ALA Chicago’s 2020 Law Office Tour kicked off with a fantastic panel session entitled “Reinventing Your Law Firm Office Lease Strategy”. This was part one of a two-part series, led by Jon Milonas and Kyle Kamin of CBRE, and Lisa Davidson and Meghan Crumble of Savills. Flexibility was one of the key takeaways of the dynamic and insightful discussion.
Flexibility for Tenants:
Law firms are desiring short-term flexibility and requesting short-term lease extensions if they have a lease that expires over the next 6-24 months.
Law firms are hesitant to spend capital as they attempt to maintain financial flexibility during uncertain times.
The looming question remains: how much space will a law firm need in a post-COVID world? Some law firms don’t expect much of a change, emphasizing the need for in-person communication for building culture and ensuring mentorship occurs for younger attorneys and staff. Other firms are seriously considering some form of “office-sharing”, which would result in a different design and potential reduction in the size of their office space.
Flexibility for Landlords:
Most landlords have not yet shown a willingness to drop rental rates as they also attempt to maintain flexibility during this period of slow tenant demand. Most landlords have mortgages, which limits their ability to restructure leasing with tenants that would significantly impact the building's cash flow.
Major lease restructures often require longer team lease extensions, which law firm tenants are hesitant to do at this time.
As Landlords have more clarity on the ongoing fundamentals of the leasing market into the 3Q and 4Q of 2020, landlords should begin to offer tenants lower rental rates, higher concessions, and shorter lease terms. However, it may not happen as quickly as law firms hope for! Real estate markets lag the economy, so it could be 6-18 months before the market shifts in a big way back in the favor of tenants.
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