A Case for Legal Sector Leasing

HOUSTON – (Realty News Report) – Legal sector leasing appears to be a bright spot in major market office activity nationally, a Savills USA Law Firm Activity report finds, though the increase in leasing volume has not yet returned to pre-pandemic norms. It’s getting close, though.

Fourth quarter 2021 report findings indicate a rebound in leasing “velocity” of 18 percent across major markets from the low point in the second quarter of 2021, the latter attributed to a prevailing wait-and-see attitude by law firm tenants.

That quarterly slump in volume had weighed-in at less than 10 million SF, and had followed a two-year pre-pandemic quarterly average of 1.8 million square feet. In 2020, law firm leases completed tended to be in progress prior to the pandemic so the drop in volume registered in early 2021.

As 2021 wrapped up, however, nearly every major market – including New York, Los Angeles, Chicago and Washington, DC –posted its highest quarter of transaction volume in two years. LA led the pack, with legal sector leasing nearly doubling in 2020 and 2021 in transactions spread across firms of all sizes. In Chicago, a single, 600,000-SF lease in 2021 by Kirkland and Ellis in a new building accounted for 55 percent of that city’s 32 percent rise in law firm leasing.

Law Firms Occupying New Hines Tower

Houston, cited in the report for having almost no legal sector activity in 2020 at all, did see transaction movement by year-end 2021. In the new Texas Tower by Hines, for example, legal tenant announcements include the Vinson & Elkins,  McGuireWoods and DLA Piper law firms.

Vinson & Elkins, the largest and one of the oldest law firms in Houston, has signed a 16-year lease for 208,000 SF over the top seven floors. McGuireWoods, the international law firm, has signed an 11-year lease for 30,000 square feet and will occupy the 24th floor. DLA Piper, another global law firm, has signed a 14-year lease for more than 31,000 square feet and will occupy the 38th floor.

In downtown Austin, Vinson & Elkins leased 50,273 SF in the new Indeed Tower, a new 36-story project developed by Trammell Crow with its joint venture partner, Principal Real Estate Investors. (The 730,000-SF Indeed Tower, was acquired by Kilroy Realty for $580 million.)

Baker Botts 50,000 SF

In another Austin move,  Baker Botts, the law firm founded in Houston in 1840, leased 50,000 SF in RiverSouth, a new downtown office tower developed by Stream Realty.

Looking further back, other law firm leasing in Houston has included:

Liskow & Lewis, a law firm specializing in energy, leased 30,000 SF in 1001 Fannin, a 49-story, Class A office tower owned by JMB Realty.

Susman Godfrey  expanded its offices to 76,856 SF the in the 71-story Wells Fargo Plaza at 1000 Louisiana, a downtown building owned by Metropolitan Life and an institutional investor.

Shackelford, Bowen, McKinley & Norton  signed a 15,000-SF lease at 717 Texas, a Hines building near the Theater District.

White & Case  signed an 11-year lease for 57,315 SF at 609 Main at Texas, a 48-story tower developed by Hines.

Vorys, Sater, Seymour and Pease  leased 22,627 SF at 2 Houston Center, a Brookfield Properties building at 901 Fannin

Gibbs & Bruns renewed a 40,836-SF, long-term lease at 1100 Louisiana.

Nationally, the resumption of activity in 2021 included a few new, though perhaps temporary behaviors. Among them was a shift from relocation to renewal as tenants considered the “stay vs. go scenario.” Prior to the pandemic, relocations prevailed at a rate more than double that of renewals. This more conservative approach kicked in during the uncertainty surrounding workplace returns and hybrid schedule practices, the Savills report says.

Looking forward, however, the report foresees a return to more relocations than renewals as firms “look to earn their employees commute” by offering abundant amenities, collaborative space and the latest in wellness and sustainability.

Meanwhile, the average lease term drastically shortened during the height of pandemic uncertainty and appears to be climbing again as firms make the most of tenant-favorable market conditions, the Savills report says.

Based on leasing volume across most major markets, the average lease term had dropped to 88 months, down from 110 months prior to the start of the pandemic.

And then there’s Houston, “the only outlier to this trend,” with consecutively rising leasing terms now averaging 121 months.

At 159 months and 143 months, the markets in Washington, DC and New York, respectively, have surpassed their pre-pandemic terms.

Another trend is more efficient use of space by law firms. In the sample of 2021 top leases reviewed, 45 percent of transactions had downsized the space leased, with 30 percent having negligible change and 25 percent expanding their footprint, a result attributed to firms expanding their attorney population.

Feb. 21, 2022 Realty News Report Copyright 2022.

The RALPH BIVINS PROJECT podcast welcomed guest Frank Nothaft, chief economist of CoreLogic. LISTEN:

Photo: CALpix. (Downtown Houston).

 

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