Are we there yet? | 44% of Am Law 100 firms in the District have reset their space requirement since 2013 when the current cycle of law firm densification began in full scale. Leases established pre-recession, as well as leases signed between 2008 and 2012, will likely necessitate additional rightsizing and may return up to 1.9 million sq. ft. to the market in the coming years.
Catalyst for rising concessions | The D.C. office market remains highly concessionary, especially for sought after law firm tenants. More than 60% of law firm leases (by sq. ft.) since 2013 have received a TI allowance in excess of $100 per sq. ft. With an abundance of new supply on the horizon, the competition amongst landlords is expected to intensify.
Expanding city boundaries | As law firms seek the highest quality space, they have shown willingness to trade traditional locations for new neighborhoods, the perhaps most drastic example being Fish & Richardson’s relocation from K street to the Wharf in Southwest. While we do not see this as a widespread phenomenon in the near term, it helps attest the viability of high-end development in D.C.’s emerging markets.
New supply abounds | 9.2 million sq. ft. of newly constructed or renovated space is slated to deliver in D.C.’s core markets in the next five years. The influx of new supply and soft market conditions may incentivize more law firm relocations to first-generation space, further escalating vacancy rates of commodity-class buildings. Net effective rents will likely remain compressed due to record concessions.
Modernizing the workplace | With millennials now the largest cohort in the U.S. labor force, law firms need to build flexibility into their space to enable a more socially connected and collaborative experience in the workplace. Firms are increasingly leveraging technology and seeking amenities that promote collaboration, health and wellness.