Law firms remain cautious, but real estate opportunities exist

November 7, 2014 / By  

Law firms are a small part of the Asia Pacific office market but they make an interesting tenant group to look at. Mostly small occupiers (see chart), they comprise 5% or less of the overall Grade A market. However this space is not insignificant, given that they tend to concentrate their offices in the core CBD areas, to be close to their primary clients i.e. financial sector firms and major MNCs, especially given the concentration of foreign law firms in Premium Grade A offices.

Chart: number of law firms occupying more than 5,000 sqm in 32 cities worldwide

Source: JLL’s Law Firm Perspective, 2014
The legal sector in cost-saving mode

I’ve just finished working on a global report, in cooperation with colleagues in the US and Europe, looking at legal sector tenants in 32 markets worldwide. The Global Law Firm Perspective, 2014 examines what law firms should be thinking about as they plan their current and future space, and shows that international legal firms in seven key Asia Pacific cities have been in a cost-saving mode over the last 12 months.

For the first three quarters of this year, Asia Pacific had the highest number of IPOs of any region and also experienced very robust M&A activity[1]. However, this is unlikely to flow through into increased space requirements from the legal sector. Our survey indicates that legal tenant demand in most AP markets is expected to remain stable over the next 12 months.

As such, less than half of the surveyed markets are expecting rising rents/lower concessions and/or rising costs of fitting-out for legal tenants. This varied leasing market outlook, together with other emerging trends, should provide law firms in AP with good opportunities to adapt their real estate needs.

Where are the opportunities for me if I’m a legal tenant?

  • If you’re in a market at the bottom of the rental cycle such as Australia, act now and make use of current tenant-friendly market conditions to lock in good longer-term deals or build in more flexible lease terms.
  • Newly constructed buildings with more efficient layouts present an opportunity to better utilise the space you’re taking. Look at new and upcoming buildings in China, Singapore and Tokyo to name a few markets.
  • Adopt more flexible workplace strategies – currently only Australia and Hong Kong are seeing law firms on the whole adopting new working styles and new technology (e.g. one Australian law firm recently opted for a wireless office, allowing lawyers to work anywhere they choose), but expect this trend to accelerate.
  • Robust portfolio examination is the key – law firms in AP generally lag behind their peers in the US and Europe in reviewing their real estate portfolios in light of cost and efficiency (i.e. space required for client-facing functions, whether high-cost space can be justified to house back-office functions, shifting towards offshoring and outsourcing, etc.). Our firm will be happy to advise and work with you on this!

To gain more insights, please read our report.

[1] Source: EY Global IPO Trends 2014 Q3


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