Law Firm Tenants Enjoy Strong Concessions
TIs in gateway markets average 70% higher than across the other 18 markets in the survey.
Concessions are increasing for law firm tenants in markets across the US, with averages for new 10-year leases on Class A space ticking up to $84.24 per rentable square foot in tenant improvement allowances and 9.1 months of rent abatement.
According to Colliers’ latest survey of the law firm sector, concessions are highest in the Northeast at $109 psf in tenant improvements with 12 months of free rent. Manhattan and Washington DC lead the 23 markets surveyed by Colliers, while the Midwest has the lowest concessions at an average of $62 psf with eight months of rent abatement.
The firm also noted a “wide gap” between concessions on offer in gateway markets, which average $123 per square foot with 12 months of free rent, and in large and medium-sized cities. Specifically, TIs in gateway markets average 70% higher than across the other 18 markets in the Colliers survey.
In addition, seven markets have average TIs of $100 per square foot or more, according to the report. But “even so, this may not be sufficient to cover tenants’ fit-out costs which have spiraled due to a sharp uptick in the cost of materials coupled with a shortage of skilled labor,” the report notes. “Supply-chain issues have also caused fit-out periods to lengthen. This has a double impact on tenants. The need to contribute to fit-out costs can necessitate signing a longer lease to amortize.”
Interestingly, law firms still seem willing to commit to longer-term leases, going against the grain of the overall office market. The share of law firms willing to sign leases of 10 or more years has ticked up to 83% from 80% over the past year.
Occupancy is also set to increase and currently stands at 43%, according to Kastle Systems. And half of the law firms surveyed are using 26% to 50% of their space, while 28% are at 51% to 75% occupancy. Colliers expects the latter share to tick up to 56% by the end of this year.
But that’s not to say firms won’t be rethinking their overall footprints. Just 23% of professional staff are expected to be back in the office five days per week post COVID, with the remaining 77% of firms on track to embrace some sort of remote schedule, most likely one to two days per week, according to Colliers.