Boston – Law firms in Boston have been an active part of Boston’s dynamic office leasing market, accounting for 1.4 million sq. ft. of office leasing transactions from Q3 2018 to Q3 2019.
Law firm and legal services employment generated above average growth, according to CBRE’s 2019 North American Legal Sector Trends Report. Despite this industry wide employment growth, law firms in Boston that transacted during this time period are occupying less space: they gave back a net 124,000 sq. ft. Rents in Boston have grown dramatically over the past several years, and firms are responding to this by pushing for greater space efficiency.
A number of factors are influencing law firm decision making. First is this increase in rents in Boston – firms that are rolling out of 10- or 15-year leases are looking at rental cost increases of as much as 40-50 percent. Part of this equation is a tight office market, but this translates into limited high-quality choices. The costs to build new space or renovate existing office space have also spiraled in the past several years. This means a law firm relocating or significantly retrofitting existing space can expect a major capital event. Gaining meaningful space reduction is achieved most easily by moving to a new building – but the choices to execute this plan are limited, expensive and costly to improve. Renovating in-place to reduce space is disruptive with compromised efficiency and quality of space. Another consideration is a competitive employment market and the influence and impact that high-quality, amenity-rich and modern office space plays in attracting talent. This is a tough environment for the law firm community.
“Firms today are forced to embrace space efficiency,” stated CBRE’s David E. Fitzgerald, Vice Chairman. “Reducing footprints, through progressive trends like single-sized offices is the most impactful way to gain efficiency and realize better space metrics. Even those that are successful are unable to realize significant overall cost savings in an environment marked by rapidly rising rents. It is a tool best used to help mitigate the challenges of an extremely tight market.”
Despite high rents and low vacancy, Boston continues to attract large law firms looking to enter the market and capitalize on the robust business environment, including Morrison & Foerster, Freeman Mathis Gary, Hunton Andrews Kurth and Shook, Hardy & Bacon. In fact, Boston was the ninth fastest-growing market nationally for lawyers and eighth largest market for lawyer employment at 16,460 and ninth largest market for legal services employment at 26,200. Boston’s top-tier law schools and millennial-rich demographic will continue to drive law firms to stay in Boston for years to come.
Nationwide, the report finds that law firms are shifting recruitment strategies and expanding outside of traditional gateway cities to find new talent in lower-cost environments, often those with large, growing millennial populations.
Other report findings include:
- Almost a quarter of AM 200 Law Firms expanded in at least one location the past year, accounting for more than half of the 2.1 million sq. ft. of law firm expansions in the U.S., up from 1.6 million sq. ft. the year prior.
- Dallas saw the most expansion, with 261,301 sq. ft. of net absorption, followed by Los Angeles (210,580 sq. ft.) and Manhattan (118,869 sq. ft.).
- Five of the highest growth markets for legal sector employment (Austin, Denver, Orlando, Houston and Dallas/Ft. Worth) are also among the top 10 markets for millennial population growth nationally.
“Law firms continue to grow in markets that have emerged as strong business environments this cycle, which also happen to provide a lower cost of doing business,” said Jamie Georgas, Global Chair of CBRE’s Law Firm Practice Group. “These Millennial-rich environments offer highly skilled workers and are a strong complement to the usual legal centric markets.”