Like most professional service companies, law firms are seeking cost-controlling initiatives. In Chicago, that means that many are reducing their office footprints to attain higher operational savings, according to the 2018 North American Legal Trends Report from CBRE’s law firm practice group.
Overall, Chicago recorded 702,971 square feet of law firm transaction activity (of 10,000-square-foot transactions or greater) from Q3 2017 through Q2 2018. The vast majority of these, 98.5 percent, were in the CBD.
According to CBRE research, firms with long leases who are nearing the end of their term are very likely to consider relocation while those with shorter leases are more likely to focus on extending terms and fine-tuning space design to avoid major capital expenditures when feasible.
The market recorded significant expansions, with 108,263 square feet total, or 27.9 percent of all transactions. These could not outpace contractions, however, which accounted for 44 percent of all transactions. On average, Chicago firms contracted 25.9 percent of their space, slightly below the national average of 27 percent. The remaining transactions were stable (24.7 percent) and new to market (3.2 percent).
“Law firms remain very active in Chicago, as they continue to use new lease opportunities to drive space efficiencies,” said Todd Lippman, vice chairman and member of CBRE’s law firm practice group. “With these moves and renovations of existing spaces, firms are exploring new designs and space configurations to not only deliver cost savings, but also for recruitment purposes.”
Chicago remains the fourth-largest market in the nation for both lawyers (25,700) and legal services (47,200). It also remains a top-five market nationally for law degrees, which recorded 1,616 degrees earned in 2017. Nationally, there has been a 21.3 percent decline in law degrees earned from 2010-2017. However, Chicago has declined at a lesser rate, down 18 percent over that time period.
“Chicago offers one of the nation’s largest legal labor pools, but it has become more competitive,” Lippman said. “Law firms are discovering that real estate can be a valuable tool to recruit and retain top tier talent.”
Among recent law firm relocations, the Chicago office of Holland & Knight signed a lease for the 26th and 27th floors of Riverside Investment & Development’s 150 N. Riverside Plaza, occupying approximately 54,000 square feet. They will move next year from the Citadel Center at 131 S. Dearborn Street, where the firm currently resides in nearly twice that space.
Intellectual property law firm Banner & Witcoff, Ltd. agreed to take on 33,249 square feet and occupy a full floor in 71 S. Wacker, owned by Irvine Company Office Properties. They are relocating from 10 S. Wacker Drive where they leased a similarly sized, but still modestly larger space.
“Our new location at 71 S. Wacker will allow us to continue to focus on growth in the Chicago market, in an environment that inspires our employees to create a tangible and lasting impact for our clients,” said Mary Schille, executive director, Banner & Witcoff. “It offers a unique opportunity for us to focus on our core business in an innovative and modern work environment and allow us retain and attract top-tier talent.”
The largest transaction in the market between Q3 2017 and Q2 2018 was Schiff Hardin renewing their 169,000-square-foot Willis Tower space. Neal, Gerber & Eisenberg also renewed their 113,000-square-foot lease, as did Axiom Law for 60,000 square feet. Both of those offices are in the Central Loop.
Cost controls have become a focal point at even the highest producing firms. In an environment of pressure to control attorney billing rates and rising occupancy costs per square foot, firms are using strategies to leverage lower cost legal professionals and house the associated evolving staff ratios in reduced footprints.