New York City. Photo: Shutterstock.comRents Rise—and Lease Expirations Loom—for New York Law Firms
Almost a quarter of the available square footage occupied by law firms in Manhattan is up for renewal between 2021 and 2024, according to CBRE.
October 24, 2019 at 03:17 PM
4 minute read
The original version of this story was published on New York Law Journal
If it seems like there have been a lot of law firm real estate moves lately, just wait.
According to a yet-to-be-published report by commercial real estate services and investment firm CBRE, leases covering a whopping 8.5 million square feet of law firm office space in Manhattan are set to expire between 2021 and 2024, setting up a round of musical chairs in the city—and placing additional pressures on firms as rents continue to increase.
Law firm rents in the Midtown real estate market rose 15% in the first half of 2019, according to CBRE. Be that as it may, Midtown is still the place to be for Big Law in Manhattan, with 80% of the top 25 firms by square footage occupancy located in the long-time legal hub.
The study, which includes the amount of square footage leased, occupancy levels, leasing activity, rent levels and space use, among other elements, offers a granular look at the Manhattan legal community's real estate activities over the first half of this year.
Some of the conclusions are in line with well-recognized trends, like firms using less space and preferring more "modern" designs with equal sized offices and more common areas to house associates.
Some are more surprising, like a 7% drop in downtown rents year over year, according to the report.
The study included 1,644 law firms in the city that occupy a little over 35 million square feet of space in Manhattan. The top occupiers had spaces that ranged from 280,000 square feet on the low end to over 650,000. In aggregate, the legal sector occupies 9.3% of all available commercial real estate space in Manhattan, according to CBRE.
The study found that there will be a lot of upcoming activity, as almost a quarter of the available square footage occupied by law firms will come up for renewal between 2021 and 2024. No less than 1.4 million square feet of expirations will take place each year between 2021 and 2027.
CBRE breaks down Midtown into its submarkets: "Park," "Times Square/West" and "6th Avenue/Rockefeller Center." When it comes to the top 25 firms by square footage occupied, "6th Avenue/Rockefeller Center" housed 30%, while "Park" took 25% and "Times Square/West" came in third with 15%.
Overall rent figures, hardly surprisingly, are rising. Rent in spaces occupied by law firms saw year-over-year growth of 9% from 2017 to 2018, and have grown 15% since the end of the year, according to CBRE.
In terms of taking rates per square foot, that means $99.62 for law firms in Midtown, which is quite a bit higher than the overall Midtown average rent of $81.72, CBRE said.
The downtown area, mostly consisting of the Financial District and City Hall areas when it comes to law firm presence, makes for 20% of the Manhattan law firm real estate market. Like Midtown, the area saw year-over-year growth in rent from 2017 to 2018, increasing 13%. Unlike Midtown, though, rents in 2019 are down 7% from the end of 2018, according to CBRE.
The Hudson Yards development and neighboring area, already housing or preparing to house some major firms, seems to be the main threat to Midtown's market domination. Skadden, Arps, Slate, Meagher & Flom and McKool Smith have already moved into One Manhattan West. Milbank, Boies Schiller Flexner and Cooley have all moved into 55 Hudson Yards, and Cravath, Swaine & Moore will move into Two Manhattan West in 2024.
Not everyone's headed west, however. Katten Muchin Rosenman just decided to move spaces but stay in Midtown, deciding to move into 50 Rockefeller Center in 2022.
|Read More
Cravath to Move West to New Manhattan Office Tower
Hogan Lovells Prepares for Move Into 'Bold' New Manhattan Office
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