Law Firms’ Leasing Holds Steady: Savills

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Office leasing by law firms “seems to be back on course” across key U.S. markets, with quarterly leasing activity—encompassing leases of 20,000 square feet and more—holding steady for about a year now, according to a third-quarter report from Savills.

The current situation, Savills notes, is in marked contrast to a bad slump in late 2020 and a balky start to 2021.

Third-quarter leasing totaled 1.7 million square feet, just above the 1.6 million square feet seen in the second quarter, the same figure as the quarterly average over the past four years.

The report compares how legal tenant leasing has remained relatively steady versus the tech sector, which took on large blocks of office space only to pause as recession concerns hover over the economy. Savills points out that “Major law firms, which typically sign leases of 10-15 years, don’t generally make their real estate decisions based on short-term economic conditions.”

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In a sign of that more-strategic outlook, the report notes that although legal leasing appears to be returning to more typical activity, where firms are signing leases has seen a substantial change. “While firms are keeping significant footprints in core law firm markets, they are also moving into new cities that previously had little to no Am Law 100 presence,” Savills found.

The pandemic-driven migration of both their clients and their employees has large law firms following them into markets like Miami; Tampa, Fla.; Salt Lake City; Austin, Texas; Houston and Dallas.

Flight to quality

Ten leases of more than 50,000 square feet each were signed in the third quarter, of which five were expansions from the last lease or new office locations, three involved no change to size and two were significant contractions.

New York saw eight third-quarter law firm leases of more than 20,000 square feet and three of the top 10 across the country.

The quarter’s top lease was in Manhattan, where Freshfields Bruckhaus Deringer US LLP took 179,724 square feet at 3 World Trade Center, in a relocation from 601 Lexington Ave. Savills noted that the move will put Freshfields into a building completed in 2018, which is two decades newer than the building the firm is leaving.

The report notes that this is typical of the flight to quality seen in many recent law firm leases nationwide. In the third quarter, in fact, 54.5 percent of leasing (by square footage) consisted of relocations, and of the 16 relocations, 11 were into newer Class A buildings.

“Pre-pandemic, a low unemployment environment already had firms looking to upgrade their office locations and, amidst the current war for talent and a workforce that is favoring hybrid work, the flight to quality has been amplified,” Savills concluded.