This article is sponsored by Colliers.
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Lawyers are returning to their offices with renewed commitment, but the spaces may look different and rents, though stable, may come with concessions, according to Colliers’ annual report on the legal profession’s real estate outlook across 23 North American markets hosting key legal sectors. The report was authored by Daniel Arends, a principal at Colliers and chairman of Colliers’ National Law Firm Services group.
While the sector’s real estate strategy is unique in some ways, in other ways it is indicative of the greater office marketplace. For example, hybrid working is forecast to remain. Less than a quarter of law office staff expect to work from the office full time and only 14% will work only remotely. Instead, 37% of legal staff will work remotely one or two days per week. More than a quarter plan to be remote for three or four days per week.
That’s one reason the legal industry is increasingly considering floor plans that deviate from its traditional emphasis on individually assigned spaces. When working in the office, the focus is on working with others, which benefits from spaces designed for easy collaboration. Long the modern office set-up, single-sized offices have gained ground with 87% of law firms. Increasingly, law firms value space flexibility, extra amenities and universal spaces offered by contemporary office designs.
Regardless of whether firms are renovating their own spaces or relocating into renovated spaces, 75% of legal firms are downsizing or plan to downsize their real estate footprints.
Rents for full-service, Class A offices in central business districts fell 0.6% compared to the prior year. The average across 23 markets is $45.69 per square foot, with Cleveland offering the least expensive rate – $22.61 per square foot – and Manhattan having the highest, at $82.38 per square foot. Rents in almost half the markets rose in 2021, but these increases came as a result of dramatic increases in concessions and improvement allowances.
Concessions are highest in the Northeast, with average tenant improvement allowances of $109 per rentable square foot and a year of free rent. For a 10-year lease in a Class A office in one of the 23 key North American markets included in the Colliers study, tenant improvement allowances averaged $84.24 per square foot and abatement averaged more than nine months of gross abatement. That’s more than reported a year earlier, but it should be noted that fit-out costs have risen due to shortages in materials and skilled labor.
Owners are willing to give concessions in part because legal tenants are bucking the office market trend that favors short-term leases. Most law firms – 83% – are committing to their real estate strategies with leases of 10 years and more, which is up from 80% last year.
Legal firms’ commitment to their offices is clear. Half of firms claim they are using 26% to 50% of their space. Another 28% report occupancy rates between 50% and 75%, while overall office market users report occupancy of 43%. In general, office occupancy is expected to increase throughout the year, as the market continues to stabilize.