Lawyers set the pace in commercial market.
This was the first time in at least five years that law firms generated more real estate activity in New York than financial services firms.
According to a new study conducted by Jones Lang LaSalle, law firms were responsible for 3.9 million s/f of gross leasing activity through December 2003.
That is a 426 percent increase in deal volume from the previous year, when the legal industry signed for just 752,348 square feet of space. Financial services firms, which have reigned supreme in recent years, placed second to law firms, recording 2.9 million square feet in gross leasing activity last year, representing a 140 percent increase compared to the 1.24 million square feet taken off the market by the financial industry in 2002.
An increase in leasing activity on the part of law firms, however, was not necessarily a reflection of industry-wide growth.
Through November 2003, the legal industry lost 600 jobs, suggesting that growth in Manhattan was concentrated among the bigger law firms at the expense of smaller firms and nonprofit legal organizations.
It also implies that firms are absorbing extra space when they become available to secure space for future expected growth.
Still, law firms have fared better than most Manhattan industries in the past few years. This is a remarkable turnaround from the previous recession, when the legal industry was the last sector to experience job losses but then saw jobs continue to decline long after the rest of New York's businesses had rebounded. New York's legal sector currently employs approximately 2.3 percent of the city's employment base.
Law firms have ramped up their activity in the Manhattan real estate market for a variety of reasons.
A number of law firms have been positioning themselves to significantly increase their presence in New York. Some large law firms headquartered outside Manhattan have acquired local boutique firms to augment their operations in New York. Mergers, acquisitions and consolidation among smaller regional players have also fueled a spate of transactions.
Local Manhattan law firms have signed for expansion space and others have relocated from Downtown to Midtown in an effort to upgrade their office space. A number of law firms have moved from Midtown to Downtown to capture the lower rents being offered by owners with buildings in the submarket, and to take advantage of the various incentive packages available in Lower Manhattan.
The pick-up in gross leasing activity has also been driven by the rollover or expiration of existing leases; tenants displaced by the events of Sept. 11, 2001, taking permanent space; and firms renewing early to take advantage of weaker market conditions.
In addition, law firms have been trading up to better quality office space or acquiring spaces with residual value that have been vacated by other law firms. Building owners have lately show they are willing to take over a tenant's remaining lease obligation to facilitate their relocation elsewhere.
With all of the office space they have leased during the past year, Manhattan law firms presently occupy approximately 29 million square-feet of space throughout the city, accounting for 7.3 percent of total occupancy.
It is estimated that law firms occupy 338 square-feet per employee, considerably higher than the average of 250 square feet per employee considered appropriate by most New York companies.
Despite the higher overall amount of office space per employee that law firms occupy compared to other industries, the legal sector is leaning toward more efficient utilization of office space.
Law firms are taking many more factors into account when making real estate decisions than they have in the past.
The space-taking process is now being influenced by the increased importance of the retention and attraction of attorneys, new technology needs, and a greater focus on security.
Other matters impacting real estate choices include offsite back-office needs and file storage; changes in space utilization such as more support/case room space, less library space and reception areas; centralized conference rooms; and the reduction of office sizes.
Law firms are taking a strategic view to optimize office use with a focus on flexibility.
With the economy picking up steam and helping to fuel a rebound on Wall Street, it remains to be seen if law firms will generate the amount of leasing activity they accounted for last year.
Financial services firms, boosted by a re-energized stock market, could very well begin expanding again, and knock the legal industry back to second place.
BARBARA BYRNE DENHAM, RESEARCH MANAGER, JONES LANG LaSALLE
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|Title Annotation:||Review & Forecast|
|Author:||DENHAM, BARBARA BYRNE|
|Publication:||Real Estate Weekly|
|Date:||Jan 28, 2004|
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