Amidst Rising Rents and Falling Vacancies, North American ......suburbs. Both figures represent...

Like so many industries, law firms are under increasing pressure to approach real estate strategies and workplace practices differently in order to remain competitive. 2016 intensified this pressure thanks to rising office rents and falling vacancies in many markets.

To provide insight into the key real estate trends for law firms to consider, this report highlights the office market characteristics and law firm activity in each of the 23 North American real estate markets covered by Colliers International’s Law Firm Services Group. These comparisons reveal notable differences across markets as well as striking consistencies as many firms strive to heighten efficiencies while creating workplaces that drive collaboration and superior client service.

Despite Slowing Growth, Further Upside Remains for U.S. Office Market

The U.S. office market seems to be reaching equilibrium. While rents increased modestly in 2016, rent growth has slowed considerably and vacancies appear to be bottoming out. Absorption also shifted down in 2016 as consolidation, downsizing and renewals became more prevalent.

At the peak of the prior cycle in 2007, the national office vacancy rate fell to a low of 12.2%. In 2016, the vacancy rate held at virtually the same level, falling slightly in Q4 2016 to 12.3%. While Class A rents in most markets are holding firm or growing at a reduced pace, tenant incentive packages are increasing in some locations where vacant new supply is being added or occupiers are moving out.

Average Class A asking rents closed out 2016 at $46.90 per square foot in downtown areas and $29.05 per square foot in the suburbs. Both figures represent annual gains, but the pace of rent appreciation has slowed. Class A downtown asking rents rose by 4.1% in 2016 compared to 2.7% in suburban markets, down from 12-month growth rates in Q3 2016 of 7.6% and 3.3%, respectively. Net absorption fell significantly in 2016 as occupiers sought to limit real estate costs. New leasing activity has been restricted by the increase in downsizing, consolidation and renewals as well as backfilling shadow space. Still, increased GDP growth in 2017 could help offset this trend. If enacted by the new administration, deregulation and business tax reductions may lead to demand gains, though it will take some time to filter through the market.

A rising number of occupiers are choosing to renew their existing leases rather than relocate, signaling a cautious mood. Four of the top five lease transactions in Manhattan in Q4 2016 were renewals. Renewals also led recent leasing activity in markets from Atlanta to Chicago to Miami. Cost control and more efficient space usage continue to factor into the decision-making process. Where moves are occurring, more tenants are reducing their footprints and consolidating into single buildings.

The volume of office space under construction has risen to 110 million square feet, equivalent to 1.8% of the total U.S. office inventory. Of this, 42.5 million square feet is underway in downtown markets and 67.5 million square feet is in the suburbs.

Four markets dominate the construction picture, accounting for almost half of the current activity: Dallas, Manhattan, the San Francisco Bay Area and Washington, D.C. Future deliveries are heavily front-loaded, with 68% of space underway set to deliver in 2017. In total, 62% of space underway is pre-leased, but more developers are now building speculative projects in select primary locations.

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North America ReportLAW FIRM SERVICES2016 Year-End Review & Outlook

Amidst Rising Rents and Falling Vacancies, North American Law Firms Seek Efficiencies

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North America Report | 2016 Year-End Review & Outlook | Colliers International2

North American Office Markets | Q4 2016MARKET CLASS A DOWNTOWN ASKING RENT DOWNTOWN VACANCY RATE MARKET SENTIMENT LAW FIRMS SEEKING NEW SPACE

Atlanta, GA $27.10 14.2% Equal Footing Up

Birmingham, AL $20.64 9.0% Tenants' Favor Down

Chicago, IL $42.46 11.3% Landlords' Favor Static

Dallas, TX $30.12 20.8% Landlords' Favor Static

Denver, CO $35.20 12.8% Tenants' Favor Static

Fairfield County, CT $43.99 23.6% Equal Footing Static

Hartford, CT $22.59 13.6% Tenants' Favor Static

Houston, TX $44.64 16.8% Equal Footing Static

Long Island, NY $30.63 8.6% Landlords' Favor Up

Los Angeles, CA $41.40 18.2% Landlords' Favor Static

Manhattan, NY $78.64 6.4% Equal Footing Static

Milwaukee, WI $21.58 12.4% Landlords' Favor Up

Minneapolis, MN $18.23 15.4% Equal Footing Down

Nashville, TN $29.63 7.0% Landlords' Favor Up

Northern New Jersey $29.58 16.9% Tenants' Favor Static

Philadelphia, PA $30.57 9.6% Landlords' Favor Down

San Diego, CA $35.76 14.7% Landlords' Favor Static

San Francisco, CA $74.62 6.6% Landlords' Favor Down

South Florida $41.24 11.5% Landlords' Favor Up

Toronto, ON, Canada $21.86* 6.3% Landlords' Favor Down

Vancouver, BC, Canada $22.46* 6.0% Landlords' Favor Static

Washington, D.C. $57.82 10.9% Tenants' Favor Static

Westchester County, NY $30.51 16.6% Equal Footing Up

*Converted to USDNote: Directional indicators reflect YOY changeSource: Colliers International

In 2016, Most Law Firm Markets Saw Rents Rise and Vacancies Fall

Our analysis of the office landscape and law firm activity in the 23 North American markets represented by Colliers’ Law Firm Services Group reveals notable differences across the markets. The focus of this analysis is on each metro’s downtown office market, where the significant majority of law firms are located.

In 2016, office rents ranged from under $20 per square foot in Minneapolis to just under $58 per square foot in Washington, D.C. to around $75 per square foot in Manhattan and San Francisco. The average rent across the 23 markets is $36.09 per square foot, but this is somewhat skewed by Manhattan and San Francisco. In addition to Washington, D.C., only five other markets have rents above the average: Chicago, Fairfield County, Houston, Los Angeles and South Florida, all of which are in a range of $40–$45 per square foot.

The majority (61%) of the markets saw Class A rents increase in 2016 with the largest percentage gains occurring in Atlanta, San Diego, South Florida and Midtown South in Manhattan — all of which grew at more than twice the national rate. The largest fall — albeit just over 3% — was in Houston, where the final aftershocks from the energy sector fallout are occurring.

Over half (57%) of markets saw office vacancy declines in 2016. One-quarter (26%) experienced a rise in the vacancy rate, led by Dallas, where vacancy is 8.5 percentage points above the U.S. market average.

Average vacancy across the markets surveyed was 12.7% in 2016, slightly above the U.S. national rate of 12.3%. The lowest downtown vacancy rates are in the Canadian markets — Toronto and Vancouver — at 6.3% and 6% respectively. In addition to the markets with the highest rents (Manhattan and San Francisco), three other U.S. markets included in the survey have sub-10% vacancy rates: Long Island, Nashville and Philadelphia.

Renewals Dominate Law Firm Leasing Activity

Renewals are the name of the game as law firms look to control their real estate costs. Seven of the 10 largest law firm leases signed in 2016 involved tenants choosing to stay in place and renew their existing leases. Looking at the three largest law firm leases signed in each market in 2016, all but two included at least one renewal.

Top 10 Law Firm Leases Signed in 2016LAW FIRM SF LEASED BUILDING NAME ADDRESS MARKET NEW LEASE OR RENEWAL QUARTER

Sidley Austin LLP 575,000 One South Dearborn 1 South Dearborn Street Chicago Renewal Q4

Winston & Strawn LLP 430,000 Leo Burnett Building 35 West Wacker Drive Chicago Renewal Q2

Milbank, Tweed, Hadley & McCloy LLP 257,567 55 Hudson Yards 55 Hudson Yards New York New Q3

Duane Morris LLP 248,616 United Plaza 30 South 17th Street Philadephia Renewal Q3

Troutman Sanders LLP 230,146 Bank of America Plaza 600 Peachtree Street Atlanta Renewal Q3

Dentons 207,371 1221 Avenue of the Americas 1221 Avenue of the Americas New York Renewal Q3

Hogan Lovells 206,720 390 Madison Avenue 390 Madison Avenue New York New Q4

DLA Piper 199,222 1251 Avenue of the Americas 1251 Avenue of the Americas New York Renewal / Expansion Q1

Foley and Lardner LLP 197,000 U.S. Bank Center 777 East Wisconsin Avenue Milwaukee Renewal Q3

Paul Hastings LLP 140,000 City National Plaza 515 South Flower Street Los Angeles Renewal / Downsize Q1



Four of the top five leases across markets were renewals. Sidley Austin and Winston & Strawn led this activity in recommitting to a combined 1 million square feet of space in downtown Chicago. The largest new lease signed in 2016 was at 55 Hudson Yards in Manhattan, where Milbank, Tweed, Hadley & McCloy LLP took 257,567 square feet.

In some markets — most notably Manhattan — tenant options are restricted by a limited availability of large blocks of new space. Conversely, in order to achieve pro-forma rents, landlords and developers in some markets are resorting to significant incentives. One example is Washington, D.C., which is facing a surfeit of new deliveries.

Half of Key Law Firm Markets are Positioned in Landlords’ Favor

To gain insight into market sentiment and the requirements of law firms actively seeking space to lease, we polled our Law Firm Services Group on trends in their markets.

Reflecting the aforementioned trend of rising rents and falling vacancies, 52% of respondents view their markets as being positioned in the landlords’ favor, with another 26% reporting that landlords and tenants are on equal footing. Only five markets were identified as favoring tenants, with Washington, D.C. being the most prominent.

In terms of law firms seeking new space, the number of markets where requirements were viewed as being unchanged over the past year accounted for 50% of survey responses. The remaining 50% were split evenly between markets where requirements were on the rise and those where the number of firms seeking space had fallen.

The leading markets with more active law firm requirements were Atlanta and South Florida, where rent growth in 2016 was among the strongest seen in the survey. Markets with a falling number of requirements were led by Minneapolis, San Francisco and Toronto.

Office Market Sentiment

Note: Data as of Q4 2016Source: Colliers International

Law Firms Seeking New Office Space

Note: YOY change as of Q4 2016Source: Colliers International

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Tenants' Favor Equal Footing Landlords' Favor


Law Firms: Evolution, Strategy and Prospects

As markets throughout North America have continued to see rising rental rates over the past five to six years, law firms have felt the pressure to look at their real estate strategies and practices differently.

From a real estate perspective, many law firms have started to conform to the practices of other sectors. Law firms have not been as aggressive as other industries in going to open-plan environments because 75% of their activity is still “heads-down” work. However, many firms have become more efficient with their spaces. Most firms have minimized overhead by renewing and restacking in their existing spaces to reduce improvement costs. Those that have chosen to relocate have generally moved to new developments with space plans that are dramatically more efficient due to factors such as floorplate dimensions, mullion spacing and office size reduction. From a practice perspective, firms are collaborating more and offering additional services across specialty lines in an effort to efficiently provide clients with improved service. They have also made great strides in offering more transparency and predictability to clients. This has enabled firms to implement modest rate increases of 3%–4%, while reducing the overall cost of services to clients.

However, there continues to be more and more pressure on firms to negotiate hourly-fee arrangements and trim any excess. Over the past 10 years, we have slowly seen headcounts go down about 5%. Many of the major firms with large presences in the most expensive markets have looked at outsourcing tactical functions to less expensive markets, less expensive space in the same markets or less expensive spaces within their existing buildings.

Moving forward, we should see rents reach an inflection point in most markets throughout the country thanks to a confluence of new construction deliveries and an abundance of sublease space coming on the market. We are already seeing the beginning of this in markets like Denver, CO; Houston, TX; Long Island, NY and Northern New Jersey.

Combined with these events, if anticipated deregulation and business tax reductions come to pass, we expect that many law firms will see a significant uptick in new business and revenue while also being able to reduce rent expenses.


ATLANTAThe Atlanta market is stabilizing, as office vacancy is moving downward and rents are up by more than $2 per square foot from a year ago. 2016 drew to a close with almost 1 million square feet of positive absorption in the second half of the year. Encouragingly, demand is spread across a range of sectors led by finance, insurance and law firms.

Tenants remain focused on Midtown and Cumberland/Galleria, which collectively accounted for 50% of leasing across the city in 2016. Some leasing activity is also beginning to leak into downtown due to space restraints in Midtown.

Atlanta’s law firms are hiring but also looking to achieve efficiencies, so the absorption of new space does not match the increased headcounts. New space designs are focused on integrating technology, reducing paper and increasing collaboration in the workplace.

BIRMINGHAMWith its modest office inventory of 5.1 million square feet, downtown Birmingham witnessed healthy performance in 2016. Vacancy fell to 13.8% in Q4 2016 from 14.2% in Q3 2016, and annual net absorption was positive.

The downtown Class A market is even tighter with a Q4 2016 vacancy rate of 9% — 70 basis points (BPS) below the Q3 2016 level. However, these improvements have yet to filter through to widespread rental growth. Downtown Class A asking rents rose by just 30 BPS in 2016.

While law firm headcounts are growing, law firm footprints are shrinking. Law firms are using lease events (e.g., contraction or renewal options) as catalysts for right-sizing.

Leading Law Firm Lease Transactions in 2016 | Atlanta

LAW FIRM SF LEASED PROPERTY NAME ADDRESS NEW LEASE OR RENEWAL QUARTER

Troutman Sanders LLP 230,146 Bank of America Plaza 600 Peachtree Street Renewal Q3

Swift, Currie, McGhee & Hiers LLP 115,428 The Peachtree 1355 Peachtree Street Renewal/Expansion Q3

BakerHostetler 67,960 The Proscenium 1170 Peachtree Street New Q2


Q4 2016 Key Indicators | Atlanta

Class A Asking Rent (PSF) $27.10

Downtown Vacancy Rate 14.2%

Number of Law Firms in the Market Up

Market Sentiment Equal Footing


Q4 2016 Key Indicators | Birmingham



Number of Law Firms in the Market Down

Market Sentiment Tenants’ Favor


Leading Law Firm Lease Transactions in 2016 | Birmingham


Balch & Bingham LLP 116,952 Regions Harbert Plaza 1901 6th Avenue North Renewal Q4

Hand Arendall LLC 20,000 The Federal Reserve Building 1801 Fifth Avenue North New Q4

Lloyd, Gray, Whitehead & Monroe 19,000 880 Building 880 Montclair Road New Q2


DALLASDallas office vacancy continues to shift upwards in modest increments. Vacancy stands at 13%, up 110 BPS from a year ago. Absorption turned positive in Q4 2016 and should get a boost from tenants taking occupancy of space under construction. Less than 35% of the space delivered in 2016 is still available.

Reflecting tightness in the Uptown area, the 530,000-square-foot McKinney & Olive project is more than 90% leased less than six months after completion. However, rents have increased over the past year by $1.13 per square foot to $30.12. Class A assets in prime locations have seen rents break the $40 per square foot barrier, with some deals achieving upwards of $50 per square foot.

Dallas’ law firms are continuing to find ways to be more efficient with their space requirements. The trend of firms relocating from downtown to Uptown continues — partially driven by the need to recruit and retain top talent — even though Uptown rates can be nearly double the rents downtown.

CHICAGOChicago’s downtown office market is likely as tight as it is going to get this cycle, as the vacancy rate sits at a 16-year low. Rents continue to climb across all submarkets, eclipsing all-time highs. Further rent growth — albeit slowing — is anticipated this year.

An additional 2.1 million square feet is under construction, most of which is set to deliver in 2018. More than half of this space is pre-committed. Downtown Chicago is also attracting major relocations, both from the suburbs and outside the city.

Two office towers were recently completed, adding 2.4 million square feet of new trophy space in the West Loop. The two properties, 444 West Lake and 150 North Riverside Drive, are already 80% leased. While the developers of the new office towers approached multiple law firms as prospective tenants, virtually every one of them was looking to downsize in their existing buildings.


Q4 2016 Key Indicators | Chicago



Number of Law Firms in the Market Static

Market Sentiment Landlords’ Favor


Q4 2016 Key Indicators | Dallas






Leading Law Firm Lease Transactions in 2016 | Chicago


Sidley Austin LLP 575,000 One South Dearborn 1 South Dearborn Street Renewal Q4

Winston & Strawn LLP 430,000 Leo Burnett Building 35 West Wacker Drive Renewal Q2

Reed Smith 109,142 CME Center 10 South Wacker Drive Renewal Q4


Leading Law Firm Lease Transactions in 2016 | Dallas


Jackson Walker 104,000 KPMG Plaza at Hall Arts 2323 Ross Avenue New Lease/Relocation Q4

Vinson & Elkins LLP 85,000 The Union Field Street & Cedar Springs New Lease/Relocation Q4

Strasburger & Price LLP 65,805 Bank of America Plaza 901 Main Street New Lease/Relocation Within Building Q4



DENVERThe metro Denver office market’s resiliency has endured throughout the past two years as vacancy has stabilized and absorption remains positive. Confidence in the market is apparent as speculative office construction continues to increase despite some indications we may be nearing the end of this cycle. As several transit-oriented developments take shape around the metro, developers are confident in their abilities to attract future occupiers with public transportation.

Although market indicators in the central business district (CBD) suggest the submarket has peaked, demand for newer space is still evident. The metro’s three largest leases signed during Q4 2016 were for Class A product in the CBD totaling more than 260,000 square feet.

Law firms in Denver are looking to cut costs and be more efficient with their real estate. Law firms are primarily focused on leasing Class A space in Lower Downtown (LoDo), particularly new construction. But as LoDo options tighten, they are being forced to look closer to 16th Street and 17th Street in the CBD.

FAIRFIELD COUNTY, CTThe Fairfield County office market saw modest improvement in 2016. The overall vacancy rate fell from 17.4% to 16.7% while average asking rents rose from $34.35 per square foot to $35.71 per square foot. These trends were reversed in the Stamford CBD, where vacancy increased from 22.4% to 23.6%, which is the highest rate of the six submarkets in Fairfield County.

While average asking rents in the Stamford CBD fell by $1 in 2016 to $43.99 per square foot, they are the second-highest in Fairfield County — topped only by Greenwich, where rents are $60.96 per square foot.

Several local law firms, both large and small, have been in contraction mode for a few years now. The underlying reasons include factors like the creation of space efficiencies, the greater utilization of technology and the increased ratio of lawyers to assistants. Firms like Day Pitney, Robinson Cole, Shipman & Goodwin and Anderson Kill have all seen their footprints get smaller.

Q4 2016 Key Indicators | Denver






Q4 2016 Key Indicators | Fairfield County






Leading Law Firm Lease Transactions in 2016 | Denver


Holland and Hart LLP 110,000 555 17th Street 555 17th Street Renewal Q2

Polsinelli PC 80,000 1401 Wewatta Street 1401 Wewatta Street New Q2

Moye White LLP 50,000 16 Market Square 1400 16th Street Renewal Q1


Leading Law Firm Lease Transactions in 2016 | Fairfield County


Finn Dixon & Herling LLP 26,385 6 Landmark Square 6 Landmark Square New Lease Q1

Withers Bergman LLP 17,589 1700 East Putnam Avenue 1700 East Putnam Avenue Renewal Q1

Ryan Ryan Deluca LLP 12,351 1000 Lafayette Boulevard 1000 Lafayette Boulevard New Q4



HARTFORDAlthough vacancy levels remain above the U.S. average, the downtown Hartford office market is showing signs of improvement. Class A vacancy fell by 60 BPS in Q4 2016 to 15.3%. Downtown Class A asking rents grew by 3% in 2016 compared to the U.S. average of 4.1%. In addition, net absorption turned positive in Q4 2016.

Law firm occupancy fundamentals in Hartford remain stable. Total occupancy for the 20 largest firms remains at approximately 753,000 square feet. Operational trends for existing firms are slowly following national trends in the areas of design, staffing ratios, hiring practices and tenant improvements. There have been no recent mergers in the market.

Q4 2016 Key Indicators | Hartford






Leading Law Firm Lease Transactions in 2016 | Hartford


McCarter & English 33,000 CityPlace I 185 Asylum Street Renewal Q4

Nirenstein, Horowitz & Associates PC 7,880 Somerset Square 200 Glastonbury Boulevard New Q2


Q4 2016 Key Indicators | Houston






Leading Law Firm Lease Transactions in 2016 | Houston


Kirkland & Ellis LLP 62,000 609 Main at Texas 609 Main Street New Q4

Thompson & Knight LLP 60,655 BG Group Place 811 Main Street New Q3

Orrick, Herrington & Sutcliffe LLP 56,806 609 Main at Texas 609 Main Street New Q3


HOUSTONHouston’s office market remains challenged, but it is showing earlysigns of stabilization and even continued growth in the year ahead.Absorption in the CBD turned modestly positive in Q4 2016 after beingdeep in the red the prior quarter. Vacancy — at 16.8% — is up from ayear ago but started to inch down in Q4 2016.

In a marked shift, Q4 2016 witnessed several energy companies taketheir sublease spaces off the market as they began to move out ofcontraction mode. Even so, two-thirds of sublease space available is ofsecondary quality with sublease space in the CBD skewing toward Class B properties built in the 1980s. With limited attraction, this space could remain unoccupied for some time until market conditions justify upgrades or the rental rate gap between Class A and Class B space widens.

Law firms in Houston continue to grow through consolidations andnew firms entering the marketplace. With the aftershocks of the energysector collapse still being felt, some firms are tightening their budgetsand space needs.


LONG ISLANDThroughout 2016, the Long Island office market performed well with strong fundamentals and economic indicators. Amid steady job growth and growing GDP, the Long Island office market should post moderate growth in 2017 and rebound to the equilibrium level. The overall market responded positively following the November election though the actual effects are still in a wait-and-see stage.

Within the Long Island market, Nassau County is outperforming Suffolk Country. Vacancy in Nassau is still falling and at 7.6%, stands 220 BPS below the Suffolk level. Nassau accounted for 89% of total Long Island net absorption in 2016.

Many full-service law firms are paying near-asking rents in Class A office buildings in order to attract and retain top talent and preserve professional working environments. In addition, many firms are encountering limited options for relocation due to low levels of availability. However, many are seeking to utilize their spaces more efficiently, especially as support staffing levels decline as new attorneys perform the majority of clerical and administrative tasks.

Q4 2016 Key Indicators | Long Island






Leading Law Firm Lease Transactions in 2016 | Long Island


Scully, Scott, Murphy & Presser PC 22,000 400 Garden City Plaza 400 Garden City Plaza Renewal Q4

Picciano & Scahill PC 17,000 1050 Stewart Avenue 1050 Stewart Avenue New Q4

Harris Beach PLLC 14,779 333 Earle Ovington Boulevard 333 Earle Ovington Boulevard Renewal/Expansion Q1


LOS ANGELESWhile vacancy fell over the past 12 months, the Los Angeles office market is reaching equilibrium with little movement in key indicators in Q4 2016. There is still the possibility of more rent growth in 2017, but we are unlikely to see a repeat of 2016’s pace. Media and entertainment, technology and law firms dominate leasing activity and fashionable locations are in demand.

Downtown Los Angeles scored a major coup with Warner Music’s decision to relocate its headquarters from Burbank to 257,000 square feet in the newly restored Ford Factory building in the downtown Arts District. In addition, CIM Group has committed to leasing 242,200 square feet at Two California Plaza in the Bunker Hill submarket.

Law firms in Los Angeles are generally renewing or relocating while also downsizing. Like firms in finance and other professional services industries, law firms are searching for more efficient space solutions to help offset rising rents and costs.

Q4 2016 Key Indicators | Los Angeles






Leading Law Firm Lease Transactions in 2016 | Los Angeles


Paul Hastings LLP 140,000 City National Plaza 515 South Flower Street Renewal/Downsize Q1

Quinn Emanuel Urquhart & Sullivan LLP 135,000 865 South Figueroa 865 South Figueroa Street Renewal Q2

Orrick, Herrington & Sutcliffe LLP 65,600 777 Tower 777 South Figueroa Street Renewal Q2



MANHATTANAt 33.1 million square feet, Manhattan office leasing activity in 2016 was 5.5% higher year-over-year and was the third-highest annual total seen in the past 10 years. Demand was led by the finance, insurance and real estate (FIRE) sector, which accounted for the largest share of Manhattan leasing in 2016 at 31%.

Asking rents increased to an average of $73.24 per square foot at year-end 2016 — 2.4% higher than at year-end 2015. In 2016, 1.5 million square feet of lease transactions had starting rents above $100 per square foot, and rents in Midtown South and Downtown are at record highs.

While several of 2016’s largest transactions reflected tenants choosing to remain in their current spaces, the impact of pending new supply in 2017 could push vacancy up from the 6.4% rate seen in 2016 if demand does not keep pace.

Instead of approaching office space as a cost of doing business, law firms are rethinking and redesigning their spaces as environments that better serve the needs and expectations of both clients and employees.

Q4 2016 Key Indicators | Manhattan


Vacancy Rate 6.4%




Leading Law Firm Lease Transactions in 2016 | Manhattan


Milbank, Tweed, Hadley & McCloy LLP 257,567 55 Hudson Yards 55 Hudson Yards New Q3

Dentons 207,371 1221 Avenue of the Americas 1221 Avenue of the Americas Renewal Q3

Hogan Lovells LLP 206,720 390 Madison Avenue 390 Madison Avenue New Q4


MILWAUKEEThe metro Milwaukee office market had a strong year in 2016. Vacancy rates continued their downward trend, ending the year at 16.7%. Annual net absorption totaled 638,780 square feet — the highest this cycle. Additionally, rental rates are climbing steadily. In the past year, net rents for the top five downtown assets increased an average of 3.23%, outpacing inflation and resulting in real rental growth.

Trends in 2016 saw tenants gravitating to downtown. The number of companies relocating to downtown increased as firms seek to locate near highly qualified, young professionals who exhibit a preference for urban living.

We are seeing an increase in law firms actively considering their space requirements, particularly in the CBD. As space utilization trends have accelerated, more and more law firms are making long-term real estate decisions — typically resulting in a 15%–25% reduction in space occupied.

Q4 2016 Key Indicators | Milwaukee






Leading Law Firm Lease Transactions in 2016 | Milwaukee


Foley & Lardner LLP 197,000 U.S. Bank Center 777 East Wisconsin Avenue Renewal Q3

Habush Habush & Rottier SC 11,935 U.S. Bank Center 777 East Wisconsin Avenue Renewal Q3

Petrie & Pettit SC 6,114 Two-Fifty 250 East Wisconsin Avenue New Q3



MINNEAPOLISMinneapolis-St. Paul remains a strong second-tier U.S. office market with steady job growth since the recession, a highly-educated workforce and a strong corporate presence.

In the Minneapolis CBD, many landlords are renovating their properties to appeal to amenity-conscious potential tenants and to provide in-demand creative spaces. After implementing these upgrades, the recently renovated Washington Square leased 150,000 square feet in recent quarters. Additional properties undergoing remodeling include the Baker Block, TCF Building and Fifth Street Towers.

The majority of the larger law firms in Minnesota are located in the Minneapolis CBD. Many are in long-term leases while a number have gone from multiple offices to one or two offices while reducing the square footage per attorney.

Q4 2016 Key Indicators | Minneapolis






Leading Law Firm Lease Transactions in 2016 | Minneapolis


Stinson Leonard Street LLP 105,000 50 South Sixth 50 South 6th Street New Q3

Lindquist & Vennum LLP 84,843 IDS Center 80 South 8th Street Renewal Q1

Bassford Remele 34,845 Fifth Street Towers 100 South 5th Street New Q4


Q4 2016 Key Indicators | Nashville






Leading Law Firm Lease Transactions in 2016 | Nashville


Burr & Forman LLP 26,450 222 222 2nd Avenue New Q3

Dickinson Wright PLLC 22,085 Fifth Third Center 424 Church Street Renewal Q4

Manier & Herod 15,369 1201 1201 Demonbreun Street New Q3


NASHVILLEEmployment remains strong in Nashville with a 3% year-over-year job growth rate in 2016. Nashville has transitioned to an upper-tier secondary market, and economic indicators favor Music City’s office market in 2017. Nashville’s office market remains among the nation’s most active, and the health care, legal and corporate operations sectors helped fuel this momentum throughout 2016.

Downtown Nashville was a top-performing submarket in 2016, as multiple tenants chose to relocate or expand into new space in various high-profile office towers. Downtown ended Q4 2016 with a Class A vacancy rate of 6.4%, down 2.6 percentage points from Q3 2016 and marking the largest vacancy drop over that time period for any market surveyed.

Law firms in Nashville have been relocating and upgrading to space in newly delivered buildings over the past few years. New construction has attracted many top law firms, which has driven up rental rates in the buildings being vacated by these firms.


NORTHERN NEW JERSEYNorthern New Jersey ended 2016 with positive momentum as continuing economic strength drove most of the office market forward. Nine of the 13 Northern New Jersey submarkets recorded positive absorption in Q4 2016, and overall availability remained unchanged at 21%.

The Parsippany submarket has benefited from an increase in tenant activity and the growing trend toward adaptive re-use. At 28.4%, the submarket’s availability rate has reached its lowest point since Q1 2011. One driver for this improvement is the planned redevelopment of 1515 Route 10 into The District at 1515, a vibrant mixed-use retail/residential town center. The average asking rent in the submarket increased 3.4% quarter-over-quarter to $26.58 per square foot in Q4 2016. The removal of lower-priced space from the market contributed to this increase.

There has been a recent trend in Northern New Jersey of practice groups or attorneys leaving larger firms to start their own firms. We have also seen a “flight to quality” among some of the larger, more established law firms due to the recent refurbishment and modernization of office buildings in the state.

Q4 2016 Key Indicators | Northern New Jersey






Leading Law Firm Lease Transactions in 2016 | Northern New Jersey


Connell Foley LLP 75,000 56 at Roseland 56 Livingston Avenue New Q4

Seeger Weiss LLP 42,145 55 Challenger Road 55 Challenger Road New Q4

Pashman Stein Walder Hayden PC 27,500 Court Plaza 21 Main Street Renewal/Expansion Q4


PHILADELPHIAAfter increasing in early 2016, the downtown Philadelphia office vacancy rate decreased in the latter half of the year to 9.6%. The strengthening market has pushed lease negotiations in favor of landlords. Rents increased during the second half of 2016, while concessions tightened. Landlords are offsetting rising construction costs for tenant improvements by requiring longer terms.

The outlook for 2017 is for a continued drop in vacancy. The delivery of renovated space at One Franklin Tower may increase vacancy during Q2 2017. PMC Property Group and Lubert-Adler Real Estate will commence on the renovation of 2400 Market Street after landing Aramark as the lead tenant for the nine-story project. Oliver Tyrone Pulver is proposing an 840,000-square-foot tower at 1301 Market Street.

Many law firms, particularly AMLaw 200 firms, are continuing to contract their office footprints. Driving their efforts are new office standards, reduced attorney-to-support ratios and the use of technology to replace long-standing features like law libraries and high-density file storage.

Q4 2016 Key Indicators | Philadelphia






Leading Law Firm Lease Transactions in 2016 | Philadelphia


Duane Morris LLP 248,616 United Plaza 30 South 17th Street Renewal Q3

Montgomery McCracken Walker & Rhoads LLP 75,000 BNY Mellon Center 1735 Market Street New Q4

Hogan Lovells US LLP 34,752 BNY Mellon Center 1735 Market Street New Q4


SAN DIEGOPositive net absorption of 1.7 million square feet of office space in San Diego County in 2016 pushed demand to its strongest level since 2005. Average asking rental rates countywide in Q4 2016 reached the highest levels in eight years.

Several trends are being driven in part by the growing millennial population that lives-works-plays in downtown San Diego and the surrounding communities. Many work in the tech industries, which are increasingly utilizing flexible work environments and cooperative or shared work spaces. While many suburban submarkets will continue to attract similar tenants, the pace of demand downtown should continue to accelerate. Both downtown and suburban submarkets are expected to see vacancies decrease while rental rates rise across all classes in 2017.

In the two largest law firm transactions in 2016, Jones Day and Dentons both relocated to a new Class A building providing an opportunity to consolidate and create more efficient layouts. Many law firms are exploring relocating but after analyzing overall costs, most have recently been renewing in place.


Q4 2016 Key Indicators | San Diego






Leading Law Firm Lease Transactions in 2016 | San Diego


Jones Day 62,600 One La Jolla Center 4655 Executive Drive New Q1

Dentons 46,000 One La Jolla Center 4655 Executive Drive New Q1

Bernstein Litowitz Berger & Grossmann LLP 22,000 High Bluff Ridge 12481 High Bluff Drive Renewal Q1


SAN FRANCISCOThe core San Francisco Bay Area market remains one of the tightest across the top 10 U.S. office markets. Office vacancy fell by 20 BPS in Q4 2016 to 6.6%. Average asking rents in Q4 2016 reached $72.46 per square foot, less than a dollar below those in Manhattan. While below the 10-year average, net absorption remains solid and dominated by tech.

Signs point to a decrease in leasing activity in 2017. Development opportunities are becoming scarcer, and office-using job growth is forecasted to fall to 1.5% this year — less than half the expected 2016 level. Only three deliveries above 100,000 square feet are anticipated in 2017. By far, the largest of these is the 1.4-million-square-foot Salesforce Tower, which is 60% pre-leased.

The law firm landscape remains relatively quiet in San Francisco as many firms have either renewed in place (often reconfiguring and reducing space) or relocated and right-sized within second-generation spaces. As the next wave of new product begins to hit the market at the end of 2017, there may be opportunities for law firms with 2018 and 2019 lease expirations, should the market begin to soften.

Q4 2016 Key Indicators | San Francisco






Leading Law Firm Lease Transactions in 2016 | San Francisco


Paul Hastings LLP 40,422 101 California 101 California Street New Q2

Manatt, Phelps & Phillips LLP 35,912 One Embarcadero Center 1 Embarcadero Center New Q3

Polsinelli PC 26,245 Three Embarcadero Center 3 Embarcadero Center New Q1



SOUTH FLORIDAThe office market in Miami-Dade County was stable in 2016 as office vacancy fell and net absorption rose.

While there was some softening in rent growth in the second half of 2016, Broward County remains a robust and stable market. 2016 was one of the strongest years for net absorption, with absorption levels pushing over 1 million square feet and driving vacancy rates down by 140 BPS year-over-year. Absorption has been heightened by limited new development in Broward County, which allowed the market to strengthen.

As we continue to move toward the peak of the current real estate cycle in South Florida, law firms are seeking to lower their occupancy costs and increase their efficiencies.

Q4 2016 Key Indicators | South Florida






Leading Law Firm Lease Transactions in 2016 | South Florida


Akerman LLP 110,508 Three Brickell City Centre 98 Southeast 7th Street New Q4

Cole, Scott & Kissane, P.A. 59,210 Dadeland Centre II 9150 South Dadeland Boulevard Renewal/Expansion Q4

The Law Offices of Kanner & Pintaluga P.A. 56,775 Wells Fargo Plaza 925 South Federal Highway Renewal/Expansion Q2


TORONTOThe overall vacancy rate for the Greater Toronto Area (GTA) office market increased slightly from the previous quarter to 5.4% in Q4 2016. Throughout 2016, GTA office properties not only experienced an increase in asking rental rates but also in operating costs. The increases in additional costs were the highest in certain GTA West submarkets and the fringe downtown submarkets.

More than 2.6 million square feet of office space were delivered to the GTA market in 2016 — the highest level since 2010. The share of new supply in 2016 was split almost evenly between the downtown (51%) and suburban markets (49%) and most of the new supply was absorbed. New supply will likely continue to shape the market in 2017 as more than 2 million square feet of space are currently under construction, with much more in the planning stages.

Legacy tenants in the GTA market within the finance, legal and professional services industries are generally not expanding. However, technology, advertising, media and information (TAMI) tenants are expanding and currently driving the market.

Q4 2016 Key Indicators | Toronto

Class A Asking Rent (PSF) $21.86*




*Converted to USDSource: Colliers International

Leading Law Firm Lease Transactions in 2016 | Toronto


Aird & Berlis LLP 116,000 Brookfield Place 181 Bay Street Renewal Q2

McMillan LLP 110,000 Brookfield Place 181 Bay Street Renewal Q2

Baker McKenzie LLP 50,000 Brookfield Place 181 Bay Street Renewal Q3


VANCOUVERMetro Vancouver vacancy rates were down from 9.3% in Q3 2016 to 7.9% in Q4 2016. A lack of new supply entering the market at the end of 2016 contributed to the downward vacancy trend. Most submarkets also saw positive absorption in Q4 2016.

Downtown vacancy rates declined to 6% in Q4 2016, down from 6.9% in Q3 2016. The greatest drop came from AAA office space, where vacancy rates dropped from 7.3% in Q3 2016 to 4.2% in Q4 2016.

There is almost 1.3 million square feet of office space expected to deliver in 2017 and 42% is pre-leased. The 510 Seymour office building will be ready for occupancy in Q1 2017 and is already 88% leased. 475 Howe is expected to complete in Q3 2017 and had 90% vacancy at year-end 2016.

Vancouver has seen a handful of new buildings delivered over the past few years that have given law firms an opportunity to redefine how they work. Two recent examples are McCarthy Tetrault LLP and Miller Thomson LLP, who have taken progressive leaps forward in office design.

Q4 2016 Key Indicators | Vancouver

Class A Asking Rent (PSF) $22.46*




*Converted to USDSource: Colliers International

Leading Law Firm Lease Transactions in 2016 | Vancouver


Gowling WLG 43,413 Bentall 5 550 Burrard Street Renewal Q3

Guild Yule LLP 20,049 1075 West Georgia 1075 West Georgia Street Renewal Q2



WASHINGTON, D.C.The downtown Washington, D.C. office market is softening. Net absorption across the District was slightly negative in 2016, with the East End taking the biggest hit. Average rents held steady over 2016 but the volume of trophy space under construction in the CBD and East End will likely add downward pressure. Asking rents of up to $60 per square foot are being quoted for top-end new construction but expect contract rents to decline from these heady levels once concessions and tenant improvements are factored in.

Most law firms that have a near-term lease expiry are considering their options, but a significant share would rather stay put and reduce their footprints. Washington, D.C. saw four new law firm leases in 2016, all of which were relocations. Most firms will continue to reduce square footage — the question is by how much.

Q4 2016 Key Indicators | Washington, D.C.






Leading Law Firm Lease Transactions in 2016 | Washington, D.C.


Cleary Gottlieb Steen Hamilton LLP 114,500 2112 Penn 2112 Pennsylvania Avenue Northwest New Lease Q1

Paul Hastings LLP 97,000 2050 M Street 2050 M Street Northwest New Lease Q4

Weil Gotshal & Manges LLP 65,000 2001 M Street 2001 M Street Northwest New Lease Q4


Copyright © 2017 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

colliers.com/us/law

COLIN SCARLETTExecutive Vice President,Personal Real Estate Corporation+1 604 661 0879 [email protected]

STEPHEN NEWBOLDNational Director,Office Research | USA+1 202 534 [email protected]

DANIEL ARENDSPrincipal,Office Advisory Group+1 312 612 [email protected]

LAW FIRM SERVICES GROUP CONTACTS RESEARCH CONTACT

WESTCHESTER COUNTY, NYVacancy in the Westchester County office market rose from 15.2% to 16.9% in 2016. Average asking rents declined slightly from $27.54 per square foot to $26.96 per square foot over the past year. Despite more than 500,000 square feet of leasing activity over the past year, vacancy in the White Plains CBD rose from 13.1% to 16.6% in 2016 — just below the overall county level. Although slightly down from a year ago, average asking rents in White Plains remain the highest in the county at $30.51 per square foot.

Westchester experienced an increase in law firm leasing activity and expansions over the past 18 months. Key law firm transactions during this period include Wilson Eisner, which expanded to 127,000 square feet at 1133 Westchester Avenue, and Jackson Lewis’ expansion to 27,000 square feet.

Q4 2016 Key Indicators | Westchester County*





*White Plains Source: Colliers International

Leading Law Firm Lease Transactions in 2016 | Westchester County


Traub Lieberman Straus & Shrewsberry LLP 28,007 Mid-Westchester Executive Park 7 Skyline Drive Renewal Q1

DelBello Donnellan Weingarten Wise & Wiederkehr LLP 27,559 1 North Lexington Avenue 1 North Lexington Avenue Renewal Q1

Cuddy & Feder LLP 26,365 445 Hamilton Avenue 445 Hamilton Avenue Renewal Q2


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