a significant supply of office space. Does that give these law firms a tool to negotiate?

McDonald: Law firms definitely have the upper hand in Downtown Los Angeles. There are more than 144 full floors currently available within the Class-A sector of the Los Angeles Central Business District which offers tenants terrific leverage. On the other hand, the market is dominated by three landlords, who collectively control 57 percent of the inventory and 43 percent of all direct available space.

GlobeSt.com: Are L.A. law firms expanding of shrinking their real estate foot prints?

McDonald: The demonstrative trend in the legal sector has been a shrinking footprint. In 2013, 34 percent of all classes of space within the Los Angeles Central Business District was occupied by law firms. Five years later by Q3-2017, that level of occupancy has dropped five percentage points to 29 percent.

GlobeSt.com: What is your outlook for the legal real estate market next year, and what is your advice to tenants currently looking for space?

McDonald: Now is a great time to be a law firm with real estate needs. I'm advising my law firm clients to be very disciplined in developing and executing a real estate strategy that supports an agreed upon business model.

GlobeSt.com: What types of office spaces are law firms gravitating toward today?

GlobeSt.com: Are second and third-generation space a good fit for law firms?

GlobeSt.com: Although rents are approaching all-time highs, the Downtown market has a significant supply of office space. Does that give these law firms a tool to negotiate?

GlobeSt.com: Are L.A. law firms expanding of shrinking their real estate foot prints?

GlobeSt.com: What is your outlook for the legal real estate market next year, and what is your advice to tenants currently looking for space?

Instant Insights /

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