According to a new commercial brokerage Savills Inc report, the leasing volume for US law firm offices decreased in Q4 2022. This slowdown could indicate a similar trend to that seen in the technology sector and other industries and follows several quarters of steady leasing volume that suggested a rebound after the pandemic-era decline.
The report notes that law firms leased 1.1 million square feet in Q4 2022, down 31% from the fourth quarter of 2021 when law firms leased 1.6 million square feet. While the report acknowledges that one quarter is too short of signaling a longer-term slowdown, it suggests that law firms may pull back ahead of a potential economic downturn.
The revenue and profits of many large law firms boomed in the second half of 2020 and into 2021, but this was followed by a cooling global M&A market and other trends that have dampened client demand. As a result, a handful of big law firms have laid off lawyers and staff since the fall as demand has fallen.
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Devon Munos, one of the authors of the Savills report, said law firms typically lease space for long periods, such as 10 or 20 years, and think far into the future. Economic concerns may have firms holding off on making leasing decisions for a few quarters to see if they can push back the decision. At the same time, law firms are pushing for more employees to return to their offices now that the pandemic has receded, which can play a role in leasing decisions such as relocating to higher-quality buildings.
The report notes that 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.
While one quarter is not enough to signal a longer-term trend, the report suggests that law firms may pull back on leasing as they prepare for a potential economic downturn. With the pandemic receding and firms pushing for employees to return to their offices, leasing decisions may also be influenced by considerations such as building quality and location.