Law Firms Continue to Contract Square-Footage in Chicago

CHICAGO—The trend of office contraction and a flight to quality space in the legal industry continues in the City of Chicago. According to the 2019 North American Legal Trends Report from CBRE’s Law Firm Practice Group, recent law firm transactions in the Windy City totaled in excess of 850,000 square feet.

Overall, Chicago recorded 854,255 square feet of law firm transactions from the third quarter of 2019 through the second quarter of 2019, up from 702,971 square feet the year prior.

CBRE states the legal sector was dominated by contractions, with 65.6% of transactions in the 2018-2019 time period falling into this category. The average contraction was 21.8%. The remainder of market transactions were expansions (20.4%), stable (11.9%) and new to market (2.2%). The majority of transactions were relocations at 66.6%.

“There has been a flight to quality in Chicago and law firms are continuing to seek increased efficiency and flexibility within their space,” says Todd Lippman, vice chairman and member of CBRE’s Law Firm Practice Group.

He adds, “The market has seen a surge in new construction in recent years and firms are giving these top-quality sites strong consideration as they look to recruit new talent and retain current employees. Firms that do choose to relocate are building out more efficient space, and many have opted for one-sized offices due to high rents and construction costs, as well as for increased space flexibility.”

Chicago is the fourth-largest market in the nation for both lawyers and legal services, with 26,900 lawyers and 47,600 legal service employees. Lawyer employment expanded by 4.6% in the third quarter 2019 to second quarter 2019 period, above the national average of 3.7% in that time period.

National Trends

Nationwide, the CBRE report finds that law firms are shifting recruitment strategies and expanding outside of traditional gateway cities to find new talent in lower-cost environments, often those with large, growing millennial populations.

Notable Report Findings

• Nearly a quarter of AM 200 Law Firms expanded in at least one location the past year, accounting for more than half of the 2.1 million square feet of law firm expansions in the U.S., up from 1.6 million square feet the year prior.

• Dallas saw the most expansion, with 261,301 square feet of net absorption, followed by Los Angeles (210,580 square feet) and Manhattan (118,869 square feet).

Five of the highest growth markets for legal sector employment (Austin, Denver, Orlando, Houston and Dallas/Ft. Worth) are also among the top 10 markets for millennial population growth nationally.

“Law firms continue to grow in markets that have emerged as strong business environments this cycle, which also happen to provide a lower cost of doing business,” says Jamie Georgas, Global Chair of CBRE’s Law Firm Practice Group. “These Millennial-rich environments offer highly skilled workers and are a strong complement to the usual legal centric markets.”

CBRE states in the report, “Where shared services exist in high-cost markets like Chicago, New York, Washington, D.C., Los Angeles and San Francisco, there could be an opportunity for law firms to explore a ‘lift-and-shift’ or ‘seed-and-grow’ strategy in a lower-cost markets. Strategically maintaining critical client facing attorney roles in major high cost locations, while placing shared services and staff attorney roles in lower cost locations, deserves analysis in cases where a critical mass of support functions exist. Such a strategy can achieve labor and real estate savings, plus significant cost reductions as the firm seeks to maximize revenue.”

The brokerage firm in its report notes that a labor analysis can help law firms determine which markets are suitable and provide insight into the labor cost, labor supply, competitive environment and longevity of markets that are likely to be considered during a site search exercise.