Law firm office leasing drops again after rebound

(Reuters) – US law firm office leasing volume dropped off during the fourth quarter of 2022, potentially signaling the start of a leasing slowdown by the legal industry that could mirror other sectors like technology, according to a new report.

After several quarters of steady leasing volume that indicated a rebound after a pandemic-era decline, law firms leased a total of 1.1 million square feet in Q4 2022, commercial brokerage Savills Inc said in the report.

Firms leased 1.7 million and 1.6 million square feet the prior two quarters, according to Savills, which law tracks firm leases over 20,000 square feet across major US markets. The fourth quarter’s 1.1 million matches Q1 2022, but is down 31% from the fourth quarter of 2021, when law firms leased 1.6 million square feet.

The report acknowledged that one quarter was too short to clearly signal a longer term slowdown, but said law firms “have begun pulling back in a number of ways ahead of a potential economic downturn, so it’s possible that real estate may be one of them. “

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Revenue and profits boomed for many large law firms in the second half of 2020, through 2021 and into 2022, before a cooling global M&A market and other trends helped dampen client demand. A handful of big law firms have laid off lawyers and staff since the fall as demand has fallen.

Devon Munos, one of the authors of the Savills report, said law firms think far in the future and typically lease space for long periods of time, such as 10 or 20 years. Economic concerns may have firms holding off a few quarters to see if they can push back the decision, she said.

Other sectors, including the technology sector in particular, have seen a “clear drop off in leasing,” due to the economic situation, so it is possible the same is beginning in the legal sector, Munos said.

At the same time, law firms are pushing for more employees to return to their offices now that the pandemic has receded, Munos said, and that can play a role in leasing decisions such as relocating to higher quality buildings.

The top lease by square footage Savills tracked in the fourth quarter was Kirkland & Ellis’s new office in Miami, which entered the Florida legal market along with other big firms in 2022.

Read more:

Law firm leasing stabilizes as new markets beckon and pandemic fades

Law firms opt for office relocations as attorneys return to in-person work

Law firm leasing dips amid industry’s revamped office plans

Our Standards: The Thomson Reuters Trust Principles.

Sara Merken

Thomson Reuters

Sara Merken reports on privacy and data security, as well as the business of law, including legal innovation and key players in the legal services industry. Reach her at [email protected]

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