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Law firm space demand surging in midtown.

Law firms are exhibiting a growing appetite for prime Midtown office space, as they seek to capitalize on the exceptional values available in Class A properties, according to an analysis by the Edward S. Gordon Company, Inc. (ESG).

Over the past 18 months, law firms have leased more than 2.5 million square-feet of office space in Midtown Manhattan. Robert B. Emden, senior managing director of ESG, says law firm demand has been especially strong in recent months. As a result, he expects total law firm activity for 1993 to surpass the 1.4 million square-feet that was leased by law firms in 1992.

Emden is a specialist in assisting law firms with their relocation, expansion and consolidation needs. In recent years, he has negotiated leases for such prominent law firms as Gibson, Dunn & Crutcher; Hunton & Williams; Ross & Hardies, and Hoffinger, Friedland, Dobrish, Bernfeld & Hessen.

Currently, he and his associate, Elliot Klein, are working jointly on more than 200,000 square-feet of office requirements for several mid-sized law firms.

Emden believes two factors have contributed to the leasing boomlet by law firms: the oversupply of Manhattan office space and the unprecedented cost pressures facing attorneys.

Better Space/Less Cost

"In light of the current market conditions, more and more law firms are re-evaluating their current leases and space requirements in an effort to lower their fixed costs," the ESG broker says.

The result is a growing flight to quality. Many law firms that were previously housed in class B or C space are "trading up" to newer, class A buildings - and, at the same time, lowering their occupancy costs. Class A buildings offer several advantages, including state-of-the-art technology, tight security, a central location, modern design characteristics and space configurations better suited to law firms needs.

Some law firms that have accounted for major lease transactions in Midtown so far this year include Chadbourne & Parke, which renewed and expanded at 30 Rockefeller Plaza; Patterson, Belknap, Webb & Tyler, which will be relocating to 1133 Avenue of the Americas, and Fish & Neave, which recently relocated to 1251 Avenue of the Americas.

Medium size and small law firms have been equally active, Emden points out, noting that more than 50 transactions involving law firms have closed during the first eight months of 1993.

This activity has helped to cause a notable tightening of the class A market in Midtown this year. The overall availability rate in Midtown has dipped to about 16 percent-down from over 17 percent a year ago-and the market is decidedly tighter in some of the most desirable locations, such as the Rockefeller Center/Sixth Avenue (13.1 percent availability rate) and Park Avenue (13.4 percent availability rate).

"Despite the lingering effects of over-building, there is less prime space available today than just a few months ago," Emden says. "Owners are becoming a bit firmer in their lease negotiations, especially when it involves free-rent periods and work allowances."

Furthermore, securitization is an increasingly crucial element of lease negotiations. Emden refers to this as the "Olwine Connelly effect." Olwine Connelly was a law firm that several years ago moved into new space - with a heavy investment in work allowance by the owner and a lengthy free-rent period - only to dissolve prior to paying any rent to the building owner.

The well-publicized collapse of this law firm and a few others has compelled landlords to seek to limit their liability under such a scenario.

"Many now insist - not always successfully -;that upon signing a lease, law firms put up security equal to the landlord's total expenditures, which include work allowances, rent abatement, commissions and other costs," Emden says. "The security is usually held for several years, subject to a negotiated "burn-down" period. Should the law firm be unable to meet its future rent payments, the landlord will be able to recoup at least part of his investment."

Says the ESG broker, "The recent economic downturn has taught the real estate industry that law firms - like other businesses - are not immune to the effects of recession, and that they pose financial risks just like any other tenant."
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Title Annotation:Midtown Manhattan, New York, New York
Publication:Real Estate Weekly
Date:Oct 20, 1993
Previous Article:Contractors predict growth in construction.
Next Article:Fewer real estate loans are foreclosed or restructured.

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