Chicago is the second most-active market for law firm transactions, but instead of expanding square footage, companies are beginning to reduce their footprint.
According to data compiled by CBRE, 65 percent of transactions between the first quarter of 2016 and the second quarter of 2017 have resulted in a contraction of space. On average law firms are reducing their office space by 23 percent. Through this time period, the city saw 1.6 million square feet of leasing activity 90 percent of which were renewals.
This trend is generally a response to advances in technology, shifting client demand, aging workforce and increasing competition to attract and retain skilled talent, according to a report from CBRE.
“Law firms are optimizing their real estate portfolios to avoid excess expenses on antiquated workplaces that value space per attorney over client and employee expectations,” Jamie Georgas, global chair of CBRE’s Law Firm Practice Group said in a statement. “To minimize risk around uncertain headcount requirements, many law firms are focused on creating agile workplace strategies through configurable office design and flexible lease structures.”
Some of these strategies include putting less emphasis on grand, ceremonial client spaces and more emphasis on functional meeting spaces, and creating a reception area that can also serve as a space to host concierge services and events. Law firms have also shifted cafeteria space to more prominent locations such as along a window line. Moving to a paperless file storage strategy and creating smaller, on-demand meeting rooms are also techniques used.
Downsizing is expected to continue in Chicago as the market will see 5.4 million square feet of lease expirations during 2018 to 2022, Nancy Pacher, vice chairman with CBRE said in a statement. Several new buildings will be delivered and large spaces have been vacated in recently leaving a lot of options.
CBRE estimates that across 26 markets about 29 million square feet of law firm leases will expire between 2018 and 2022 and the firm expects that space contraction will be a part of renewals or new leases. More than half of the leases expiring are in New York, Chicago, Washington D.C. and Houston where there are heavy concentrations of Am Law 100 firms with average leases of 125,000 square feet. New York and Chicago are both in an extended period of rent growth and declining vacancy making portfolio optimization critical.