2015 Outlook for Law Firms in a Growth Economy and Market

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Mike Cagna
Senior Research Analyst

Indianapolis Law Firm Outlook
Real estate challenges for law firms

  • Availability has declined markedly within the urban core, which firms increasingly desire for talent retention due to its mixed-use nature
  • Strong investor sentiment for core properties will also boost rents higher as buyers seek to capitalize on above-market sales prices
  • New construction has largely been limited to the suburbs and has not catered to law firms

Real estate opportunities for law firm

  • Availability within lower floors of CBD office buildings remains high, providing tenants with greater flexibility
  • Refurbishment and repositioning of office properties in lieu of new construction may give tenants more space options
  • Tenants still have some negotiating power for greater concession packages, although these are eroding quickly
    Indianapolis Law Firm Perspective

    Indianapolis Law Firm Perspective

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A Snapshot of National Law Firm Trends
2015 revenues are up.
So are CBD Class A rental rates.

In line with improvements in the broader economic picture, law firms have begun to see a more uplifting business environment. AmLaw 100 gross revenue reached a record $81.0 billion, rising 4.6 percent over the year, with revenues now growing at or above 4.5 percent annually for four of the past five years. This rate is increasingly becoming the new normal, demonstrating growth but stability from the 10 percent growth rates many firms experienced in the earlier part of the decade.

Fee compression as well as weaker demand for legal services following the recession, however, have forced law firms to focus on enhanced efficiencies for two of their largest expenditures: talent and real estate. The industry’s deep focus on operational leverage has helped firms buoy two key industry metrics in the slower-growth environment of recent years, revenue per lawyer and profits per partner, the latter of which rose by 5.3 percent in 2014 to $1.6 million.

Meanwhile, a greater focus on diversified practice groups such as cybersecurity, financial regulations, health care data management and privacy has boosted financial gains at the market level as well, strengthened by consistent hiring across industries in geographies as diverse as San Francisco (tech and intellectual property), Dallas (corporate law), Miami (international finance) and Denver (ancillary services). For perhaps the first time since the late 2000s, law firms have reason to be more optimistic, with their business outlook improving.

On the other hand, law firms face a tighter and more competitive office market than in previous years just as they are beginning to expand.

National Law Firm Perspective

National Law Firm Perspective

Job growth has reached the highest level since the late ‘90s with 10.4 million jobs created since the trough in 2010. Further, economic growth prospects for 2016 remain bullish with most recent second quarter 2015 growth pegged at 3.9 percent annually, with growth diversified across business and consumers. Different from earlier points in the cycle, companies across sectors and geographies are growing, including the office-using heavyweight of banking and finance, thereby adding talent and office space.

Nowhere are these trends more present than in CBD Trophy and Class A space, the same subset of the market in which law firms locate their offices. A combination of demographic shifts, limited supply, accelerated rent increases and record sales pricing pushing up underwritten rents has placed law firms in a landlord-favorable setting across markets from Boston to Miami and New York to San Francisco.

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