Brooke Armstrong Armstrongsays year end is the time for recruiting lateral hires to start anew office.

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DALLAS—As a critical point in the cycle approaches, what shouldlaw firms consider when planning real estate strategies? Whetherfocused on a particular legal market or evaluating strategies across a portfolio, a recent JLL legalreport focuses on three principal questions for thisdiscussion.

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Are law firms facing increased competition from other sectors asDallas market composition shifts?

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Law firms are the major driver downtown, with limitedcompetition from other sectors. As a result, while suburban Dallashas recorded vacancies at roughly stable rates, at 19% since 2015,downtown has increased from 20% to 22.7%. Recent deliveries stilloffer firms new space and re-let options, especially in theCBD.

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Is the market approaching an inflection point in the cycle? Ifso, when?

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Despite solid class-A demand, vacancy is up more than 2percentage points since 2015. Space efficiency, especially in thenewest high-rent buildings, has begun to mute demand and slowannual rent growth, which is now 3.5%, down from 6% to 8% in 2016,suggesting the market is nearing a transition point in the next 24months.

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What is the near-term view on lease economics based on changingdynamics and a possible correction?

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Recently introduced triple-net rents are standard in top-tierbuildings, pushing expense and tax increases back to tenants.Uptown class-A rents, up 36% since 2012, may flatten, but no majordownward shift is anticipated. Concessions, on the other hand,which have jumped 67% since 2015, have stabilized, but stand atrecord highs for Dallas.

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“We're continuing to see the trend of global firms that do nothave a presence in Dallas entering our market. The season is uponus for recruiting lateral hires at year end to start a new office,”Brooke Armstrong, executive vice president of JLL, tellsGlobeSt.com. “From a real estate perspective, there seems to be twostrategies: occupy temporary space and determine the long-termoutlook of the office before acting on something more permanent andthe 'if we build it, they will come' strategy of identifying apermanent solution immediately.”

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Armstrong says regional and local firms continue to look forvalue opportunities by hopscotching down a price tier. Some uptownfirms are looking to the arts district for savings while some artsdistrict firms are looking to the core for savings.

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Here's what JLL is tracking on a national basis: With 62.3million square feet of construction in the US pipeline, 31.9% ofwhich remains available, a combination of slower demand andincreased supply will benefit firms. Concessions have surged by 46%in top US legal markets as landlords compete for a smaller group oftenants. JLL is forecasting that concessions remain elevated, rentsare stabilized and even declining in the most supply-heavy marketsthrough the end of the cycle. Since 2014, co-working space has grown by 17.7 million square feet acrossthe US and is just another lever law firms can utilize to mitigatelong-term real estate cost pressure risk.

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Lisa Brown

Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.