Law Firm Perspective - JLL

Law Firm Perspective United States . 2013

Winds of change gusting through the U.S. law firm office landscape In recent months, positive economic headwinds have picked up force across the U.S., fueling increased optimism for 2014 and 2015 prospects. However, for the domestic legal sector, the outlook for most firms remains muted, driven by fairly stagnant conditions across most practice areas, which, when combined with fee compression, creates a slow-growth environment. As challenges for law firms persist across the business environment, they have also arisen across the real estate market. After nearly seven years of enhanced leverage, firms encounter markets with shrinking quality options, resulting in landlord confidence jumping, fueling heightened rents and diminished incentives, a trend forecasted to continue into 2014 and 2015. Market leverage will blow farther away from firms over the next two years, yet real estate opportunities will remain. An increasingly supplyconstrained market will lead to additional new developments and second-generational backfill options coming online over the next 24 months. In addition to the increased space options, firms that embrace modern layouts and enhanced efficiency measures have the opportunity to shrink real estate occupancy by more than 15.0 percent, providing the potential to cap cost structures in a still-challenging business climate.

...

Mid-sized and large block availabilities of Trophy and Class A space have dwindled considerably across U.S. cities due to the flight-to-quality coupled with historic lows in development activity. As a result, nearly 60.0 percent of markets we track have less than three blocks of vacant or available space greater than 100,000 square feet and approximately 80.0 percent of markets we track have less than three blocks of vacant or available space greater than 200,000 square feet. With limited new construction not delivering in most markets until the 2015/ 2016 time frame, pricing will continue to escalate, likely at higher levels than the past 12 months, and provide challenges to law firms.

3 Law Firm Perspective • United States • 2013

Jones Lang LaSalle

Jones Lang LaSalle Law Firm Group

In the evolving economic environment we encounter, decision makers tasked with management responsibility for global, national or regional law firms increasingly find themselves in the real estate business as a matter of sound firm management. The amount of time required to deal with portfolios in multiple offices in different cities and/or countries has increased and has become ever more complex with critical events arising on a regular basis. These events are nearly always contextual; accordingly, they require a deep understanding of local market conditions for proper evaluation and action. With over 1,000 offices in 70 countries worldwide, the Jones Lang LaSalle Law Firm Group has the scope and platform to proactively anticipate those issues and events and advise you on how to navigate the path forward regardless of the market environment or local geography your firm is embedded in. The Jones Lang LaSalle Law Firm Group concentrates on developing occupancy strategies, executing transactions and providing related

occupancy services to our law firm clients, locally, nationally and globally. The team deeply values the importance of providing timely, accurate and relevant market information and research to our law firm clients that enable them to efficiently manage their real estate in such a way as to generate maximum productivity while mitigating cost. Accordingly, we are proud to present the eighth annual issue of our market perspective. This annual report provides information on 40+ major markets across the United States. Additionally, those clients with broader geographic reach may find our global law firm perspective of interest as well. That report details market trends for law firms around the globe, with the goal of assisting you and your firm in navigating the increasingly changing global marketplace. We trust you will find this information useful and solicit your feedback if there are areas you would like to see expanded in the future.


Jones Lang LaSalle

In this report

Jones Lang LaSalle Law Firm Group

3

Orange County

In this report

4

Orlando 33

United States Law Firm Perspective executive summary

5

Palo Alto

Availability, leverage and pricing for law firms

7

Philadelphia 35

Law firm composition, activity and space utilization

8

Phoenix

36

Law firm composition, activity and space utilization 9

Pittsburgh

37

Atlanta 10

Portland

38

Austin 11

Raleigh-Durham 39

Baltimore 12

Richmond 40

Boston 13

Sacramento 41

Charlotte 14

San Diego

42

Chicago 15

San Francisco

43

Cincinnati 16

Seattle-Bellevue 44

Cleveland

17

Stamford, CT

45

Columbus

18

St. Louis

46

Dallas 19

Tampa Bay

47

Denver 20

Washington, DC

48

Detroit 21

White Plains, NY

49

Fort Lauderdale

Wilmington, DE

50

Houston 23

Appendix

51

Indianapolis 24

Law firm and overall office-using employment statistics

52

Los Angeles

25

2013 law firm lease transactions > 50,000 s.f

53

Miami 26

Active law firm active requirements > 50,000 s.f.

54

Milwaukee

27

Law firms’ emphasis on efficiency

55

Minneapolis

28

Law firm concentration

56

New Jersey

29

Class A asking rents, tenant improvement allowances and free rent

57

New York

30

Market outlook favorability for law firm-concentrated submarkets

58

Oakland-East Bay

31

22

32

34


Jones Lang LaSalle

Table of contents

United States Law Firm Perspective executive summary In recent months, positive economic headwinds have picked up force across the U.S., fueling increased optimism for 2014 and 2015 prospects. •

Corporate profits remain at all-time highs with many companies sitting on piles of cash to re-invest back into the economy.

•

The white-collar segment of the U.S. economy is moving at optimal speed not just with respect to profitability and revenue patterns, but employment levels are nearing full employment with white-collar unemployment levels below 4.0 percent, half the overall rate of the U.S.

•

Along with a deleveraged private sector, the U.S. banking industry is well-capitalized and has shifted from villain to model citizen across the global landscape.

•

A steadily improving housing sector will be challenged with higher interest rates ahead, but pricing and volume have consistently ticked up from market lows.

•

The tech and energy sectors remain the darlings of the current economic cycle with growth rates double or triple what we are experiencing more broadly across all sectors in the economy.

These improved economic conditions have driven renewed business and consumer confidence and thus have spurred increased decision making, greater investment and overall growth in the broader economy. Forecasts for GDP growth over the next several years are projected to escalate from 2.0 percent in 2013 to 3.0 percent in 2014 to close to 3.5 percent in 2015. At the same time, U.S. employment levels, which have been depressed for close to seven years, are projected to rise above pre-recession levels over the next 14 months. However, even though broader progress has shifted to most segments of the economy, the outlook for most law firms has remained more muted driven by fairly stagnant conditions across most practice areas, which, when combined with fee compression, creates a slow-growth environment. Revenue levels of the AmLaw 100 grew by just 2.8 percent in 2012 after growth rates of 4.7 percent and 5.9 percent in 2010 and 2011, respectively. The recent revenue gains appear even more moderate when comparing them to the 11.0 percent annual growth in revenues from 2001 to 2007 for AmLaw 100 firms. As revenue growth slowed, so did profits per partner with just 66 of the AmLaw 100 firms demonstrating increased profitability. This shift in profitability has created an environment of haves and have-nots. Globally-focused firms with diverse practice groups have fared best and have been able to reinvest into the business, attracting specialty practice groups and

boutique shops that further enhance the firm’s offerings and geographic scope. In the U.S., particularly, as firms have remained somewhat stable in the gateway markets of New York, Washington, Chicago and Los Angeles, they have increasingly focused their growth in cities like Houston, Denver, Palo Alto, San Francisco and Miami due largely to opportunities in energy, technology and from Latin America. As challenges for law firms persist across the business environment, they have also arisen across most geographies of late in the real estate market. After nearly seven years of enhanced leverage for tenants, firms encounter a more challenging market ahead in 2014 and 2015. A flight to quality, particularly in cities, has diminished the amount of Trophy and Class A options, spaces that most international and domestic firms usually flock to. In that segment of the market, blocks of spaces, of all sizes, have shrunk from 12 months ago. •

Available blocks > 200,000 s.f. have shrunk by 16.2 percent

•

Available blocks 100,000 s.f. to 199,999 s.f. have shrunk by 1.7 percent

•


•


This decrease in available space has pushed rents up across the board nationally by nearly 3.0 percent year-over-year. However, when looking at Class A CBD rents, the part of the market law firms focus on, rents have grown by 6.0 percent over the past 12 months and are 14.0 percent above the market low rental rates of late 2009. At the same time that rents have increased, concessions from landlords have continued to dwindle too. Rent abatement levels across the U.S. are down more than 18.0 percent from their highs in 2009, while tenant improvement allowances still remain at near all-time highs, but are down 9.1 percent from 2010 highs. As space options have diminished, causing rents to increase and concessions to inch down, leverage has shifted away from law firms in many markets JLL tracks. •

In 2012, 64 percent of markets JLL tracks were considered law firm-favorable

•

In 2013, 49 percent of markets JLL tracks are considered law firm-favorable

•

In 2014, 29 percent of markets JLL tracks will be considered law firm-favorable


Jones Lang LaSalle

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•

In 2015, 7 percent of markets JLL tracks will be considered law firm-favorable

As this leverage continues to slip away, we can expect rents to increase at a rate higher than they increased in 2012 and 2013. We have already seen this occur in the most supply-constrained and demandheavy markets of late including San Francisco, Seattle, Pittsburgh, Minneapolis and Denver. While market leverage will move farther away from firms over the next two years in many markets, real estate opportunities will remain. Ironically enough, the markets where law firms have the most significant occupancy are likely the markets where firms will continue to extend leverage over the next 12 to 24 months: New York, Washington, DC, Chicago and Los Angeles. Based on stagnant demand from the financial services sector in New York and the government sector in Washington, the number one and two law firm markets will likely see leverage stay with law firms until the end of 2014, even early 2015. The same can be said of the next largest market segments: Chicago and Los Angeles. Late-blossoming and slower-moving recoveries in both of those geographies will hand firms enhanced leverage in negotiating favorable deal terms over the next two years. While top-quality spaces are becoming more limited in all of those markets, numerous commodity A options still exist and more will be created through some law firms moving to new developments: •

In New York, Morrison Foerster’s space is on the market at 1290 Avenue of the Americas, in addition to space being vacated elsewhere in the building by Microsoft. Former Dewey space at 1301 Avenue of the Americas is also available, providing ample opportunity for firms interested in the Sixth Avenue corridor.

•

In Washington, DC, both Arnold & Porter’s 400,000-square-foot space at 555 12th Street, NW and Covington’s space at 1201 Pennsylvania Avenue, NW come available over the next 24 months.

•

In Chicago, McDermott’s space at 227 West Monroe (more than 400,000 square feet) will be returning to the market in 2016 / 2017 as the firm relocates to River Point.

•

In Boston, Goodwin Procter will be vacating 415,000 square feet at 53 State Street over the next three years as they relocate to the Seaport District.

Another opportunity for law firms revolves around space utilization. Firms that embrace modern layouts and enhanced efficiency measures have the opportunity to shrink real estate occupancy by more than 15.0 percent, providing an opportunity to cap cost structures in a stillchallenging business climate. In today’s real estate market, evolving

demographics are encouraging greater collaboration among colleagues and new patterns for how and where we work. This shift has not just affected law firms, but banks, consulting firms, technology companies and really any office tenant across both the United States and the globe. Law firms, in many ways, have been at the forefront of cutting occupancy levels most aggressively in the past two to three years. •

The digitalization of the workplace has radically reduced the need for law libraries, filing on practice floors and in many cases, additional filing on the concourse or basement levels of office buildings.

•

Similar to consulting and accounting firms, as well as banks, the support ratio of revenue generator to administrative professional has increased, moving from an average of 3:1 to as high as 8:1 in some cases, eliminating the need for more interior workstations.

•

While only a few firms have migrated to the one-sized office for attorneys, many firms are shrinking the sizes of offices, as well as shrinking the amount of square feet per attorney as part of an overall space reduction trend. As a result, in many primary cities, firms relocating are migrating from upward of 900 square feet per attorney to, in the most efficient cases (brand-new developments) as low as 550 square feet per attorney, averaging today about 650 to 750 square feet per attorney.

•

As most firms have not yet culturally migrated to moving associates to the interior of the floorplate, this has affected the type of building law firms desire to move into. In 2013, we continued to see a trend develop of law firms migrating to smaller, or at least shallower, floorplate buildings. Overall, when law firms moved from one building to another building in 2013, the new building they are relocating to possesses a floorplate that is 7.1 percent smaller than their prior floorplate.

As a result of firms becoming more efficient, additional opportunity has been created for firms as overall more space is coming back into the market. In 2013, on a national basis, 56.5 percent of lease transactions greater than 100,000 square feet involved rightsizing and 41.7 percent of lease transactions greater than 50,000 square feet involved rightsizing. In a poll JLL conducted with our on-the-ground experts, 41.3 percent of markets responded that mid to large-sized firms were consistently rightsizing, while only 10.9 percent of markets responded that firms were consistently growing (see the above on technology and energy demand markets seeing growth).


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Availability, leverage and pricing for law firms Availability is shrinking across markets for all-sized law firms Over the past 12 months... 200,000 s.f.+ options down:

23.5%

50,000-99,999 s.f. options down:

14.1%

100,000 - 199,999 s.f. options down:

19.3%

25,000-49,999 s.f. options down:

25.3%

In a JLL research poll: And rents are moving UP

2.1%

41

across the law firm-concentrated markets we track over the past 12 months

71.7% of markets expect rents for

law firms to increase over the next 12 months

37.0% of markets expect concessions

to continue to decline over the next 12 months

34.9% of markets said that law firms

> 50,000 s.f. are out of existing options and forced to renew in place or look at new construction 12-month increase in rents across law-firm concentrated submarkets

12.6%

Dallas

12.2%

San Francisco

5.6%

Pittsburgh

5.3%

Seattle

Thus, market leverage will move away from law firms increasingly ahead Tenant-favorable markets:

49% 29% 7%

2013 2014 2015


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Law firm composition, activity and space utilization Number of law firms occupying more than 50,000 s.f. and

(number of AmLaw 100 firms with presence in that market)

125 (96) Washington, DC 91 (95) Chicago 54 (38) Los Angeles 29 (69) Boston 28 (33) Houston 27 (45) Dallas 27 (20) Philadelphia 23 (96) New York

Shrinking According to a recent survey of 41.3% JLL researchers and brokers across markets, with respect to occupancy across markets, law firms are generally:

Stable

Growing

47.8%

10.9%

The shrinking office...

71.7%

of markets polled said law firms are extremely focused on utilizing space more efficiently

15.2%

of space was given back when firms moved offices in 2013

Analyzing 2013 lease transactions:

56.5%

>100,000 s.f.

41.7%

>50,000 s.f.

26.7%

all transactions

involved rightsizing


Jones Lang LaSalle

Table of contents

Law firm composition, activity and space utilization Shedding law libraries, outsourcing filing and increasing support-staff ratios have pushed law firms to more efficient and shallower floorplates.

Nationally: law firms moved to

7.1%

smaller floorplates average floorplate

24,554 s.f.

firms are shrinking into

Overall, only 28.3% percent of markets said that law firm demand and leasing velocity would pick up over the next 12 months

However, growth across the sector remains, as 7.1% of markets are reporting new law firms entering their market to establish offices. Minneapolis Key spots law firms are looking to grow: Palo Alto

Houston

Miami


Jones Lang LaSalle

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Atlanta Locational preference: Atlanta’s largest and most venerable law firms are located in the Central Business District along

the Peachtree corridor in A-plus tower space. The Midtown submarket houses the largest concentration of legal tenants, although some firms remain Downtown for convenient access to the city’s courthouses and government agencies. To the north, Buckhead’s financial district has also attracted some of Atlanta’s most visible firms; however, few big blocks of contiguous premium space remain in Buckhead that can accommodate significant requirements, whereas Midtown still has plenty of options.

11.2%

2.0%

Percent of law firms comprising active tenants in the market

Percent of Class A market occupied by law firms

Law firm activity has been relatively quiet for the last 24 months after several years on the immediate heels of the recession, in which some of the city’s biggest firms committed to relocating or renewing existing space. Currently, there are no big firms in the market on par with what was seen in 2010 and 2011. Activity in the traditional law firm submarkets has been muted, if only because most of the biggest firms have already made their real estate plays. Two years ago, large firms were giving back significant amounts of space, a trend which has since stabilized since most of the activity has stemmed from mid-sized and small firms.

21

5

Number of AmLaw 100 firms with offices locally

Number of law firms occupying greater than 50,000 s.f.

2013 LAW FIRM COMPLETED TRANSACTIONS Bryan Cave 1201 West Peachtree Street 152,383 s.f. Renewal Hunton & Williams 600 Peachtree Street 45,707 s.f. Renewal

For those who are in the market for space, conditions are starting to tighten. Firms seeking premium high-floor Trophy space in Buckhead will find their options extremely limited due to lack of big block space. Midtown offers more flexibility and, additionally, has proven to be the go-to submarket for the greatest concentration of law firms over the last 15 years.

Johnson & Freedman 1587 Northeast Expressway 50,000 s.f. Renewal

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.)

PRICING AND INCENTIVE AVERAGES

$29.80

Class A annual escalation

13.1%

3.6%

26.0%

Premium for Trophy space*

Discount for negotiated rent*

Discount for sublease space*

*rent difference from Class A average

$50.00/$25.00 TI allowance ($ p.s.f.)**

25,000

Foltz Martin

20,000

OUTLOOK

3.6%

Class A asking rent ($ p.s.f)

Fish & Richardson

12/3

Free rent (months)**

**averages on 10-year new/renewal transactions

Challenges for law firms

• Particularly in Buckhead, there is limited availability of large contiguous blocks of premium space in the Trophy towers. • Pricing has begun to tighten in both Buckhead and Midtown and landlords have tightened their fists on concessions.

Opportunities for law firms

• Dissolutions and sublease dispositions have created additional space options for tenants. • Competition in the marketplace is limited by a finite number of near-term lease expirations.

2013

2014

2015

2016

2017

Tenant-favorable market Neutral market Landlord-favorable market


Jones Lang LaSalle

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Austin Locational preference: The majority of Austin firms are located in the CBD, with proximity to the Capitol being a huge

draw. Due to high rents in downtown Austin, some law firms like Vinson & Elkins have opted to lease space in high-quality projects in Southwest Austin or along the South MoPac corridor. However, with new construction finally commencing downtown, several firms are locking in deals at new buildings there, such as Scott, Douglass & McConnico and Dubois Bryant at Colorado Tower.

32.1%

3.5%



Though law firms traditionally dominated office leasing in the CBD, an influx of downtown office demand from high-tech tenants has left law firms with fewer options for high-quality office space in the city. Plummeting supply in Trophy and Class A projects downtown led to a race for office space in 2011 and 2012, especially for law firms. Thus, the majority of the significantly sized law firms in town have already locked down space for the next 10 years. The percent of law firms comprising the overall active tenants in the Austin market has gone from 32.0 percent in 2012 to just 3.5 percent in 2013 and the majority of that 3.5 percent is comprised of groups that will likely renew their existing space.

8


$42.41

2013 LAW FIRM COMPLETED TRANSACTIONS Hohmann Taube & Summers 100 Congress 16,050 s.f. Renewal K&L Gates 2801 Via Fortuna 12,000 s.f. Relocation


7.9%

5.0%

12.1%





$20.00/$10.00 TI allowance ($ p.s.f.)**

Metcalfe Wolff Stuart & Williams 221 W 6th Street 7,965 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Jackson Walker

60,000

Andrews Kurth

30,000

Germer

30,000

OUTLOOK

$0.75




New construction downtown has attracted several firms away from their existing space with Scott, Douglass & McConnico and Dubois Bryant both signing deals at Colorado Tower. Apart from that, activity in the law firm realm is pretty stagnant with only a few smaller deals being signed so far in 2013. With new construction finally moving down the development pipeline, firms outgrowing their space and/or looking for some rental relief can consider moving into either Colorado Tower or IBC Bank Plaza, both Class A buildings with below-market rental rates and 2014 projected completion dates.

20

1/1




• Currently a low vacancy and quickly increasing rent environment exists downtown. • Due to tech growth downtown, firms will find it increasingly difficult to secure ample space in a traditionally law firm-dominated submarket.


• The Colorado Tower is set to complete in 2014, which will bring much-needed supply to the market. The building currently boasts below-market rents and decent concessions. • The South MoPac corridor could be a viable relocation option for law firms looking for some rent relief; however, few large blocks of contiguous space remain even in this area.

2013

2014

2015

2016

2017



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Baltimore Locational preference: The majority of law firms in Baltimore City are located along Pratt and Charles Street in the CBD. A handful of firms have relocated to Harbor East, but most firms have remained closer to the traditional downtown.

12.5%

4.4%



Law firm activity remained notably quiet in 2013 following major reshuffling within the market in 2010 and 2011. A flight-to-quality by several major firms during the economic downturn resulted in relatively tight market conditions for newer construction along Pratt Street and the Inner Harbor, but left major blocks of vacancy along the Baltimore Street Corridor. Smaller law firms currently located on Charles Street have taken advantage of the soft conditions on Baltimore Street, where landlords have been aggressively luring tenants with generous concession packages. For law firms seeking more than 20,000 square feet on Pratt Street, the trend has left few existing options, but Exelon’s planned relocation to Harbor Point will open large blocks in the 2015/2016 time frame when the next wave of large law firm expirations occurs. While Harbor East and Fells Point have attracted numerous financial and architecture firms from the CBD, the only significant law firm relocation to this area has been Hogan & Lovells as the majority of firms have elected to remain in the traditional downtown market.

8

6



2013 LAW FIRM COMPLETED TRANSACTIONS Ferguson Schetelich & Ballew 100 S Charles Street 11,024 s.f. Renewal Shawe & Rosenthal 1 South Street 9,012 s.f. Relocation Blades & Rosenfeld 20 S Charles Street 8,800 s.f. Renewal



$23.70


35.0%

5.0%

20.0%





$55.00/$25.00 TI allowance ($ p.s.f.)**

90,000

Law Offices of Peter T. Nicholl

15,000

OUTLOOK

3.0%


Whiteford Taylor & Preston

12/4




• There are limited available large blocks of desirable space. • Lack of new construction in the CBD and residential conversions of obsolete space will limit office supply. • Rental rates for Class A / Trophy space on Pratt Street have seen limited growth.


• Landlords continue to offer generous concession packages, especially on Baltimore Street. • Few law firms are currently in the market actively seeking space. • For firms not requiring Class A space directly on the Inner Harbor, many options remain.

2013

2014

2015

2016

2017



Jones Lang LaSalle

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Boston Locational preference: The city’s premier law firms occupy space in the most prestigious office towers in Boston’s Back Bay, Financial and Seaport Districts.

17.6%

8.4%



Law practices in Boston have begun to turn the corner as evidenced by the positive employment growth over the past year. The city of Boston is experiencing growth in the intellectual property law practice, spurred by the area’s rise in the high-tech and life sciences fields. As a result, the Seaport District, dubbed the Innovation District of Boston and home to a growing number of high-tech start-ups and pharmaceutical giant Vertex, has attracted law firms from within and outside Boston looking to maximize proximity to potential clients. The area also presents build-tosuit opportunities as restacking current spaces has proven costly and inefficient. For instance, Finnegan announced its move to the Seaport in 2012 following Vertex’s move; Concord, MA-based Hamilton Brook will open a Seaport branch looking to compete in the IP space; and Goodwin Procter signed a build-to-suit lease to occupy 360,000 square feet at Fan Pier, downsizing from 415,000 square feet in Financial District. Due to the rightsizing trend, however, Boston law firms are not increasing their footprints in the same proportion to the numbers of their employees as they used to. Advanced mobile technology, cost cutting measures and open-space work environment are examples of factors leading to fewer square feet per employee across law firms. Some have eliminated the needs for support roles in high-cost spaces altogether, choosing to establish a centralized support offices elsewhere or outsource to third-party business services companies.


$50.67


20.0%

10.0%

30.0%





$50.00/$30.00 TI allowance ($ p.s.f.)**

33



2013 LAW FIRM COMPLETED TRANSACTIONS Goodwin Procter 2 Harbor Shore Drive 360,000 s.f. Relocation Skadden 500 Boylston Street 48,000 s.f. Relocation Todd & Weld One Federal Street 25,000 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Choate

250,000

Pierce Atwood

30,000

Sherin & Lodgen

30,000

OUTLOOK

$1.00


28

4/2




• Rising rents prompt large users to seek alternative spaces outside the established submarkets of the Back Bay and the Financial District. • Average-sized users compete with high-tech firms for spaces within the 10,000 to 30,000-square-foot range. • Concession packages are becoming less attractive as free rent and tenant improvement allowances are decreasing.


• Options exist for build-to-suit opportunity and brand new spaces throughout the Seaport District and downtown. • Low and mid-rise options present cost-reducing solutions to small, growing law firms. • Lease expirations from major corporate firms provide options on large blocks over the next two years.

2013

2014

2015

2016

2017



Jones Lang LaSalle

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Charlotte Locational preference: The majority of law firms are located in the CBD and Southpark submarkets of Charlotte. Firms gravitate to buildings with views of the Charlotte skyline and access to addresses on Trade and Tryon in the heart of the city’s business district.

10.9% 10.0%



Rightsizing continued to be the dominant trend in law firm activity in the Charlotte market. The majority of relocations involved a reduction in footprint, with a smaller average square footage per attorney in addition to pushing their libraries and storage to off-site facilities, a trend not as expected in Charlotte based on lower basis rents than cities like New York and Washington where this has been common. Despite a diminishing footprint, law firms continue to demand space in close proximity to Charlotte’s most prominent location: Trade and Tryon.

10

10



2013 LAW FIRM COMPLETED TRANSACTIONS Horack Talley 227 W Trade Street 27,000 s.f. Relocation Smith Moore Leatherwood 101 N Tryon Street 16,000 s.f. Relocation

Relocation activity has been concentrated within Class A buildings, which has continued to result in negative net absorption due to rightsizing, particularly in the Skyline (what JLL categorizes as the city’s most prominent buildings) of Charlotte’s CBD. Despite the downsizing of law firms, Charlotte’s Skyline has maintained a low vacancy rate due to new users in the CBD. With the relocation of Charlotte School of Law and stability of the major financial groups, there is a limited supply of Trophy and Class A space. Changing market conditions could force users to address their real estate options two to three years before their lease expiration.

Kilpatrick Stockton 214 N Tryon Street 11,513 s.f. Renewal

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Winstead Law Firm

25,000

Oliff & Berridge


$24.75

OUTLOOK

4.0%



30.0%

25.0%

3.0%





$35.00/$15.00 TI allowance ($ p.s.f.)**

8,000

7/5




• Large blocks of space among well-located, recently delivered Trophy buildings continue to decline. • Restrained new development will result in very few additional options for tenants in the near term. • With an undersupplied market, rents will continue to increase while concession packages decrease from their highs.


• Dissolutions and sublease dispositions have created additional space options for tenants, particularly in lower elevator bank space. • Banks continue to give back large amounts of space, creating space options in second-generation buildings. • Competition among tenants has diminished due to a lack of near-term lease expirations.

2013

2014

2015

2016

2017



Jones Lang LaSalle

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Chicago Locational preference: Most of Chicago’s largest law firm tenants are located in the West Loop and Central Loop

submarkets and a few are in the River North. The Central Loop is also home to the largest share of the market’s small and medium-sized firms. The East Loop is still a viable option for firms looking for space at competitive rates. There are an abundance of large blocks available with views of Grant Park or Lake Michigan.

17.6% 13.8%



For the first time since 2009, a new office tower is under construction in downtown Chicago and two local law firms have already announced plans to relocate to the prime Class A tower. McDermott Will has signed a lease for 225,000 square feet at the new West Loop development, called River Point.

54

38



2013 LAW FIRM COMPLETED TRANSACTIONS McDermott 444 W Lake Street 225,000 s.f. Relocation

With the market for high-end, high-rise Trophy space tightening, firms seeking such space are seeing fewer landlord concessions, while others in the market for standard Class A and B space still have leverage. Once River Point is delivered, though, the market for Trophy blocks is expected to loosen slightly, particularly if a second new building commences.

Dentons 233 S Wacker Drive 204,705 s.f. Relocation (in building)

As in many markets across the U.S., Chicago law firms are increasingly cautious and efficient with their space by shifting to single-sized offices, adding interior offices and reducing their footprint by restructuring their leases or subleasing a portion of their current space. Of the top 25 Chicago law firms, 15 have either downsized or sublet space in the past few years. A recent example of this is the 55,000-squarefoot sublease of Locke Lord’s space at 111 S Wacker Drive by Harris Associates.

Lewis Brisbois 550 W Adams Street 54,782 s.f. Renewal w/ expansion



$36.41


21.4%

5.0%

35.5%





$57.00/$28.00 TI allowance ($ p.s.f.)**

200,000

Holland & Knight

100,000

Freeborn & Peters

90,000

OUTLOOK

2.5%


Seyfarth Shaw

9/5




• The market for high-end, high-rise Trophy space is still tight so firms are facing more landlord favorable conditions. • As the number of large-block spaces decline, firms in need of 100,000 square feet or more have fewer options.


• Smaller and emerging firms have more opportunities for good deals. • Cost-saving solutions that firms are making could allow for more future growth, which would drive greater real estate needs in the future.

2013

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Cincinnati Locational preference: The vast majority of Cincinnati law firms can be found within the CBD submarket, offering firms

easy access to corporate headquarters and courthouses and the highest concentration of Trophy and Class A space. With the current development of the Kenwood submarket and the proposed development of the Mason/Montgomery submarket, law firms are eager to take advantage of this attractive space.

13.9% 10.0%



Cincinnati law firm activity began to stabilize following the delivery of Great American Tower in 2011 and subsequent flight to the building’s quality. Frost Brown Todd, Vorys and Redigs were among the law firms relocating last year. Still, the majority of law firms this year elected to renew at current locations due to the dwindling availability of large blocks of Class A space.

8


$23.21

2013 LAW FIRM COMPLETED TRANSACTIONS KMK 1 E Fourth Street 90,000 s.f. Renewal


15.0%

20.0%

10.0%





$40.00/$20.00 TI allowance ($ p.s.f.)**

Jackson Lewis 201 E Fifth Street 10,000 s.f. Renewal w/ expansion Calfee 255 E Fifth Street 9,000 s.f. New deal to the market

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Bricker & Eckler

17,000

Peck Shaffer William

16,000

Dressman

12,000

OUTLOOK

2.0%




KMK, one of Cincinnati’s largest law firms, recently renewed 90,000 square feet in the One East Fourth Street Tower, but had been browsing before opting to stay at its current location. Similarly, Jackson Lewis renewed and expanded their downtown location at the PNC Center as it plans to add to its team. One last example is Javitch, Block & Rathbone staying put in 7,000 square feet at the Gwynne Building. Although lease renewals comprised the bulk of Cincinnati law firm activity, some expanding firms opened new locations or relocated out of the CBD. Cleveland-based Calfee expanded their statewide presence with the opening of a 9,000-square-foot office in Cincinnati’s First Financial Center. Outside of the CBD, Millikin & Fitton took advantage of continued development in the Butler submarket by moving into new construction of 9,000-square-feet at 9032 Union Centre Boulevard.

2

6/4




• Trophy large blocks of space are dwindling. • With only one delivery downtown in recent history, first generation space is limited. • With market conditions tightening, rents are expected to increase over the next 12 to 24 months.


• Planned office space at the Banks will provide additional Trophy space in the CBD. • While starting to increase, rents currently stand at depressed levels, providing tenants an opportune time to act on real estate decisions.

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Cleveland Locational preference: The majority of Cleveland’s law firms are located in the CBD, within the Financial and Public

Square submarkets. These submarkets offer the highest concentration of Trophy and Class A assets with convenient access to corporate headquarters, as well as city, county and federal courthouses.

27.7% 20.0%



Law firm activity has remained elevated through 2013, following an eventful 2012 in which Jones Day renewed their headquarters’ space of 290,000 square feet at North Point and Calfee relocated to a redeveloped 115,000-square-foot historic building at 1405 East Sixth Street. While the majority of firms are located downtown, some have set up shop in the suburban submarkets, including Reimer, Arnovitz, Chernek & Jeffery, which recently relocated its 150-employee staff to a one-time fitness center in the southeast submarket, increasing its footprint by nearly 30.0 percent to 46,500 square feet. Other notable leases in 2013 include Buckley King’s renewal of 28,000 square feet at the Fifth Third Center and Porter Wright’s lease of 25,000 square feet at the new Trophy Ernst & Young Tower, who will be joining Tucker Ellis in the tower. The Ernst & Young Tower was the first multi-tenant office building to be constructed in Cleveland’s CBD in nearly 20 years. The project received a great deal of attention, especially from law firms and opened nearly 90.0 percent leased. With such leasing success, talk has begun for another tower to be added to Cleveland’s skyline. When such a project is officially announced, we expect it to garner a similar level of interest from law firms looking to upgrade space.


$22.32


18.7%

15.0%

19.4%





$50.00/$25.00 TI allowance ($ p.s.f.)**

6



2013 LAW FIRM COMPLETED TRANSACTIONS Reimer Arnovitz Chernek & Jeffrey 30455 Solon Road 46,500 s.f. Relocation Buckley King 600 Superior Avenue E 28,000 s.f. Renewal Porter Wright 950 Main Street 25,000 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Baker Hostetler

150,000

Zashin & Rich

20,000

Bricker & Eckler

12,000

OUTLOOK

2.5%


13

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• Limited large blocks of space are currently available in Trophy assets. • Economic conditions have stalled growth plans for law firms.


• Recent developments have added first generation space to the CBD, the first time in 20 years. • Compressed rates and increased concessions are available in Class B assets. • The continued exploration of the Marcellus Shale will offer increased revenue opportunites for intellectual property and other related sectors.

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Columbus Locational preference: As the state capital, Columbus’ law firms are mainly located in the CBD’s Capital Square and

Arena District submarkets, both offering the highest concentration of Trophy and Class A office properties with quick access to courthouses, corporate headquarters and the state government.

5.5%

10.0%



Columbus law firm activity has been lively over the past 12 months, following a variety of scenarios that have led to an increased demand for office space. Atlantabased Fisher Phillips moved into a 6,000-square-foot space at 250 West Street with expressed plans for continued growth. Isaac Wiles signed a lease of 42,000 square feet at Two Miranova Place, following the merging of firms Isaac Brant Ledman & Teetor LLP and Wiles Boyle Burkholder & Bringardner. Meanwhile, Zaino Hall & Farrin opened its doors on 12,000 square feet in the Huntington Center on 41 South High Street. Finally, longstanding Columbus firm Kegler Brown renewed their space of 52,000 square feet in the Capitol Square Office Tower at 65 East State Street.

9

5



2013 LAW FIRM COMPLETED TRANSACTIONS Porter Wright 41 S High Street 130,000 s.f. Renewal Kegler Brown 65 East State Street 52,000 s.f. Renewal

This year’s colorful legal services scene comes with no surprise, as the industry has always equated to a significant portion of the Columbus economy. The uptick in activity can also be attributed to the Marcellus Shale natural gas mining and exploration throughout the mid and eastern sections of Ohio. A number of locally based law firms have expanded their practice and specialty teams to handle the needs of the Marcellus Shale drilling activity. In addition, an influx of outside firms (mainly from Houston) have opened satellite offices in the Columbus region.

Isaac Wiles Two Miranova Place 42,000 s.f. Expansion



$25.41


35.0%

20.0%

20.0%





$40.00/$20.00 TI allowance ($ p.s.f.)**

60,000

Confidential

25,000

Ulmer & Berne

10,000

OUTLOOK

2.5%


Confidential

8/1




• Limited large blocks of Trophy and Class A space are available. • Due to current market conditions, many landlords could have little opportunity to be aggressive moving ahead. • Lack of reserved parking in downtown office towers is becoming a major hindrance to filling some of the remaining vacancies.


• Lease rates through the next 12 months will remain below historic norms, benefiting tenants. • The exploration of the Marcellus shale is increasing demand in the legal services sector. • Small tenants with requirements less than 25,000 square feet will retain leverage over the next 12 months.

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Dallas Locational preference: The majority of law firms (78.0 percent) are located within the downtown area (the Dallas CBD &

Uptown), with the next largest concentrations in Central Expressway, LBJ and Far North Dallas. The larger law firms are concentrated in the AA and Trophy properties of the Dallas CBD and Uptown. Their movement will parallel any new, high-end development delivered in these submarkets. Both the CBD’s and Uptown’s latest spec developments are significantly occupied by law firms.

16.4%

4.9%



Tight market conditions are beginning to drive the latest office construction cycle in Dallas’ Downtown. While law firms alone do not typically kick-off new construction, they are significant tenants in AA and Trophy assets in the CBD and Uptown areas. Timing looks optimum for new construction because a great deal of churn is taking shape as leases expire at a number of major law firms over the next four years.

27



2013 LAW FIRM COMPLETED TRANSACTIONS Hartline Dacus 6688 N Central Expressway 36,603 s.f. Renewal

This pattern occurred in the last cycle when Thompson & Knight (One Arts Plaza), Koons Fuller (Park Seventeen) and Patton Boggs (2000 McKinney) all took substantial blocks in the newest offerings. Halls’ Arts District project will be the next office building to break ground. Although KPMG is the lead tenant, Jackson Walker has a deal in the works for up to a 100,000-square-foot block. Effective rents on these new projects are significantly higher (typically about 30.0 percent) than average existing Class A rates. To balance these costs, law firms are optimizing their space. Some large firms with leases expiring near-term are reducing their requirements by 40.0 percent. A few regional-scale firms, however, have bucked the higher rents, opting for more economical, existing downtown Class A space.

20

Jim Adler & Associates 2711 N Haskell Avenue 28,162 s.f. Relocation In addition to the above mid-sized deals that closed in 2013, several high-profile law firm leases were completed in the latter part of 2012 including leases by Jones Day and Akin Gump for 133,187 s.f. and 104,277 s.f., respectively, as well as midsized leases finalized by Munsch Hardt (78,524 s.f.) Baron Budd (47,077 s.f.).

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Locke Lord

160,000

Gardere

110,000

Jackson Walker


$24.31

OUTLOOK

2.5%



30.0%

12.0%

40.0%





$45.00/$10.00 TI allowance ($ p.s.f.)**

80,000

12/6




• The market has shifted from strongly tenant-favorable to neutral of late; effective rates are rising, especially in Uptown. • Limited new construction over the next couple years will force law firms with nearterm lease expirations to renew in place or consider second-generation space. • Financing constraints for new development limits construction levels below historic norm.


• Full floor tenants or smaller continue to have a plethora of options. • One or two new construction projects may begin construction (could deliver in the next 24 to 30 months). • Increase in institutional ownership in CBD makes existing properties more attractive to law firms.

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Denver Locational preference: The majority of law firms in Denver are located in the CBD, with a large concentration on the east

end of downtown in the Uptown and Midtown CBD micromarkets; however, as Lodo continues to develop, a handful of law firms have opened doors at the west end of the CBD.

15.0% 15.0%



Law firms have historically officed on the eastern side of downtown Denver in the Midtown CBD and Uptown/East Side micromarkets where many business and financial services firms are also located. With the continued development and migration westward to Lodo, however, firms are looking to newly constructed or renovated office space. Lodo’s new and vibrant feel, edgier landscape and proximity to nightlife destinations, along with Union Station and access to the light rail station, make it a great location when trying to recruit and retain younger talent.

10



2013 LAW FIRM COMPLETED TRANSACTIONS Hall & Evans 1001 17th Street 50,875 s.f. Relocation Snell & Wilmer 1200 17th Street 36,575 s.f. Renewal

Similar to the majority of tenants in the market, law firms are looking for opportunities to save money on rent, while maintaining occupancy in view space in higher quality buildings. Many firms are creating more efficient office layouts with smaller offices and an open layout in hopes of avoiding construction costs when intra-office moves occur. Currently, most firms in the CBD are stable or rightsizing, with just a few out in the market looking to expand their presence in Denver. Owners of newer construction projects continue to offer up decent tenant improvement packages to attract new or relocating tenants, although rental rates, especially in the Lodo area, continue to climb up. That being said, leverage and leasing concessions depend greatly on the size of the deal, as larger, quality blocks are becoming increasingly sparse.

19

Fairfield and Woods 1801 California Street 26,679 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Holland & Hart

150,000

Polsinelli

100,000

Moye White


$31.09

OUTLOOK

3.0%



22.9%

5.0%

23.2%





$40.00/$20.00 TI allowance ($ p.s.f.)**

45,000

6/3




• Large blocks of space among well-located Trophy buildings, where firms prefer to office, continue to decline. • Credit enhancements are in greater demand as market tightens and owners evaluate leasing options. • Owners of Trophy buildings have aggressively pushed rates based on limited options, especially high-rise view space as well as space in Lodo.


• Large blocks are being vacated by GSA, which will provide available large block options in the near term. • Sublease dispositions have created additional space options for tenants, particularly in small to mid-size blocks.

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Detroit Locational preference: While many of Detroit’s largest law firms are located in the CBD, a significant portion of small-

to medium-size firms have chosen to locate in the northern submarkets of Bloomfield, Southfield and Troy. In either case, CBD or suburbs, metro Detroit law firms have gravitated toward Class A office buildings within significant transportation corridors providing optimal signage opportunities.

14.3% 23.0%



Real estate activity for Detroit area law firms has been quiet this past year, as firms look to further cement their position within the Detroit CBD. As such, renewals have accounted for the majority of activity within the market. Miller Canfield signed a renewal for 70,000 square feet at 150 West Jefferson. Dykema Gosset also renewed their lease of 85,000 square feet in Tower 400, a location they have held since 1985. Finally, Foley & Lardner signed a renewal of 44,000 square feet in One Detroit Center. Sommers Schwarz relocated to a new space of 23,000 square feet at One Towne Square after plans to rightsize.

15

2



2013 LAW FIRM COMPLETED TRANSACTIONS Dykema 400 Renaissance Center 85,000 s.f. Renewal Miller Canfield 150 West Jefferson 70,000 s.f. Renewal

With long-standing firms firmly rooted in the Detroit market, many have taken the opportunity to probe into new locations through acquisition of other firms or by opening new office expansions. Detroit-based firm Clark Hill acquired Pittsburghbased Thorp Reed & Armstrong, while Dickinson Wright absorbed 60 attorneys from Mariscal, Weeks, McIntyre & Friedlander. Detroit-based firm Dykema Gosset has also opened new locations in Charlotte, NC, Austin, TX and Minneapolis, MN, all within the past year.

Foley 500 Woodward Avenue 44,000 s.f. Renewal



$22.60


15.0%

12.5%

15.0%





$40.00/20.00 TI allowance ($ p.s.f.)**

50,000

Confidential

30,000

Honigman

9,000

OUTLOOK

2.3%


Confidential

10/10




• The local economic environment has provided minimal opportunity for law firms to grow revenue. • Market conditions have prevented any new development, limiting options to secondand third-generation space.


• Vacancy is among the highest in the country, offering an array of location and space options. • Rents will remain severely depressed compared to other markets, while concessions will continue to be generous.

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Fort Lauderdale Locational preference: Most major law offices tend to cluster in the Fort Lauderdale CBD due to the proximity to both the

federal and county courthouses. Also, having an address in a Trophy asset along Las Olas Boulevard, the most prominent thoroughfare in the county, lends credibility and prestige.

29.2% 32.5%



A year ago, Downtown Fort Lauderdale was struggling with large vacancies as a result of sizable tenants leaving the market. The most notable was Ruden McClosky, a prominent local law firm, which filed for bankruptcy and was absorbed by Greenspoon Marder, resulting in 50,000 square feet of occupancy losses in the CBD. Today the CBD has absorbed nearly all of the space those tenants vacated, but the Downtown still remains a discounted market. Therefore, we’ve seen increased tour activity in Class A assets on two fronts. Within the CBD, local law firms that currently occupy small Class B and Class C space in the courthouse district (south of the New River) have been touring Class A assets along Broward Boulevard in an effort to upgrade space with minimal effect on their bottom lines. In addition, suburban users have been touring and executing leases within the CBD, some of which are opening new offices and expanding their presence in the market. As the economy has slowly improved over the last 12 months, there has also been an increase in out-of-market law firms circling the CBD. Although, with the market tightening Downtown, the window of opportunity for tenants to receive favorable lease terms should narrow over the next 12 months. With less large quality blocks available, options for sizable law firms are limited; however, given the scarcity of large tenants in the market, large firms should retain some leverage at the negotiating table over the short term, as landlords remain aggressive when seeking to maintain occupancy. Although law firms continue to get more efficient with space needs, firms are expanding practice groups and becoming more diversified, while adding talent.


$31.98


21.1%

6.0%

13.2%





$35.00/$20.00 TI allowance ($ p.s.f.)**

4



2013 LAW FIRM COMPLETED TRANSACTIONS Becker & Poliakoff 1 East Broward Boulevard 46,600 s.f. Relocation Boies Schiller & Flexner 401 East Las Olas Boulevard 22,500 s.f. Renewal with expansion Arnstein & Lehr 200 East Las Olas Boulevard 17,900 s.f. Renewal with expansion

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Greenspoon Marder

50,000

Lewis Brisbois

15,000

Kelley/Uustal Law

12,000

OUTLOOK

3.0%


1

8/4




• Occupancy in the Trophy Class A office market downtown continues to rise and asking rents should rise accordingly. • Options for large firms in Class A assets are dwindling. • The absence of new construction Downtown will accelerate the shift in conditions if the market continues at its current pace.


• Boutique firms, which comprise the majority of the market’s users, will continue to have plenty of options priced at a discount. • Due to many landlords’ preference to retain occupancy in a slowly improving local economy, renewal terms will be favorable. • Tenant incentives remain high, particularly for properties along Broward Boulevard.

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Houston Locational preference: Houston law firms are found mostly in the CBD submarket. They are concentrated in Class A

buildings with some of the most expensive rental rates in the city. Because of the lack of vacancy downtown, if law firms were to move they would consider moving to Midtown, Greenway Plaza and Galleria submarkets into new and proposed buildings with high-end finishes.

16.0%

2.2%



The Houston office market continues to grow, largely in part due to the impact of the strength of the energy sector on the local economy. For this reason, tenants, especially energy-related law firms, are drawn to Houston, making space options scarcer. In the CBD, the vacancy rate for Class A space is currently at 9.2 percent, supporting evidence for the reality that large blocks are tough to piece together. As a result of this, when looking at law firm activity, most firms have been forced to renew their leases rather than relocate to new space. Similarly, even in renewal negotiations, landlords currently have the upper hand in the market and are able to increase asking rates across the board. Expect this to be the case for the next several quarters until the market supply can meet the needs of high-end tenants.

27

45



2013 LAW FIRM COMPLETED TRANSACTIONS BakerHostetler 811 Main Street 75,737 s.f. Relocation Linn Thurber 3555 Timmons Lane 30,637 s.f. Renewal

While options for Class A space downtown are very limited, there are a number of proposed buildings and new projects that could potentially draw some of the law firms away from the CBD. These include BLVD Place in The Galleria, Kirby Grove in Greenway Plaza and CityCentre Five in The Energy Corridor.

Strasburger 909 Fannin 28,226 s.f. Expansion

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Gardere


$39.20


5.0%

4.0%

20.0%





$50.00/$35.00 TI allowance ($ p.s.f.)**

Akin Gump

75,000

FosterQuan

21,572

OUTLOOK

$0.50


100,000

4/2




• CBD vacancy is currently very low, making it difficult to expand or relocate to large blocks in Class A buildings. • With limited availability, rents will continue to increase, especially in A+ buildings. • Firms must be willing to commit to longer leases than they may desire in order to gain a more competitive rent on space.


• West Houston development remains strong, offering an alternative to the innerloop locations and access to a growing number of energy firms in that area. • With development of the Grand Parkway, future projects are being proposed farther outside of CBD, which could mean a cheaper cost for firms looking to move outward.

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Indianapolis Locational preference: The majority of law firms are located in the CBD submarket of Indianapolis. Trophy buildings with high-class amenities and finishes attract law firms to the CBD as does the proximity to the state capitol.

14.3%

1.4%



Leasing activity remained high as Indianapolis’ largest law firms have largely opted to renew on existing, second-generation spaces. Firms occupying more than 50,000 square feet, such as Ice Miller and Bingham Greenebaum Doll, signed renewals at the beginning of the year. These firms are in good company as a total of 20 leases were inked in the year by law firms like those and Krieg DeVault and Frank & Kraft.

8


$26.00

2013 LAW FIRM COMPLETED TRANSACTIONS Ice Miller 1 American Square 127,883 s.f. Renewal with contraction


20.0%

7.5%

30.0%





$40.00/$50.00 TI allowance ($ p.s.f.)**

Bose McKinney & Evans 111 Monument Circle 111,372 s.f. Renewal with contraction Bingham Greenebaum Doll 10 W Market Street 70,000 s.f. Renewal with contraction

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Wooden & McLaughlin

25,000

Tucker Hester

5,000

Pollack Law Firm

4,000

OUTLOOK

2.8%




Larger firms are in the midst of strategic hiring and reorganizing their operations and landlords are eager to work with these firms, especially those that sign long-term leases. In 2013, large firms renewed for lease periods ranging from 10 to upward of 17 years, while smaller law firms, for the most part, signed five-year leases. Typically, Indianapolis firms have a variety of practice groups; however, the greatest momentum comes from energy and government practice. Also, as the local technology sector takes off, firms are adding intellectual property lawyers to the mix. To accommodate growing practices, speculative construction returned to the market in 2013 with the addition of a 24,000-square-foot building in the CBD submarket and an 81,000-square-foot building in the Keystone submarket. Other development projects are on the horizon in 2014 and will provide greater options for law firms ahead.

4

10/7




• Supply constraints, especially among large blocks in Class A buildings in the CBD, will prompt premium rents. • In Trophy properties in the CBD, even mid-sized firms will encounter limited options.


• Amenity enhancements in the CBD such as revitalization projects, multifamily housing developments and new parking garages will entice the millennial associate that desires close proximity to the office. • Favorable economic and employment growth in office-using sectors may create the potential for new practice groups.

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Los Angeles Locational preference: Los Angeles law firms are concentrated in the Downtown CBD near the courthouses. Specialized practice groups catering to entertainment and media companies are located close to their clients on the Westside in the Century City submarket. Moving ahead, some law firm tenants will elect to be closer to tech and entertainment clients and thus will migrate to more nontraditional low rises in Santa Monica and Playa Vista.

21.9% 21.0%



We continue to see Los Angeles law firms playing musical chairs with a market driven by cost-saving opportunities. Los Angeles remains a tenant-favorable market and owners have been offering generous rents and concessions to attract larger tenants. Blank and Rome relocated within Century City from Watt Plaza to the Century Park Towers. Additionally, CohnReznick consolidated their Westside operations, combining their Brentwood and Century City offices and moving into the Towers.

41


$41.99

2013 LAW FIRM COMPLETED TRANSACTIONS Bowman and Brooke 970 West 190th Street 36,703 s.f. Relocation Blank Rome 2029 Century Park East 25,723 s.f. Relocation


4.4%

20.5%

37.3%





$55.00/$37.00 TI allowance ($ p.s.f.)**

Barnes & Thornburg 2049 Century Park E 25,273 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Sidley Austin

250,000

Nixon Peabody

75,000

White & Case

50,000

OUTLOOK

4.0%




We also witnessed a few new entrants to the Los Angeles market. Barnes and Thornburg signed a new lease at 2049 Century Park East. The firm has been adding headcount nationwide and chose to expand its presence in Southern California by opening an office in Century City at 2049 Century Park East. Philadelphia-based Pepper Hamilton also opened a new office in the Los Angeles CBD at 350 S Grand Avenue. The Century City and Downtown Los Angeles markets have high vacancy and a large number of available blocks of space. Changing ownership partners in both markets will infuse cash to fund improvements as well renewed competition for toptier tenants in the market.

69

10/10




• CBD Class A ownership consolidation is leading to sizable market share likely to lead to high rents. • Increasing residential rents in the CBD are making it more expensive for new associates to locate close to work. • CBD and Century City parking remain some of the most expensive in the Los Angeles market.


• Large near-term Westside lease expiration creating short-term leverage for law firms looking at early renewals. • Concession packages have increased to all-time highs. • Robust media and entertainment sector performance, coupled with new technology entrants from Silicon Valley, are creating opportunities for specialized practice groups.

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Miami Locational preference: Miami’s CBD is comprised of two submarkets, Brickell and Downtown. The majority (57.3 percent of Class A law firm users) occupy space within the Downtown sector of the urban core. Law firm requirements presently comprise over 420,000 square feet throughout Miami. Of this, nearly 384,000 square feet or 90.0 percent are designated for the CBD.

21.0% 19.5%



Over the last two years, mega deals (40,000 square feet plus) throughout Miami reveal a diversified office base with the majority of companies preferring suburban settings. Among the largest law firms, however, the urban core remains the location of choice as the CBD captured all of the leases within this size category. Florida’s top five law firms each have a CBD Trophy address. Congregating among like users, all but one of this year’s top law firm transactions were either CBD renewals or relocations from within the CBD.

6


$40.46

2013 LAW FIRM COMPLETED TRANSACTIONS Fowler White Burnett 1395 Brickell Avenue 30,000 s.f. Renewal with contraction Weil 1395 Brickell Avenue 24,000 s.f. Renewal


10.0%

4.5%

25.0%





$55.00/$55.00 TI allowance ($ p.s.f.)**

Gunster 600 Brickell Avenue 21,000 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Shutts & Bowen

80,000

White & Case

60,000

GrayRobinson

35,000

OUTLOOK

3.0%




Size still matters and tenant-favorable conditions persist for the crème of the crop users who can choose premium space from new construction as well as secondgeneration options. Downsizing of office space needs does not necessarily mean downsizing of staff. Rightsizing or efficiencies due to space design and rapidly changing technology have allowed space for more employees. Most core and new business law practice areas here are either stable or growing. National law firms establishing a Miami foothold are strengthening and underscored by new-to-market users and acquisitions/mergers/new law firm formations. What is different is the relatively high ratio and swelling presence of AmLaw 200 firms. A variety of demand factors is at play fueled by the significant and rewarding opportunity for capturing international business, especially from Latin America.

20

7/7




• Contiguous Trophy space with prime views is limited. • Concessions continue to whittle down for both new and renewal activity.


• While pricing is shifting, overall levels remain favorable and are on par with rents nearly seven years ago. • Tenant improvement allowance offers, particularly for the newest buildings, remain high, compared to historic norms. • New assets/upgrades from existing product offer greater efficiencies, upgraded finishes and increased amenities.

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Milwaukee Locational preference: The majority of law firms are located in the CBD, particularly in the downtown east submarket where Trophy and Class A buildings are located. While firms will likely stay within the CBD market, there may be a push to move to the downtown west area, as a new development has commenced there with an estimated completion date of May 2015.

21.1%

8.0%



Milwaukee’s office market is experiencing a gradual tightening in tenant demand as leasing velocity has increased over the past year with users being more receptive to relocation than in the past four years. Law firms are using this opportunity for interior redesign such as smaller partner offices, the elimination of libraries, increased ratio of administrative support per attorney and the gradual movement toward electronic file storage. The new standards can result in a footprint reduction in excess of 15.0 to 20.0 percent in certain situations in which firms have occupied current space for 20 years without redesign.

7

1



2013 LAW FIRM COMPLETED TRANSACTIONS Michael Best & Friedrich 100 E. Wisconsin 89,725 s.f. Renewal

Given improving economic conditions, firms are also taking the opportunity to upgrade their space. Local law firms have benefitted over the past five years from weaker market conditions by way of landlord concessions including rent abatement, increased tenant improvement allowances, moving allowances, aggressive lease rates and the ability to utilize a portion of unused tenant improvement allowances for soft costs such as technology and furniture upgrades. Milwaukee’s tightening market conditions have allowed some landlords to begin reducing and/or eliminating these concessions and as such space efficiency is a primary goal for many local law firms.



$24.75


22.0%

11.0%

65.0%





$35.00/$25.00 TI allowance ($ p.s.f.)**

90,000

Davis & Kuelthau

9,000

Pitman Kyle Sicula & Dentice

9,000

OUTLOOK

2.3%


Godfrey & Kahn

6/4




• Quality, large blocks of space are nonexistent. • Godfrey & Kahn has signed LOI to anchor only proposed new office tower, limiting new options. • Market is gradually shifting in favor of landlords and thus firms should expect a reduction in concessions.


• Law firms with lease expirations in the next two years should consider a blend and extend now to lock in rates. • Firms in excess of 75,000 square feet have the ability to anchor a new office tower.

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Minneapolis Locational preference: The Twin Cities’ major law firms are concentrated in the Minneapolis central business district, including the majority of law firms occupying 50,000 square feet or more of space. The central business district is home to the Hennepin County courthouse and is the business epicenter of the Twin Cities.

17.8% 32.1%



Law firms occupy more than 2.7 million square feet of space in the Minneapolis CBD, the predominant location among this tenant sector in the Twin Cities. Multiple law firms entered the Minneapolis market in 2013 (including Cozen O’Connor, Hogan Lovells and Dykema Gossett) and additional firms with a national presence are looking to establish Minneapolis offices, an indication of increasing business opportunities locally. The improving economic landscape is also creating mobility. Local attorneys are changing firms with more frequency as some firms look to expand their practice areas. Despite the increased drive for space efficiency by tenants, including multiple law firms, landlords have become more bullish in lease deal negotiations. A lack of large quality options, new ownership in multiple Trophy buildings and increased confidence for sustained job growth have helped fuel the optimism and landlords have begun to press on asking rates in multiple Trophy office properties. In response, value-driven tenants have begun to increasingly consider mid-tier Class A and Class B buildings with lower asking rates and more available space options. Illustrating this are lease deals recently struck by Moss & Barnett and Fabyanske, Westra, Hart & Thomson. Both firms are relocating to lower-priced Class A buildings within the Minneapolis CBD. However, since options are scarce for users of more than 100,000 square feet, renewals are the most likely scenario for the larger law firms with upcoming expirations.


$29.81


10.0%

10.0%

40.0%





$44.00/$25.00 TI allowance ($ p.s.f.)**

6



2013 LAW FIRM COMPLETED TRANSACTIONS Gray Plant Mooty 80 South 8th Street 109,000 s.f. Renewal Foley & Mansfield 250 Marquette Avenue 45,000 s.f. Renewal with contraction Moss & Barnett 150 South 5th Street 40,000 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Dorsey

250,000

Briggs & Morgan

100,000

Lindquist & Vennum

100,000

OUTLOOK

$0.50


16

7/4




• A number of Trophy properties have sold in recent quarters and landlords are pressing on rents to achieve pro-formas. • The Minneapolis CBD has seen no new Class A construction since 2001. • Multiple large law firms with lease expirations coming in the next few years will heighten competition for space.


• While options remain limited, recent consolidations, relocations and subleases have increased the number of potential options larger than 50,000 square feet. • Multiple options remain for active users with requirements of less than 50,000 square feet. • Mid-tier Class A buildings with lower rents and some larger availabilities provide additional options for firms.

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New Jersey Locational preference: The Newark, Route 280 Corridor and Route 24 submarkets contain the largest concentration of

law firms in New Jersey. Law firms have historically located their operations in these submarkets due to their proximity to federal and county courts. Submarkets with Class A buildings near major highways or accessible via transit hubs will remain on the radar screen for law firms.

3.1%

9.0%



After New Jersey law firms completed more than 200,000 square feet of transactions during the first half of 2012, moderating demand led to approximately 140,000 square feet leased during the same time frame one year later. Much of the recent activity has involved relocations rather than expanding requirements as law firms mirror other business sectors by focusing their efforts on utilizing their workspaces more efficiently, while reducing operating expenses. The evolving trend of smaller offices and collaborative workspaces are anticipated to guide future law firm real estate requirements. A large portion of the leases signed by law firms during the first half of the year was focused in the Route 24 submarket, where law firms occupy more than 740,600 square feet of office space. The availability of high-end office space, combined with its strategic location in proximity to several major highways, have historically attracted law firms and other corporate occupiers to this submarket. During the first half of 2013, Drinker Biddle relocated its operations from 500 Campus Drive and into 60,000 square feet at 600 Campus Drive. In addition, Edwards Wildman moved from 1 Giralda Farms and into 22,180 square feet at 44 Whippany Road, while DLA Piper absorbed 22,000 square feet at 51 JFK Parkway in Short Hills.

20

17



2013 LAW FIRM COMPLETED TRANSACTIONS Drinker Biddle 600 Campus Drive 60,000 s.f. Relocation Edwards Wildman 44 Whippany Road 22,180 s.f. Relocation DLA Piper 51 JFK Parkway 22,000 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Wolff & Samson


$27.00


13.0%

8.0%

16.0%





$35.00/$23.00 TI allowance ($ p.s.f.)**

Sills Cummis & Gross

80,000

Connell Foley

70,000

OUTLOOK

3.0%


100,000

3/3




• Firms face an aging suburban office market with many buildings having been developed in the 1980s. • There are limited existing high-end quality space options for firms looking to upgrade their operational needs.


• Financially favorable leasing opportunities for credit tenants. • Opportunities exist to lease space at Gateway Center in Newark following Prudential’s decision to relocate its operations into a new tower by 2015.

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New York Locational preference: Firms gravitate to newer Trophy/A buildings within the Columbus Circle, Grand Central, Plaza

District and Times Square in Midtown and the Financial District Downtown. Though large blocks of Class A space are becoming available Downtown at a significant discount to comparable Midtown space, most firms have remained in the Grand Central and Plaza Districts. The westward migration appears to have slowed down, until large blocks of Class A space in the under-construction Hudson Yards begin to hit the market in 2015 and beyond.

11.4% 12.5%



Stagnant employment growth in legal services, increased consolidation and improving space efficiencies, have resulted in overall negative absorption for the industry. In June, the New York-based law firm Weil Gotshal announced that it would eliminate 60 salaried attorneys and 110 staff as the result of diminished demand for high-end legal services. The firm is just one of the many that have announced either layoffs or scaled-back recruiting efforts.

125


$74.26

2013 LAW FIRM COMPLETED TRANSACTIONS Simpson Thacher 425 Lexington Avenue 595,799 s.f. Renewal Patterson Belknap 1133 Avenue of the Americas 198,000 s.f. Renewal


15.0%

13.4%

20.1%





$56.00/$27.00 TI allowance ($ p.s.f.)**

Baker Botts 30 Rockefeller Plaza 104,161 s.f. Renewal

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Weil Gotshal

500,000

Jones Day

400,000

White & Case

400,000

OUTLOOK

1.6%




As in the past, many law firms are opting to stay in place to avert significant relocation costs. Equally important, landlords have been reluctant to risk down-time and re-tenanting expenditures in a flat market. Simpson Thacher renewed for nearly 600,000 square feet at 425 Lexington Avenue in the largest law firm lease of the year. Of the top four law firm lease transactions year-to-date, all were renewals. When firms haves chosen to move in recent years, many have migrated to the west side of Midtown—for more efficient, large block availabilities in new construction— and in some cases downtown for higher-quality space at a discount to comparable spaces in Midtown. Over the next year, mergers and acquisitions could further erode the industry’s total footprint. Growth—where it exists—has been in small to medium-sized firms, nonNew York-based firms and those specializing in the legal needs of technology and media companies. These law firms have different space needs than Manhattan’s more traditional firms with many opting for value spaces in less conventional buildings or locations outside Midtown’s Trophy inventory.

96

7/4




• Value options will become limited as demand from other industries, including technology and media, increases. • Rents in top-tier Trophy buildings have increased as demand from hedge funds, private equity and wealth management expands. • Limited new construction on the east side of Midtown could force some firms to move outside of traditional submarkets.


• Landlords are eager to avoid the risk of down-time and cost of re-tenanting in a flat market. • New construction in the Far West Side and Downtown will increase viable options. • The potential rezoning of the area surrounding Grand Central Terminal and Park Avenue would provide for new development in a law firm-concentrated submarket.

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Oakland-East Bay Locational preference: The majority of law firms are located between Eleventh Street and Sixteenth Street in downtown Oakland. Law firms are attracted to top-floor space in a select few Class A buildings for the views of the San Francisco Bay. Also, law firms are concentrated by two BART stations, either 12th Street-City Center or 19th Street station.

8.0%

5.1%



Most law firms practice litigation law with an emphasis in employment, labor, benefits and mediation disputes within the East Bay. Additionally, there are a few firms that specialize in the area of construction and commercial law as well as criminal. The downtown Oakland market, where nearly all firms have congregated historically, remains in a transitional period causing a majority of law firms to follow one of two trends: downsizing or relocation to another market.

1

0



2013 LAW FIRM COMPLETED TRANSACTIONS Burnham Brown 1901 Harrison Street 39,321 s.f. Renewal Gordon & Rees 1111 Broadway 24,134 s.f. Relocation

Leasing activity is picking up in Class A buildings, causing an increase in rental rates and depletion in available large blocks of space, but many law firms are downsizing in response to cost concerns and perceived lack of amenities. This is also feeding into the trend of relocation to the East Bay. Law firms are looking to East Bay suburbs where rental rates for desirable Class A space are lower and BART is still easily accessible. Additionally, some law firms are consolidating into one office location, moving out of their Oakland office and consolidating in either San Francisco or the East Bay suburbs.

Katten 1999 Harrison Street 9,097 s.f. Renewal with contraction



$33.96


8.0%

4.0%

20.0%





$30.00/$15.00 TI allowance ($ p.s.f.)**

11,000

AAA-Law Group

10,000

OUTLOOK

3.0%


Aiken & Welch

3/1




• Quality blocks of space are depleting and no new construction is on the horizon. • The market is still in transition and there is a lack of desirable amenities.


• Relatively affordable compared with other Bay Area markets. • Downsizing among certain tenant industries provides firms with additional space opportunities.

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Orange County Locational preference: Seeking the highest-quality office space, Orange County’s most prominent law firms are

typically located in Newport Beach, Central Irvine and the towers in Costa Mesa surrounding South Coast Plaza. Although there is currently minimal availability, South County’s Irvine Spectrum area has become one of the more popular areas of the market. The submarket has an abundance of amenities in close proximity and is easily accessible to the residential neighborhoods in South County and Airport Area.

10.0%

4.4%



A year ago, the nature of Orange County’s law firm leasing activity was quite different than what it is now in 2013. In 2012, many firms were still shedding excess space as a result of staffing cutbacks, while others were attempting to renegotiate existing leases to take advantage of the market rent discounts. Rightsizing continues to take place among Orange County’s law firm tenants, although not on the scale that was so common in the post-recession period between 2009 and 2012.

9

18



2013 LAW FIRM COMPLETED TRANSACTIONS Newmeyer & Dillion 895 Dove Street 53,036 s.f. Renewal Lewis Brisbois 650 Town Center Drive 35,552 s.f. Renewal

Competition for space among law firms is poised to increase in the next year as the amount of full floors in Class A towers in the Airport Area market is dwindling. However, comparable options in Central County’s Class A market are still plentiful and will become an alternative to law firms that are unwilling to pay a soon-to-be premium for locations in Irvine, Costa Mesa and Newport Beach. It is highly unlikely that the level of demand from the Orange County law firm sector will spark any new construction in the near future. Law firms will find more competition from the county’s other industries, like financial services and technology firms, which are expected to be drivers of activity into 2014 and 2015.

Manatt Phelps 695 Town Center Drive 19,886 s.f. Renewal



$25.99


25.0%

13.5%

25.0%





$45.00/$20.00 TI allowance ($ p.s.f.)**

50,000

Haynes and Boone

26,000

Sedgwick

15,000

OUTLOOK

3.0%


Sheppard Mullin

10/5




• Evaporating options in high-quality office towers located in the popular submarkets. • With growing demand for quality space in Irvine Spectrum and Newport Beach, whispers of speculative construction are becoming more common. • Sharp increase for Class A rents is expected, particularly in Irvine Companyowned towers.


• Options for Class A space in Central County are still prevalent, holding back rent increases. • Although tenant demand is growing, rental rates remain low relative to historical peaks. • Landlords of Class A office buildings, outside of the Irvine Company portfolio, remain aggressive in hopes of filling vacancies.

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Orlando Locational preference: Most law firms are located in the downtown CBD due to the proximity to the Orange County

Courthouse and epicenter for recruiting/retaining talent and ability to network with other local business leaders who may office or visit downtown frequently. Smaller firms may elect to relocate to suburban markets such as Maitland Center, Millenia, Tourist Corridor and Lake Mary to avoid higher downtown rents and increasing parking charges. Firms focused on reducing occupancy costs and improving firm profitability may find value in these suburban markets.

18.2%

9.0%



Law firms in Orlando remain in the central business district as has been customary, but will face challenges staying in downtown if new construction does not take place. With large blocks of contiguous space becoming scarcer, build-to-suit options appear to be the next best option for this industry as there has not been a migration from the higher-quality, Class A space. Currently, there are no plans for construction downtown, but as market fundamentals return near their historic averages, look for a developer to take the risk of speculative construction. With the rumors of new construction becoming a possible reality in the near future, law firms who are looking to move from their current space are signing two- to three-year renewals with the hopes that a new tower will be available at the conclusion of the renewal.

5

3



2013 LAW FIRM COMPLETED TRANSACTIONS GrayRobinson 301 East Pine 70,000 s.f. Renewal Foley 111 N Orange Avenue 34,989 s.f. Relocation

The market conditions for negotiating new leases moving forward are not ideal for the tenants. Leverage during lease negotiations has been on the side of the tenant for the past four years, but will be shifting back to the landlord due to vacancy decreasing in the Class A product set by 17.1 percent, year-over-year. We expect for law firm activity to increase through the latter half of the year due to rising rents and concession packages that are decreasing.

Baker Donelson 200 S Orange Avenue 23,496 s.f. New deal to the market



$24.90


5.0%

10.0%

20.0%





$40.00/$8.00 TI allowance ($ p.s.f.)**

40,000

Greenspoon Marder

15,000

Winderweedle

15,000

OUTLOOK

3.0%


KEL

15/4




• Shrinking availability of large blocks of Class A space. • Concession packages are decreasing. • The availability of low-cost parking alternatives is decreasing.


• Tenants still have negotiation leverage downtown although market fundamentals are tightening. • Proposed new-development opportunities offer higher visibility options for firms interested in improving image. • Early lease restructure opportunities may still exist for reputable firms with longterm perspective.

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Palo Alto Locational preference: The majority of firms in Silicon Valley are located in Palo Alto within the Stanford Research Park.

The area has had a long history of having the highest concentration of law firms given the proximity to Stanford University and venture capital companies on Sand Hill Road in Menlo Park. Given tight market conditions in Palo Alto, law firm tenants will likely look to Menlo Park as a potential relocation option.

44.2%

9.1%



Over the past 12 months the demand for law firm space has begun to increase. Some firms with upcoming lease expirations are following trends in the tech sector, as they look to upgrade their image to newer office product that offers greater space efficiency. Although it appears that most firms are neither growing nor contracting from a rentable square feet perspective, the usage of the space has evolved. Palo Alto continues to be the most demanded submarket for law firm tenants. However, the lack of suitable space options, combined with the continued rise of asking prices and an aging office inventory, has created challenging conditions. The game of musical chairs continues to be an ongoing trend, with tenants relocating and reconfiguring into buildings formerly occupied by another firm. With very little turnover in space in Palo Alto, tenants looking for more than 30,000 square feet are considering proposed construction. Although there is approximately 1.2 million square feet of proposed office space currently under review by Palo Alto city planning, public concerns over parking shortages as well as traffic implications have slowed the approval process. There is 87,000 square feet that could potentially come out of the ground in Research Park by the first quarter of 2014; however, there are rumors that several firms are already actively negotiating on the entire project.

6

27



2013 LAW FIRM COMPLETED TRANSACTIONS Wilson Sonsini 601 California Avenue 111,653 s.f. Renewal Simpson Thacher 2475 Hanover Street 83,982 s.f. Relocation Pillsbury 2550 Hanover Street 80,000 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Fenwick & West


$86.76


10.0%

5.0%

15.0%





$30.00/$10.00 TI allowance ($ p.s.f.)**

Morrison Foerster

90,000

Morgan Lewis

50,000

OUTLOOK

3.0%


160,000

5/3




• Shortage of quality blocks of Class A space leaves few options, especially for larger firms. • Rents continue to rise for both new and second-generation space. • Increased competition with expanding near-term lease expirations and new firms to the market.


• Future speculative development could ease some supply constraints. • Several tenants in Palo Alto with upcoming lease rollovers could potentially place some quality space on the market.

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Philadelphia Locational preference: The majority of Philadelphia’s law firms are located in the CBD’s Market Street West submarket.

This location provides easy access to abundant amenities and immediate proximity to the city’s concentration of professional services companies. Despite upward rental pressure at Trophy product and limited availability of contiguous blocks, Market Street West will remain the core location for law firms.

20.2%

8.7%



Following the highest volume of large law firm transactions in more than 15 years in 2012, renewals by Pepper Hamilton and Drinker Biddle in the first half of 2013 finalized near-term, large firm rollover, shifting demand to mid-sized firms in the Philadelphia CBD. Amidst no available Trophy blocks larger than 100,000 square feet and rents 25.0 percent below replacement cost rents, both firms opted to renew: Pepper Hamilton renewed in place and Drinker Biddle will reduce its footprint by 25.0 percent. While law firms continue to look at increasing space efficiency, less than 20.0 percent of transactions entailed rightsizing—a cross sector shift exhibited in 2013 deal flow thus far. While alternatives exist across desirable Trophy and Class A assets, growing competition from mid-sized legal and financial services tenants will drive the decline of quality blocks, a catalyst for decreased tenant leverage and future Market Street West rent growth. Pond LeHocky, Hangley Aronchick and Weber Gallagher—all between 30,000 and 60,000 square feet—are currently in the market for space. These users additionally face competition from new users to the market: Law firms Gordon & Rees and Carroll McNulty secured new offices between 10,000 and 20,000 square feet at Trophy assets.


$27.43


20.3%

10.0%

11.4%





$40.00/$25.00 TI allowance ($ p.s.f.)**

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2013 LAW FIRM COMPLETED TRANSACTIONS Pepper Hamilton Two Logan Square 268,000 s.f. Renewal Drinker Biddle One Logan Square 155,000 s.f. Renewal with contraction Akin Gump Two Commerce Square 18,000 s.f. Renewal with expansion

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Pond LeHocky

60,000

Hangley Aronchick

40,000

Weber Gallagher

33,000

OUTLOOK

$0.50


23

6/4




• Stabilized Trophy and Class A landlords are pushing rents for quality availabilities. • Competition is growing for mid-sized quality blocks of space, between 25,000 and 50,000 square feet. • Inbound demand is spurring increased competition for space.


• Pending large tenant leasing decisions could increase Trophy availability, softening concessions in the short term. • Repositioned Class A assets will bring new alternatives to market. • Availabilities for small-sized law firms, less than 10,000 square feet, remain abundant.

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Phoenix Locational preference: The majority of law firms are located in the Downtown and Midtown submarkets of Phoenix. Firms

have historically chosen these locations due to the proximity to courthouses, major highways and Sky Harbor International Airport. As the best spaces are leased, law firms are beginning to explore locations outside of the Phoenix Core. Submarkets such as the Camelback Corridor and Scottsdale area provide high-end options and amenities, while maintaining proximity to key transportation, legal and executive housing hubs.

10.5%

2.3%



Echoing what is being seen in markets across the country, Phoenix’s legal landscape is in a state of pause. Outright growth in the industry – especially in this secondary market – has slowed to a crawl thanks to the commoditization of services and fee compression. Furthermore, because of systemic improvements in space utilization, increased attorney-to-secretary ratios and the digitization and elimination of onsite records and libraries, the number and size of tenant requirements have continued to contract.

15


$22.84

2013 LAW FIRM COMPLETED TRANSACTIONS Quarles & Brady 2 N Central Avenue 105,000 s.f. Renewal with contraction Lewis & Roca 201 Washington 73,878 s.f. Relocation with contraction


10.0%

15.0%

15.0%





$50.00/$25.00 TI allowance ($ p.s.f.)**

Dickinson Wright/Mariscal Weeks 1850 N Central Avenue - Viad Tower 50,119 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Jones Skelton & Hochuli

50,000

Renaud Cook

25,000

OUTLOOK

2.5%




Though a few notable deals have made headlines over the last year like Quarles & Brady (120,000 square feet), Lewis & Roca (73,000 square feet), Osborn Maledon (65,000 square feet) and Dickinson Wright/Mariscal Weeks (50,000 square feet), the majority of larger firms in Phoenix made moves in 2010 to 2011 when market rents bottomed and viable Class A space options were more prevalent. Since then, the number of legal tenant requirements has fallen dramatically and today only make up 2.5 percent of total tenants in the market. Despite this, tenants looking in the Downtown market should act fast as overall vacancy is hovering around 15.0 percent – one of the lowest rates in all of Phoenix. Expect Midtown and the Camelback Corridor to capitalize on the tightness and rent premium seen in the CBD, though current demand from law firms is stagnant.

12

12/9




• As the market picks up, landlords are less willing to hold space for firms wishing to lease space years in advance of their expiration. • Quality space is thinning and limited construction means firms will be relegated to second-generation space. • Rents are expected to increase as concession packages wane in this tightening market.


• Rightsizing years have left the market with multiple space options already built out to law firm specifications. • High vacancy in traditional law firm markets like Downtown and Midtown means increased opportunities for concessions.

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Pittsburgh Locational preference: The majority of Pittsburgh law firms are located downtown along Grant Street and Liberty Avenue. Of the top 31 Pittsburgh law firms, all but two are located here because of access to the region’s courthouses, government agencies and corporate headquarters. Additionally, over 65.0 percent of firms gravitated to Trophy and prime Class A buildings. Future movement of law firms will be to one of the office developments in the Downtown pipeline, including The Gardens or North Shore Place.

12.8% 20.0%



Pittsburgh law firm real estate activity was subdued this past year as tight market conditions provided few relocation options for tenants in the market. Due to the lack of available Class A space, market activity consisted of mostly renewals. Dickie, Mccamey & Chilcote renewed 105,000 square feet in Two PPG Place. Leech Tishman decided to stay put at Three Mellon Center, expanding from 23,000 square feet to 47,000 square feet. Finally, newcomers Saul Ewing leased 12,000 square feet in One PPG Place. While activity within the market was minimal over the last year, many local firms continued to grow their presence outside of the Pittsburgh market. Jones Day opened its first office in Florida, while Dickie, Mccamey & Chilcote opened offices in Cleveland, OH, and Lancaster, SC. On the West Coast, Pittsburgh firm Leech Tishman opened an office in Pasadena, CA. The Marcellus shale industry has no doubt had a significant impact on the region’s economy and legal sector, in particular. We expect to see continued growth in the arena as local firms add staff in order to accommodate increased work levels as well as a continued influx of natural gas companies as well as secondary suppliers concentrating on the growing Pittsburgh energy sector. Of the six law firms that entered southwestern Pennsylvania between December 2011 and July 2012, officials stated that the Marcellus shale activity triggered all of these moves. Examples include Houstonbased national firm Sadler Law and DC-based Steptoe & Johnson, both opening their doors in 2011.


$27.43

9



2013 LAW FIRM COMPLETED TRANSACTIONS Dickie Mccamey & Chilcote 2 PPG Place 105,000 s.f. Renewal Leech Tishman 525 William Penn Place 47,000 s.f. Expansion Saul Ewing 1 PPG Place 12,000 s.f. New deal to the market

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Eckert Seamans

100,000

Fox Rothschild

30,000

Edgar Synder

27,000

OUTLOOK

2.0%


11


20.0%

15..0%

15.0%





• There is a lack of large blocks of quality space in the market. • Rents are increasing and concessions packages are thinning due to tightening market conditions.


• Growth in the shale sector provides opportunities for firms to grow. • Completion of recent developments to provide additional space.


$30.00/$15.00 TI allowance ($ p.s.f.)**

2/4



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Portland Locational preference: The majority of law firms are located in the CBD of Portland. Firms gravitate toward the north end of SW where there are more restaurants, bars and other amenities. There have been a few firms that have moved farther west and north to the Pearl District and the west end of town where most new development has happened.

12.7%

9.5%



Portland remains a tertiary market for major national law firms, but interest in a city presence is rising as the number of local outposts of the AmLaw 100 continues to increase and grow in size. This has largely been at the expense of top homegrown firms, who have seen small groups of partners defect to help expand these offices or set up smaller boutique shops.

6


$27.03

2013 LAW FIRM COMPLETED TRANSACTIONS Ball Janik 101 SW Main Street 41,750 s.f. Renewal


7.0%

1.5%

15.0%





$55.00/40.00 TI allowance ($ p.s.f.)**

K&L Gates 1 SW Columbia Street 21,179 s.f. Relocation Harrang Long Gary Rudnick 1001 SW 5th Avenue 16,221 s.f. Renewal

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Stoel Rives

130,000

Perkins Coie

70,000

Barran Liebman

16,000

OUTLOOK

3.0%




In Portland, leverage, motivation and strategy will be different for local versus regional / national firms and for firms with a smaller versus a larger footprint. With only one firm occupying more than 100,000 square feet across the area, the large blocks of space discussion can be fairly brief: there are limited options and demand for space is shallow. Leverage for larger firms (larger than 50,000 square feet) can really only be enhanced by looking at new development. In doing so, a law firm may secure a significantly higher build-out allowance and more free rent, but they will need to pay a higher rental rate and bear the cost of a move. Mid-sized firms, who also happen to include many of the increasing number of local outposts of the AmLaw 100, are pushing the modernization trend seen in the area. After several years of limited hiring and the aging partner population, firms are looking to the future, recognizing the need to appeal to a younger demographic to compete in their recruiting and retention strategies. Adding teaming spaces, enhanced onsite amenities and more social areas are the most common space enhancements.

8

8/6




• Limited large blocks of space will significantly reduce leverage. • Speculative construction remains remote, further tightening the market and limiting options. • Local firms have limited capital to fund significant tenant improvements, making renewals more likely.


• Mid-sized firms continue to have options to consider and may be able to take advantage of full floors vacated by righsizing firms. • Large firm could anchor new development, securing significant concessions and exercising influence on design. • Competition in the marketplace is limited by a finite number of near-term lease expirations.

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Raleigh-Durham Locational preference: The majority of law firms are located in the downtown Raleigh submarket. Firms gravitate toward the views of the skyline and access to addresses on Fayetteville Street in the heart of the city’s business district. Due to an overall lack of availability in the urban submarkets, law firms looking for new Class A space are considering the markets of 6 Forks Road, North Hills and West Raleigh for new spaces where some firms are already located.

27.3% 10.4%



Activity among law firms in Raleigh has increased compared to the previous year. A group of firms totaling 235,000 square feet of combined space are currently touring the market. Mid-sized law firms occupying 10,000 to 25,000 square feet are fueling demand driven by lease expirations, but not much by organic growth.

4

3



2013 LAW FIRM COMPLETED TRANSACTIONS Parker Poe 301 Fayetteville Street 50,000 s.f. Relocation

With new buildings proposed to be delivered soon in Downtown Raleigh, we expect flight to quality will be a prominent trend as law firms sign new leases. From a space perspective, firms are working to identify more efficient uses, including the use of more community space and less private office space. Other trends include longer lease terms, particularly for relocations, as a result of the high upfront costs and time consumption associated with moving. Small- to mid-sized users are often taking advantage of the current leasing environment before landlords push rental rates in the local office market. It is not uncommon for a firm to take on extra space now for the possibility of future growth.

Wyrick Robbins 4101 Lake Boone Trail 24,000 s.f. Renewal



$23.36


36.0%

5.0%

33.0%





$25.00/$10.00 TI allowance ($ p.s.f.)**

75,000

Ellis & Winters

30,000

Hedrick Gardner

20,000

OUTLOOK

3.0%


Womble Carlyle

7/2




• Lack of large Class A blocks (greater than 50,000 square feet) in the CBD. • Owners of proposed projects are beginning to push rates due to limited options in CBD.


• Concession packages have remained at all-time highs and generous free rent and tenant improvement allowances have driven net effective rents sharply lower. • Tenants expanding their businesses can plan to prelease space in buildings proposed for construction.

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Richmond Locational preference: Law firms in the Richmond market are concentrated in the CBD, particularly the southernmost

boundary, which offer panoramic views of both the James River and the downtown skyline. This area also consists of the newest inventory in the CBD, as well as unimproved sites for new construction. However, McGuireWood’s new headquarters–Gateway Plaza–has reduced the number of viable developments sites to two options, both located on the southern border of the CBD.

23.9%

1.6%



Richmond’s three largest law firms have completed renewals or relocations for their 2015 lease expirations; only one firm opted for new space. Downsizing from 270,000 square feet, McGuireWoods leased several floors for a total of 217,000 square feet at their new tower, Gateway Plaza. Hunton & Williams also considered build-to-suit options; however, new construction rates defeated the purpose of overhead reduction, leading the firm to renew at their current location. Additionally, Troutman Saunders renewed for a total of 104,000 square feet at Riverside on the James, giving back one floor, which was immediately leased by Harris Williams. LeClair Ryan is the largest firm in the CBD with an active requirement. Current activity suggests they will vacate their office at 411 E Franklin and consolidate personnel to Riverfront Plaza East where they occupy roughly 68,550 square feet. However, it is unclear whether they will be expanding or contracting that footprint. Currently, the availability of large blocks is limited. Only one potential option larger than 100,000 contiguous square feet exists and is currently occupied by McGuireWoods until 2015. Larger firms seeking Trophy space in the Richmond market will be limited to new construction options that carry a 30.0 to 50.0 percent premium over the average Class A rate in the CBD. Aside from downsizes with the largest firms, an influx of incubator requirements from outside the market surfaced, backfilling Downtown’s Class A and higher-end Class B inventory. Generally centered on labor law, many of these firms are involved with preserving Virginia’s right-to-work status and seek offices with close proximity to the Capitol with space needs ranging from 5,000 to 8,000 square feet.


$25.72


9.7%

5.9%

32.4%





$40.00/$25.00 TI allowance ($ p.s.f.)**

6



2013 LAW FIRM COMPLETED TRANSACTIONS Hunton Williams 951 E Byrd Street 257,349 s.f. Renewal McGuireWoods 800 E Cary Street 217,000 s.f. Relocation Troutman Saunders 1001 Haxall Point 104,722 s.f. Renewal

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) LeClair Ryan

70,000

McCandlish Holton

35,000

OUTLOOK

2.5%


5

7/4




• Limited large blocks of space are available in the CBD’s first-generation building supply. • New construction rates carry a substantial premium to the existing building inventory.


• Anticipated relocations and downsizes in 2015 will open a block of space greater than 200,000 square feet. • Rightsizing within some of the CBD’s Trophy assets have placed discounted sublet space on the market. • Concession packages remain strong in the CBD due to limited new leasing activity.

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Sacramento Locational preference: The majority of law firms are concentrated in the Capitol Mall district, along Capitol Mall between 3rd and 7th Street and the Government Affairs district, along L and K Street between 8th and 12th Street. Moving forward, we expect to see some tenant migration closer to new ESC following its completion in 2016.

14.2%

5.0%



Tenant-favorable market conditions over the past 24 months, with landlords offering generous concessions and below historical average rental rates for Class A office space, allowed law firms to trade up to higher quality space options during the peak of the downturn. Additionally, many firms were able to execute early renewals or extensions, while negotiating for lower lease rates than their contracts signed during the peak of the market. As a result, the majority of law firm leases are not set to expire until the 2016-2017 time frame. Over the next 36 to 48 months, Sacramento’s CBD is expected to reach full recovery, leaving few existing options for prospective tenants looking to relocate or expand. Additionally, rental rates are expected to be 15.0 to 20.0 percent higher than current rates tenants are facing.

2



2013 LAW FIRM COMPLETED TRANSACTIONS Jackson Lewis 801 K Street 17,000 s.f. Renewal Olson Hagel & Fishburn 555 Capitol Mall 13,299 s.f. Renewal

Law firm tenants that are actively signing leases today are falling in line with the recent rightsizing trend, consolidating their footprints and partner private office sizes, to utilize space more efficiently. Looking forward, the future development of Sacramento’s Entertainment and Sports Complex is likely to have an impact on demand from law firms looking to relocate in closer proximity to the ESC, therein attaining additional locational capital that will come from the completion of the new sports complex.

12

Cordell Practice 500 Capitol Mall 4,989 s.f. Relocation and expansion

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Crowell and Lewis

10,000

Confidential


$31.20

OUTLOOK

2.5%



15.0%

6.8%

30.0%





$55.00/$25.00 TI allowance ($ p.s.f.)**

8,000

10/5




• The window for generous concessions is closing; rents for remaining large blocks are poised to grow substantially over the next 12 to18 months. • Firms can expect increased demand from private and public sector office tenants over the near term as the hype surrounding the new entertainment and sports complex drives office demand in the downtown market.


• Rents are holding steady for the immediate future, leaving opportunity for law firms looking to relocate or blend and extend their existing leases. • Redevelopment projects around the new ESC may present opportunities for law firms to transition into creative use floorplates.

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San Diego Locational preference: San Diego’s major law firms are concentrated in four submarkets – Downtown, Del Mar Heights, University Towne Centre (UTC) and Mission Valley. Law firms are primarily concentrated in Del Mar Heights, Downtown and UTC, with Mission Valley a less popular, but still viable submarket home to a notable group of legal tenants.

18.5%

2.1%



Leasing activity among San Diego’s law firms has slowed in the last year due in large part to the industry’s continued trend of rightsizing and consolidation. Another factor contributing to legal tenant demand tapering off dramatically was the surge of activity in 2010 and 2011, when those who could have restructured early did so, as rents were depressed and space availabilities peaked. Those deals locked the majority of San Diego’s firms into 8-to 10-year leases, which left very few with a need to lease space in the years that immediately followed. As an example of this, 672,000 square feet of law firms were inked in 2010 compared to only 109,000 square feet so far in 2013. For those tenants in the market now, however, a different dynamic is in play: a diminishing quantity of quality space and rents escalating. The inventory of available law firm-quality space is tightening quickly, especially in submarkets popular among legal tenants such as UTC, Del Mar Heights and Mission Valley (Downtown, in contrast, still has numerous space options). For the most part, asking rents are increasing and concessions are waning farther as the market continues to tighten. Furthermore, with no new speculative construction planned to deliver in the next two years, this trend is forecasted to continue.


$33.69


14.4%

7.9%

26.6%





$43.00/$10.50 TI allowance ($ p.s.f.)**

20



2013 LAW FIRM COMPLETED TRANSACTIONS Perkins Coie 11988 El Camino Real 27,629 s.f. Expansion/extension Ogletree Deakins 4370 La Jolla Village Drive 8,842 s.f. New deal to the market Friedberg & Bunge 655 W Broadway 5,761 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Morrison Foerster

80,000

Sheppard Mullin

55,000

Troutman Sanders

18,000

OUTLOOK

3.5%


11

7/7




• The submarkets that law firms have historically occupied are tightening with fewer options for larger users. • Popular submarkets’ rental rates are on the rise with tightening concessions for the top-quality large spaces. • Until 2015, when the first phase of speculative construction may begin to deliver, law firms must pick between existing space or a costly build-to-suit option.


• With firms right-sizing, opportunities for high-end second generation space are becoming available. • Proposed, Class A/ Trophy space in Del Mar Heights and UTC will deliver options for firms in two to three years’ time. • With firms leaving the CBD for the suburbs, pricing downtown is becoming more aggressive, driven by The Irvine Company.

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San Francisco Locational preference: The vast majority of law firms prefer to office in high-profile buildings concentrated in or bordering the North Financial District, where there is a large concentration of premium Class A office product. Firms, especially within the AmLaw 100, also prefer to be located on higher floors with quality view space.

6.9%

7.7%



Activity among law firms has been greatly subdued over the past year, conceivably one of the most stagnant periods in the last decade, as the legal industry still recovers from declines experienced during the recession. Firms that have managed to succeed, however, are those with strong ties to the thriving technology industry and start-up community, such as Fenwick & West, Wilson Sonsini, and Cooley. These firms, as well as other law firms that have remained competitive, are some of the few maintaining their current footprints or expanding.

19



2013 LAW FIRM COMPLETED TRANSACTIONS Gordon & Rees 275 Battery Street 50,195 s.f. Renewal McKenna Long & Aldridge 1 Market Plaza, Spear Tower 42,288 s.f. Sublease

While law firms still experience moderate leverage in the market due to a significant amount of new supply coming online, the landlord community remains bullish as a result of the flourishing technology industry. Though, despite a slight rent premium for new construction, the capital expenditure involved in relocation is a bitter pill many law firms are unwilling to swallow. Although the shifting landscape of the market presents its own challenges, law firms in San Francisco strive to enhance the quality and culture of their firms through creating more efficient, collaborative and welcoming office space as they look out over the next 10 to 20 years.

44

Allen Matkins 3 Embarcadero Center 39,825 s.f. Renewal

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Cooley


$57.63


23.8%

5.0%

30.1%





$48.00/$25.00 TI allowance ($ p.s.f.)**

Coblentz Patch Duffy

85,000

Fenwick & West

60,000

OUTLOOK

3.0%


150,000

4/2




• Law firms will continue to compete with high-growth technology tenants for large blocks of space. • With several large lease expirations coming over the next two to three years, tenants will have to weigh their options as rents continue to rise. • New supply slated to hit the market may prove cost-prohibitive for smaller firms.


• A surge of new development delivering to the market this year will bring welcome relief to an otherwise supply-constrained market. • As tech tenants compete over the hotly contested South of Market and South Financial District submarkets, large blocks of space remain available in the North Financial District.

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Seattle-Bellevue Locational preference: The majority of law firms are located in the Seattle CBD, Belltown/Denny Regrade, Pioneer

Square and Bellevue CBD submarkets of the Seattle-Bellevue office market. Firms gravitate to buildings within the core with views of Puget Sound, close-in amenities and a dense urban atmosphere. While there are many firms in Class A properties, a majority of the smaller firms are in the plethora of Class B buildings in these areas.

13.8%

5.6%



2013 has been a very active year for the law office climate in the Seattle market. Whereas in recent years the trend has been rightsizing, this year a majority of the firms have renewed their existing space, extended their leases or expanded to accommodate growth and lock in rates before they escalate. While law firms are having to compete with technology companies for the highly sought-after premier Class A space in and around the CBD, they are also finding that the explosive growth of blue chip tech firms, coupled with the flourishing startup scene, is providing an opportunity to capitalize on a rise in mergers and acquisitions and the commensurate increased need for patent, litigation and hiring advice and consulting. Market vacancy has been on the decline and top-tier space continues to dwindle. Law firms seeking space in the northern part of the CBD face a lack of options and elevated rental rates. While not particularly newsworthy, leasing activity has recently picked up in the South CBD. There is still, however, a significant amount of premier Class A inventory in this area. Landlords may favor dealing with law firms, as they have traditional needs in terms of deal structure, while many tech tenants are seeking lease flexibility. This, along with openness to locating in the South CBD, may provide firms in the market for space with much needed leverage.


$33.11


30.0%

5.0%

30.0%





$60.00/$40.00 TI allowance ($ p.s.f.)**

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2013 LAW FIRM COMPLETED TRANSACTIONS Foster Pepper 1111 3rd Avenue 92,671 s.f. Renewal with expansion Karr Tuttle Campbell 701 5th Avenue 39,617 s.f. Relocation Ryan Swanson & Cleveland 1201 3rd Avenue 31,807 s.f. Renewal

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Christianson O'Connor Johnson Kindness

35,000

Helsell Fetterman

22,000

Pacifica Law Group

20,000

OUTLOOK

3.0%


7

8/4




• Firms are competing with tech companies for premier Class A space in and around the CBD. • Market momentum shifting to landlords, making them feel more comfortable raising rental rates and cutting back concessions. • Adjusting to quickly changing company dynamics in Seattle; more technology, younger demographics.


• As tech companies flood to North CBD and South Lake Union, South CBD has premier Class A space at lower rental rates and higher concessions. • The flourishing startup scene in Seattle provides an opportunity for future M&A work. • Massive employment growth in the CBD area will add to potential client pool, both corporate and individual.

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Stamford, CT Locational preference: The majority of law firms and practices are concentrated in the Stamford CBD/Railroad

submarket, which has direct access to transit. Firms also dot the periphery of the CBD/Railroad in Stamford’s other submarkets that are slightly farther from the transit hub and offer more competitive pricing. The Greenwich CBD/Railroad is also a desired location for law firms as well, but space is priced at a premium.

5.5%

2.5%



A significant reduction in law firm activity in Fairfield County transpired at the start of 2013. Many law firms exercised early extension and renewal options as market rents bottomed back in 2011 and 2012, resulting in a dearth of activity related to imminent lease expirations. That being said, law firms that have recently leased space or are looking for space have tended to favor relocations in favor of renewing in place. The change in preference indicates a return of confidence as certainty in workflow and labor pool dynamics allows firms to find the best space for their needs – even if that means relocating. The supply line is more uncertain. Rents are ticking up; large blocks of direct space were at a minimum until recently. Recently added blocks are unlikely to sit on the market, however, given few alternatives. UBS’ sublease space is steadily being absorbed at 400 Atlantic, while the entirely vacant BLT Financial Centre remains the elephant in the room. The vacancy is not directly impactful at the moment as ownership is waiting to open the doors for a major tenant. Once they do, increased availability could suppress or even exert downward pressure on rents. Whether the priority is cost-effectiveness or transit-location, short-term opportunities are limited, but more options will emerge in the medium term.


$46.60


9.4%

7.6%

18.5%





$35.00/$25.00 TI allowance ($ p.s.f.)**

3



2013 LAW FIRM COMPLETED TRANSACTIONS Day Pitney 24 Field Point Road 7,900 s.f. Relocation Ogletree Deakins 281 Tresser Boulevard 6,455 s.f. New deal to the market

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Kelley Drye

35,000

O'Connor Davies

12,000

OUTLOOK

$1.00


2

3/3




• Pricing at premier assets close to transit is close to pre-recession levels and concessions are tightening. • Previously abundant sublease options are dwindling, reducing lower cost space availability. • Limited tenant movement due to early renewals signed during the recession period is restricting relocation options in the short term.


• Many firms are rightsizing, creating built-out space opportunities for firms considering expansions or looking for a more cost-effective sublease. • Medium to long-term new construction options are on the horizon, which could offer more high-quality space options near to transit. • There are major developments under way, encouraging a mixed-use, 24/7 environment that will help attract talent to the area.

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St. Louis Locational preference: The major St. Louis firms are concentrated in two of the region’s submarkets, Clayton and the CBD. These submarkets offer high-rise buildings with large floor plates and close proximity to city and county courts.

19.5%

3.7%



After several years of moving sideways, St. Louis saw its office space demand by area law firms begin to escalate most recently. While there are fewer firms in the market compared to last year, many have done small expansions increasing footprints from 4.0-22.0 percent. Firms are seeing an increase in healthcare clients, technology start-ups as the local entrepreneurship community continues to grow and even some merger activity. Husch Blackwell recently merged with Dallas-based Brown McCarroll and had the transaction closed earlier in the year it would have given St. Louis its second headquartered AmLaw 100 law firm.

9

5



2013 LAW FIRM COMPLETED TRANSACTIONS Greensfelder 10 S Broadway 105,000 s.f. Renewal Dentons 211 N Broadway 40,000 s.f. Renewal

An improving office and labor market has led to a shrinking supply of Class A availabilities. A year ago Clayton had five Class A spaces over 25,000 square feet available and now there are none. The CBD offers eight such options but only three of those spaces are above 50,000 square feet. This, coupled with no new construction, means options are limited for the larger firms. However, it is expected that many will be unactive in the search arena until 2015 and beyond due to existing lease expiration schedules.

Spencer Fane 1 N Brentwood 26,000 s.f. Expansion



$21.71


14.7%

12.0%

9.8%





$40.00/$20.00 TI allowance ($ p.s.f.)**

30,000

Schlichter Bogard Denton

20,000

MVP Law Firm

17,500

OUTLOOK

$0.50


Carmody MacDonald

8/4




• Lack of construction limits options to existing product. • There are no Class A blocks of space larger than 25,000 square feet available in Clayton. • Limited supply of space in Clayton minimizes the opportunity to create competition amongst landlords.


• Market availability in the CBD is allowing law firms to make small expansions when needed. • Lack of competition from law firms as most firms signed lease more than two years ago. • The St. Louis CBD, despite tightening, remains a tenant-favorable market.

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Tampa Bay Locational preference: Law firms are split between two submarkets in Tampa. The first submarket is the Tampa CBD

which is home, on average, to 76.0 percent of Tampa law firms. The second submarket is Westshore, which accounts for 19.0 percent of law firms. Due to the lack of availability of contiguous blocks of space greater than 50,000 square feet in the Tampa CBD, law firms may continue their slow migration to Westshore. That being said, new construction in the CBD would be enough to encourage law firms to stay put near the courthouse.

30.3% 14.2%



Barring that leasing activity on the behalf of law firms does not change in the latter half of 2013, the current year will post the highest amount of leased space by law firms, in Tampa’s CBD Class A space, since 2004. This is due to a couple of reasons. First is that firms already located within Tampa are expanding. Second, 2013 falls on the natural five-year leasing cycle for law firms that signed deals in 2003, which currently has the second highest lease totals this century. Lastly, firms that may have left downtown during the recession for cheaper suburban rental rates are returning to the common home of law firms in the Bay area.

4

5



2013 LAW FIRM COMPLETED TRANSACTIONS Hill Ward Henderson 101 E Kennedy Boulevard 71,576 s.f. Renewal Wilkes & Mchugh 1 N Dale Mabry Hwy 29,476 s.f. Renewal

Moving forward, Tampa’s CBD may struggle to continue landing large law firms due to its availability of contiguous space greater than 50,000 square feet in higher quality buildings. At the present time, there are no blocks of contiguous space within the Class A product set in downtown greater than 47,000 square feet. In comparison, Westshore has five blocks of contiguous space greater than 50,000 square feet. For the past two years, Westshore secured 20 percent of the leases signed by law firms, which is an increase of 21.2 percent over the 2010 to 2011 average.

Morris Hardwick 5110 Eisenhower Boulevard 18,000 s.f. Renewal with expansion



$23.37


19.5%

3.4%

18.3%





$27.00/$12.00 TI allowance ($ p.s.f.)**

80,000

Trenam Kemker

75,000

Butler Pappas

65,000

OUTLOOK

3.0%


Folwer White Boggs

11/4




• No contiguous blocks of space greater than 50,000 square feet are available in the Tampa CBD. • Rents are on the rise with concessions decreasing. • No speculative construction has been announced.


• Westshore is becoming a more accepted option for law firms, which allows for greater leverage in negotiation. • Firms have the ability to split up shop; that is, have small office in CBD near courthouse with larger office in suburban market at a lower rent.

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Washington, DC Locational preference: The majority of law firms are located in the CBD, East End and Capitol Hill submarkets of

Washington, DC. New developments with efficient floorplates are also attractive to law firms. Given few large existing quality blocks of space in the core, many AmLaw 100 firms are considering future developments with several of these options located in fringe locations of the CBD and East End, increasingly the northern part of the CBD or the emerging Mount Vernon Triangle segment of the East End.

45.0%

4.4%



Washington, DC is one of the top global law markets, containing the second highest number of lawyers in the country following New York. AmLaw 100 law firms located within the District of Columbia recorded profit growth of 4.6 percent year-over-year, primarily a reflection of firms’ ability to cut costs. In recent years, some Washington, DC law firms have seen top-line revenues stagnate or decline as fee compression has intensified. As a result, many law firms maintained profit margins by becoming operationally leaner, trimming overhead and shifting administrative functions to lower cost markets. In 2013, Pillsbury, Patton Boggs and K&L Gates were three firms that moved forward with plans to cut local payrolls and trim their downtown Washington, DC real estate holdings.

91

95



2013 LAW FIRM COMPLETED TRANSACTIONS Arnold & Porter 601 Massachusetts Avenue, NW 375,000 s.f. Relocation Sidley Austin 1501 K Street, NW 289,000 s.f. Renewal

The next wave of large law firm lease expirations is not set to occur for another few years, as over 4.0 million square feet of leases are set to expire over a 24-month period between 2016 and 2017. Large firms such as Hogan Lovells, Venable, Finnegan Henderson, Morgan Lewis and Steptoe & Johnson are expected to enter the market well ahead of their lease expirations in those years, evaluating both existing options and potential new developments.

Pillsbury 1200 17th Street, NW 108,000 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Steptoe & Johnson


$59.50


24.8%

5.0%

32.2%





$95.00/$70.00 TI allowance ($ p.s.f.)**

Reed Smith

80,000

Proskauer

75,000

OUTLOOK

2.3%


260,000

10/5




• Quality existing blocks of space are dwindling and the under construction pipeline is 75.0 percent preleased. • Prime locations for new developments are largely unavailable, so relocations to new construction may require being located farther off-Metro in a fringe location. • Potential for rent increases exists once the current oversupply in the market is reduced.


• Competition in the marketplace is low given a finite number of near-term lease expirations and limited organic growth in the broader market. • Concession packages remain at all-time highs and generous free rent and tenant improvement allowances have driven net effective rents down approximately 8.0 percent from their 2008 peak.

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White Plains, NY Locational preference: The majority of law firms and practices are concentrated in the White Plains CBD/Railroad submarket, which has a substantial government presence and direct transit access. Firms are also located in the White Plains East submarket and along the Eastern portion of the I-287 Corridor, where many high quality assets are located in more suburban officepark environments.

12.0% 11.1%



Law firms are one of the primary sources of office space demand in Westchester. Slow local economic growth and tepid office market conditions continue to lead many of these tenants to extend or sign renewals. Three-quarters of law firm leases signed during the first six months of 2013 were renewals. New activity is isolated to the White Plains CBD/Railroad where high-quality space close to transit is limited.

2



2013 LAW FIRM COMPLETED TRANSACTIONS Kaufman Borgeest & Ryan 200 Summit Lake Drive 6,565 s.f. Expansion

A handful of requirements are out in the market, led by Jackson Lewis, out for two blocks of space totaling approximately 75,000 square feet and Bleakley, Platt & Schmidt for about 32,000 square feet. Jackson Lewis is strategizing their relocation in two parts – putting their attorneys close to transit, while locating their support staff in a periphery submarket to better manage costs. Merger and acquisition activity is also emerging and impacting the local economic fabric. Recently, a few small, private attorneys have joined forces to better utilize resources and space. There has also been merger talk between larger local firms. This activity comes at a time when the county government – historically a mainstay of office space and professional service demand – is contracting. Without this piece of demand, the business outlook for law firms is less optimistic, hampering their ability to take advantage of tenant-favorable office market conditions. Yet, while law firms are not growing, a substantial federal government presence in White Plains will help law firms maintain their existing footprints.

2

LNK Partners 81 Main Street 5,185 s.f. Renewal Bowler & Gaynor 10 Bank Street 3,279 s.f. Relocation

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Jackson Lewis

75,000

Bleakley Platt & Schmidt

32,000

Cerussi & Spring


$28.49

OUTLOOK

$0.75



15.8%

1.7%

12.2%





$29.00/$15.00 TI allowance ($ p.s.f.)**

8,000

5/3




• Much of the office product in the market is aging or functionally obsolete, limiting location choice. • The county government is downsizing and this is a direct driver for local legal services demand. • The area struggles to attract and retain workers, particularly young talent, because of a high cost of living.


• There are limited requirements in the market, creating more negotiating room for law firms. • Large sublease blocks on the market continue to put downward pricing pressure on landlords. • Higher-education institutions and law schools have a strong presence in the market, creating a labor pool suitable for recruitment.

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Wilmington, DE Locational preference: Law firms have historically concentrated in downtown Wilmington proximate to Rodney Square

and the downtown courthouses, which notably include the Delaware Court of Chancery–one of three constitutional courts, U.S. Bankruptcy Court and New Castle County Courthouse. Given Wilmington’s strategic presence for corporate litigation and bankruptcy law, law firms will continue to make location decisions based on proximity to its courthouses. However, law firms are more willing to migrate to Delaware Avenue, a shift away from the North King Street corridor.

25.7% 38.4%



With little large law firm rollover in the near term, small- to mid-sized users are driving market activity, capitalizing on opportunities for a flight to quality at top-tier Class A assets. Eckert Seamans and Campbell & Levine secured leases to relocate to 222 Delaware Avenue from Class B buildings in the beginning of 2013, and following M&T Bank’s consolidation at 1100 N Market Street, Drinker Biddle entered the market for 14,000 square feet, looking to similarly relocate to a higher quality asset. Wilmington’s reputation as the corporate capital of the United States is attracting new law firm occupiers, focused on growing corporate litigation and bankruptcy practices. Following an acquisition-driven entrance via new partners from the firm Edwards Angell Palmer & Dodge, DLA Piper signed a 17,000-square-foot lease to relocate with expansion to 1201 N Market Street, securing one of few remaining Downtown, Class A+ blocks of this size. Wilson Sonsini additionally entered the Wilmington market for a new, 8,000-square-foot location. New market entrants are also migrating from temporary Regus space into permanent offices: Barnes & Thornburg relocated into 8,797 square feet at the Brandywine Building and K&L Gates leased 7,857 square feet at Renaissance Centre. While positive for market absorption, select local firms are faced with difficult real estate decisions given risks associated with partner acquisitions by new market entrants.


$30.20


35.7%

10.0%

37.2%

Premium for Class A+ space*




$40.00/$20.00 TI allowance ($ p.s.f.)**

19



2013 LAW FIRM COMPLETED TRANSACTIONS Novak Druce (formerly Connolly Bove) 1007 N Orange Street 60,000 s.f. Renewal with contraction Eckert Seamans 222 Delaware Avenue 24,384 s.f. Relocation Fox Rothschild 919 N Market Street 18,500 s.f. Relocation (in building)

ACTIVE LAW FIRM REQUIREMENTS IN THE MARKET (s.f.) Skadden

60,000

Wilson Sonsini

8,000

Reger Rizzo

5,500

OUTLOOK

$0.50


7

12/5




• There are limited available quality blocks greater than 25,000 square feet and proximate to courthouses. • Flight to quality driving occupancy gains and rent growth at top-tier product. • Law firms sensitive to high costs associated with implementing a modern workplace environment.


• Class A landlords are repositioning assets. • There is limited competition in the market for law firm quality, Class A space. • A tepid recovery is preventing future concession compression.

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Appendix Law firm and overall office-using employment statistics 2013 law firm lease transactions > 50,000 s.f. Active law firm active requirements > 50,000 s.f. Law firms’ emphasis on efficiency Law firm concentration Class A asking rents, tenant improvement allowances and free rent Market outlook favorability for law firm-concentrated submarkets


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Law firm and overall office-using employment statistics Total nonfarm jobs 12-month net change (000's)

Total nonfarm jobs 12-month percent change

Office jobs 12-month net change (000's)

Office jobs 12-month percent change

Legal services 12-month net change (000's)

Legal services 12-month percent change

73.7 27.0 20.2 45.3 18.6 66.6 13.0 -9.4 14.7 108.4

3.1% 3.3% 1.5% 1.8% 2.2% 1.5% 1.3% -0.9% 1.5% 3.6%

30.1 9.0 10.3 18.8 0.9 41.7 9.8 -3.9 2.7 40.7

4.6% 4.7% 3.4% 2.8% 0.4% 3.7% 4.1% -1.7% 1.1% 6.5%

1.0 0.1 0.6 0.3 0.3 0.2 0.2 -0.6 -0.2 0.8

4.3% 1.4% 4.8% 1.2% 4.8% 0.4% 2.7% -5.4% -2.8% 3.1%

1.0% 0.9% 1.0% 1.0% 1.0% 1.1% 0.8% 1.1% 0.7% 0.9%

3.6% 3.7% 4.3% 3.6% 2.7% 4.1% 3.1% 4.8% 3.0% 4.0%

Denver

35.1

2.8%

15.7

4.3%

0.8

5.8%

1.1%

3.9%

Detroit Fairfield Co. (Stamford, CT) Fort Lauderdale Houston Indianapolis Los Angeles Miami Milwaukee Minneapolis New Jersey New York Oakland-East Bay Orange County Orlando Philadelphia Phoenix Pittsburgh Portland Raleigh-Durham Richmond

9.5 7.1 15.5 96.1 15.9 57.6 6.9 7.4 49.6 75.5 71.3 8.7 25.4 24.4 27.6 40.6 15.7 22.6 4.9 3.6

0.5% 1.7% 2.1% 3.6% 1.7% 1.5% 0.7% 0.9% 2.8% 1.9% 1.8% 0.9% 1.8% 2.3% 1.1% 2.3% 1.4% 2.2% 0.9% 0.6%

0.2 1.9 3.1 16.5 4.9 26.1 3.8 3.8 14.3 18.4 0.3 -0.1 7.8 5.1 10.7 11.1 11.4 8.7 1.9 -4.3

0.0% 1.6% 1.6% 2.8% 2.3% 2.7% 1.7% 2.0% 3.1% 2.0% 0.0% 0.0% 2.0% 2.0% 1.6% 2.4% 4.3% 3.8% 1.3% -2.7%

0.6 0.1 0.2 0.2 0.0 -0.3 -0.6 0.1 0.1 -0.5 -1.2 0.2 0.0 0.0 -0.1 0.2 1.2 0.1 0.1 -0.3

3.3% 2.8% 1.4% 0.8% 0.0% -0.6% -2.8% 1.4% 0.6% -1.3% -1.5% 3.2% 0.0% 0.0% -0.4% 1.5% 9.0% 1.2% 2.3% -4.8%

1.0% 0.9% 2.0% 0.9% 0.8% 1.2% 2.0% 0.9% 0.9% 0.1% 2.0% 0.7% 1.1% 1.2% 0.9% 0.7% 1.2% 0.8% 0.9% 0.9%

4.0% 2.9% 7.5% 4.0% 3.4% 4.8% 9.1% 3.9% 3.4% 4.0% 6.1% 2.7% 3.9% 4.7% 3.8% 2.8% 5.2% 3.5% 3.1% 3.9%

Sacramento San Diego

0.9 19.9

0.1% 1.6%

-0.7 6.1

-0.4% 2.0%

0.5 0.1

7.4% 0.8%

0.9% 1.0%

4.1% 3.9%

24.1 48.1 20.7 12.6 42.2 58.3 2.2 2,276.0

2.4% 2.8% 2.3% 1.0% 3.7% 1.9% 0.4% 1.7%

10.9 10.4 14.5 0.2 11.8 16.6 0.3 757.0

3.1% 2.5% 5.4% 0.2% 3.7% 1.8% 0.2% 2.7%

-0.1 0.4 0.6 0.3 0.9 -0.4 0.1 6.3

-0.6% 2.7% 8.5% 2.4% 5.4% -0.9% 1.9% 0.6%

1.7% 0.9% 0.8% 1.0% 1.5% 1.5% 1.0% 0.8%

4.8% 3.5% 2.7% 4.1% 5.3% 4.8% 4.5% 3.9%

MSA

Atlanta Austin Baltimore Boston Charlotte Chicago Cincinnati Cleveland Columbus Dallas

San Francisco Seattle-Bellevue Silicon Valley (Palo Alto) St. Louis Tampa Washington, DC Westchester Co. (White Plains, NY) United States

Local market data as of July 2013 United States employment data as of August 2013 using July 2013 revisions

Legal Legal services, % services, of total non- % of officefarm using jobs


Jones Lang LaSalle

Table of contents

2013 law firm lease transactions > 50,000 s.f Law firm

Address

Market

Simpson Thacher Arnold & Porter Goodwin Procter Sidley Austin Pepper Hamilton Hunton Williams McDermott McGuireWoods Dentons Patterson Belknap Drinker Biddle Bryan Cave Porter Wright Ice Miller Wilson Sonsini Bose McKinney & Evans Gray Plant Mooty Pillsbury Quarles & Brady Dickie Mccamey & Chilcote Greensfelder Troutman Saunders Baker Botts Foster Pepper KMK Michael Best & Friedrich Miller & Chevalier Dykema Simpson Thacher Pillsbury BakerHostetler Lewis & Roca Hill Ward Henderson Miller Canfield Bingham Greenebaum Doll GrayRobinson Drinker Biddle Novak Druce (prev. Connolly Bove) Sheppard Mullin Lewis Brisbois Newmeyer & Dillion Kegler Brown Hall & Evans Gordon & Rees Dickinson Wright Johnson & Freedman Parker Poe

425 Lexington Avenue 601 Massachusetts Avenue, NW 2 Harbor Shore Drive 1501 K Street, NW Two Logan Square 951 E Byrd Street 444 W Lake Street 800 E Cary Street 233 S Wacker Drive 1133 Avenue of the Americas One Logan Square 1201 West Peachtree Street 41 S High Street 1 American Square 601 California Avenue 111 Monument Circle 80 South 8th Street 1200 17th Street, NW 2 N Central Avenue 2 PPG Place 10 S. Broadway 1001 Haxall Point 30 Rockefeller Plaza 1111 3rd Avenue 1 E Fourth Street 100 E. Wisconsin 900 16th Street, NW 400 Renaissance Center 2475 Hanover Street 2550 Hanover Street 811 Main Street 201 Washington 101 E Kennedy Boulevard 150 West Jefferson 10 W Market Street 301 East Pine 600 Campus Drive 1007 N Orange Street 2099 Pennsylvania Avenue, NW 550 W Adams Street 895 Dove Street 65 East State Street 1001 17th Street 275 Battery Street 1850 N Central Avenue 1587 Northeast Expressway 301 Fayetteville Street

New York Washington, DC Boston Washington, DC Philadelphia Richmond Chicago Richmond Chicago New York Philadelphia Atlanta Columbus Indianapolis Palo Alto Indianapolis Minneapolis Washington, DC Phoenix Pittsburgh St. Louis Richmond New York Seattle-Bellevue Cincinnati Milwaukee Washington, DC Detroit Palo Alto Palo Alto Houston Phoenix Tampa Detroit Indianapolis Orlando New Jersey Wilmington, DE Washington, DC Chicago Orange County Columbus Denver San Francisco Phoenix Atlanta Raleigh-Durham

s.f. Transaction type 595,799 375,000 360,000 289,000 268,000 257,349 225,000 217,000 204,705 198,000 155,000 152,383 130,000 127,883 111,653 111,372 109,000 108,000 105,000 105,000 105,000 104,722 104,161 92,671 90,000 89,725 85,600 85,000 83,982 80,000 75,737 73,878 71,576 70,000 70,000 70,000 60,000 60,000 59,000 54,782 53,036 52,000 50,875 50,195 50,119 50,000 50,000

Renewal Relocation Relocation Renewal Renewal Renewal Relocation Relocation Relocation (in building) Renewal Renewal with contraction Renewal Renewal Renewal with contraction Renewal Renewal with contraction Renewal Relocation Renewal with contraction Renewal Renewal Renewal Renewal Renewal with expansion Renewal Renewal Relocation Renewal Relocation Relocation Rellocation Relocation Renewal Renewal Renewal with contraction Renewal Relocation Renewal with contraction Relocation Renewal with expansion Renewal Renewal Relocation Renewal Relocation Renewal Relocation

Growing, stable or rightsizing? Stable Rightsizing Rightsizing Rightsizing Stable Stable Rightsizing Rightsizing Rightsizing Stable Rightsizing Stable Stable Rightsizing Stable Rightsizing Stable Rightsizing Rightsizing Stable Stable Rightsizing Stable Growing Stable Rightsizing Growing Stable Stable Stable Stable Rightsizing Growing Stable Rightsizing Growing Rightsizing Rightsizing Rightsizing Growing Stable Stable Stable Rightsizing Stable Stable Growing


Jones Lang LaSalle

Table of contents

Active law firm active requirements > 50,000 s.f. Law firm

Size

Market

Growing, stable or rightsizing

Weil Gotshal Jones Day White & Case Steptoe & Johnson Sidley Austin Dorsey Seyfarth Shaw Locke Lord Fenwick & West Baker Hostetler Holland & Hart Cooley Goulston & Storrs Stoel Rives Gardere Holland & Knight Polsinelli Eckert Seamans Gardere Briggs & Morgan Lindquist & Vennum Wolff & Samson Whiteford Taylor & Preston Freeborn & Peters Godfrey & Kahn Morrison Foerster Coblentz Patch Duffy Jackson Walker Shutts & Bowen Sills Cummis & Gross Morrison Foerster Folwer White Boggs Reed Smith Akin Gump Nixon Peabody Womble Carlyle Trenam Kemker Proskauer Connell Foley Perkins Coie LeClair Ryan Butler Pappas Jackson Walker Confidential White & Case Pond LeHocky Fenwick & West Skadden Sheppard Mullin Confidential Greenspoon Marder White & Case Sheppard Mullin Jones Skelton & Hochuli Morgan Lewis

500,000 400,000 400,000 260,000 250,000 250,000 200,000 160,000 160,000 150,000 150,000 150,000 140,000 130,000 110,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 90,000 90,000 90,000 90,000 85,000 80,000 80,000 80,000 80,000 80,000 80,000 75,000 75,000 75,000 75,000 75,000 70,000 70,000 70,000 65,000 60,000 60,000 60,000 60,000 60,000 60,000 55,000 50,000 50,000 50,000 50,000 50,000 50,000

New York New York New York Washington, DC Los Angeles Minneapolis Chicago Dallas Silicon Valley Cleveland Denver San Francisco Boston Portland Dallas Chicago Denver Pittsburgh Houston Minneapolis Minneapolis New Jersey Baltimore Chicago Milwaukee Silicon Valley San Francisco Dallas Miami New Jersey San Diego Tampa Washington, DC Houston Los Angeles Raleigh-Durham Tampa Washington, DC New Jersey Portland Richmond Tampa Austin Columbus Miami Philadelphia San Francisco Wilmington San Diego Detroit Fort Lauderdale Los Angeles Orange County Phoenix Silicon Valley

Rightsizing Stable Stable Stable Stable Rightsizing Rightsizing Rightsizing Stable Rightsizing Stable Stable Rightsizing Rightsizing Rightsizing Rightsizing Growing Stable Stable Rightsizing Rightsizing Stable Stable Rightsizing Stable Stable Stable Rightsizing Rightsizing Stable Stable Stable Stable Stable Stable Stable Stable Stable Rightsizing Rightsizing Stable Stable Stable Stable Rightsizing Growing Stable Stable Rightsizing Stable Stable Stable Rightsizing Rightsizing Stable


Jones Lang LaSalle

Table of contents

Law firms’ emphasis on efficiency Percent of space law firms are shedding when moving to a new space Dallas Wilmington San Diego Philadelphia Phoenix Washington, DC Tampa Charlotte Baltimore Orange County New York New Jersey Boston St. Louis Seattle-Bellevue Sacramento Milwaukee Pittsburgh Los Angeles Columbus Cleveland Cincinnati Stamford, CT Minneapolis Denver Oakland-East Bay Portland Richmond Miami Detroit Atlanta Orlando San Francisco Indianapolis Fort Lauderdale Chicago Houston Austin Raleigh-Durham Palo Alto White Plains, NY 0%

5%

10%

15%

20%

25%

30%

35%


Jones Lang LaSalle

Table of contents

Law firm concentration Number of law firms occupying greater than 50,000 s.f. New York Washington, DC Chicago Los Angeles Boston Houston Dallas Philadelphia Atlanta New Jersey San Francisco Minneapolis Denver Detroit Phoenix Cleveland San Diego Pittsburgh Charlotte St. Louis Orange County Columbus Indianapolis Cincinnati Baltimore Austin Wilmington Seattle Milwaukee Palo Alto Richmond Portland Miami Orlando Tampa Bay Raleigh-Durham Westchester County Sacramento Fairfield County Oakland-East Bay Fort Lauderdale 0

20

40

60

80

100

120

140

Percent of Class A core (sub)market occupied by law firms Washington, DC Silicon Valley Austin Tampa Bay Fort Lauderdale Cleveland Raleigh-Durham Wilmington, DE Richmond Los Angeles Milwaukee Miami Philadelphia St. Louis San Diego Orlando Minneapolis Boston Chicago Dallas Houston Denver Detroit Indianapolis Sacramento Cincinnati Seattle-Bellevue Pittsburgh Portland Baltimore White Plains, NY New York Atlanta Charlotte Phoenix Orange County Oakland-East Bay San Francisco Stamford, CT Columbus New Jersey 0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Number of AmLaw 100 firms with offices locally New York Washington, DC Los Angeles Houston San Francisco Chicago Boston Silicon Valley San Diego Miami Dallas Austin Wilmington, DE Orange County New Jersey Philadelphia Sacramento Seattle-Bellevue Phoenix Charlotte Pittsburgh Denver Portland Minneapolis Baltimore Cleveland Richmond Atlanta Columbus Tampa Bay St. Louis Indianapolis Fort Lauderdale Raleigh-Durham Orlando Stamford, CT Detroit White Plains, NY Cincinnati Milwaukee Oakland-East Bay 0

20

40

60

80

100

120


Jones Lang LaSalle

Table of contents

Class A asking rents, tenant improvement allowances and free rent Average Class A asking rent ($ p.s.f. full service) Silicon Valley New York Washington, DC San Francisco Boston Stamford, CT Austin Los Angeles Miami Houston Chicago Oakland-East Bay San Diego Seattle-Bellevue Fort Lauderdale Sacramento Denver Wilmington, DE Minneapolis Atlanta White Plains, NY Pittsburgh Philadelphia Portland New Jersey Indianapolis Orange County Richmond Columbus Orlando Milwaukee Charlotte Dallas Baltimore Tampa Raleigh-Durham Cincinnati Phoenix Detroit Cleveland St. Louis $0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00

Average Class A tenant improvement allowance (new deal) Washington, DC Seattle-Bellevue Chicago New York Portland Sacramento Miami Baltimore Los Angeles Houston Boston Atlanta Cleveland San Francisco Orange County Dallas Minneapolis San Diego Wilmington, DE St. Louis Richmond Philadelphia Orlando Indianapolis Detroit Denver Columbus Cincinnati New Jersey Milwaukee Fort Lauderdale Stamford, CT Charlotte Silicon Valley Phoenix Oakland-East Bay Pittsburgh White Plains, NY Tampa Raleigh-Durham Austin $0.00

$10.00

$20.00

$30.00

$40.00

$100.00

Average Class A free rent in months (new deal) Orlando Wilmington, DE Phoenix Dallas Baltimore Atlanta Tampa Washington, DC Sacramento Orange County Los Angeles Indianapolis Detroit Cleveland Chicago St. Louis Seattle-Bellevue Portland Fort Lauderdale Columbus San Diego Richmond Raleigh-Durham New York Minneapolis Miami Charlotte Philadelphia Milwaukee Denver Cincinnati White Plains, NY Silicon Valley San Francisco Houston Boston Oakland-East Bay New Jersey Stamford, CT Pittsburgh Austin 0

2

4

6

8

10

12

14

16


Jones Lang LaSalle

Table of contents

Market outlook favorability for law firmconcentrated submarkets 2013

2014

2015

2016

2017

Austin

Landlord

Landlord

Landlord

Landlord

Landlord

Boston

Landlord

Landlord

Neutral

Neutral

Neutral

Denver

Landlord

Landlord

Landlord

Landlord

Neutral

Houston

Landlord

Landlord

Landlord

Neutral

Neutral

Philadelphia

Landlord

Landlord

Landlord

Neutral

Neutral

Pittsburgh

Landlord

Landlord

Landlord

Landlord

Landlord

San Francisco

Landlord

Landlord

Neutral

Neutral

Neutral

Palo Alto

Landlord

Landlord

Landlord

Neutral

Neutral

Charlotte

Neutral

Landlord

Landlord

Landlord

Neutral

Chicago

Neutral

Landlord

Landlord

Tenant

Tenant

Milwaukee

Neutral

Landlord

Landlord

Landlord

Neutral

Portland

Neutral

Landlord

Landlord

Landlord

Neutral

Seattle-Bellevue

Neutral

Landlord

Landlord

Landlord

Landlord

Columbus

Neutral

Landlord

Landlord

Landlord

Landlord

Atlanta

Neutral

Neutral

Landlord

Landlord

Landlord

Dallas

Neutral

Neutral

Landlord

Landlord

Neutral

Minneapolis

Neutral

Neutral

Landlord

Landlord

Landlord

Raleigh-Durham

Neutral

Neutral

Landlord

Landlord

Landlord

Tampa Bay

Neutral

Neutral

Landlord

Landlord

Landlord

San Diego

Tenant

Neutral

Landlord

Landlord

Landlord

Los Angeles

Tenant

Neutral

Neutral

Landlord

Landlord

Cincinnati

Tenant

Neutral

Neutral

Neutral

Landlord

Indianapolis

Tenant

Neutral

Neutral

Landlord

Landlord

Miami

Tenant

Neutral

Neutral

Landlord

Landlord

Orange County

Tenant

Neutral

Landlord

Landlord

Landlord

Orlando

Tenant

Neutral

Neutral

Landlord

Landlord

Phoenix

Tenant

Neutral

Landlord

Landlord

Landlord

Sacramento

Tenant

Neutral

Neutral

Landlord

Landlord

Stamford, CT

Tenant

Neutral

Neutral

Landlord

Landlord

Baltimore

Tenant

Tenant

Neutral

Neutral

Neutral

Cleveland

Tenant

Tenant

Neutral

Landlord

Landlord

Detroit

Tenant

Tenant

Tenant

Neutral

Neutral

Fort Lauderdale

Tenant

Tenant

Neutral

Landlord

Landlord

New Jersey

Tenant

Tenant

Neutral

Neutral

Neutral

New York

Tenant

Tenant

Neutral

Landlord

Landlord

Oakland-East Bay

Tenant

Tenant

Neutral

Neutral

Neutral

Richmond

Tenant

Tenant

Tenant

Neutral

Neutral

St. Louis

Tenant

Tenant

Neutral

Neutral

Landlord

Washington, DC

Tenant

Tenant

Neutral

Landlord

Landlord

White Plains, NY

Tenant

Tenant

Neutral

Neutral

Landlord

Wilmington, DE

Tenant

Tenant

Tenant

Neutral

Neutral

Jones Lang LaSalle

...

In a market environment that is largely moving away from law firms, a significant opportunity to maintain or potentially cut real estate costs is for firms to evaluate how they are utilizing their space. In studies JLL has led, 56.5 percent of law firms larger than 100,000 square feet have shrunk their occupancy when relocating offices. Looking at firms in the 50,000-square-foot range, 41.7 percent of firms have given back space when moving offices. In both of these cases, firms that moved and downsized, gave back approximately 15.2 percent of their prior footprint. Even with the vast majority of firms still not culturally aligned with moving associates to the interior or one-sized offices, substantial space savings can be realized that enhances firms’ bottom line.

About Jones Lang LaSalle Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.3 billion of real estate assets under management. For further information, visit www.jll.com.

About Jones Lang LaSalle Law Firm Group

Our Law Firm Group’s reach extends around the globe, with knowledge of law firm trends in every major market. With local presence in hundreds of markets around the world, you can feel confident in hiring a single firm for your real estate needs, while having the advantage of tailored local market expertise. Our experienced Law Firm Group can oversee your strategy, while giving you access to our integrated network of thought leaders, leading research analysts and local real estate experts. Moreover, Jones Lang LaSalle’s global platform provides you with comprehensive solutions and local expertise that matches your long-term objectives across the nation and around the world. At Jones Lang LaSalle, we take a strategic approach to understanding and solving your challenges and are ready to deliver valuable counsel at every step.

About Jones Lang LaSalle Research

Jones Lang LaSalle’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our 350 professional researchers track and analyze economic and property trends and forecast future conditions in over 70 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. For more information contact: Brokerage

Thomas E. Doughty International Director [email protected] +1 202 719 5652

Research

Elizabeth K. Cooper International Director [email protected] +1 202 719 6195

John Sikaitis Managing Director Americas Office Research [email protected] +1 202 719 5839

Lauren Picariello Vice President Americas Industry Reseach [email protected] +1 617 531 4208

www.us.joneslanglasalle.com © 2013 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.