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Law firms often act as a barometer of office leasing. In Houston, a city that has struggled during the oil downturn, law firms are gravitating toward trophy assets and prime sublease space.
JLL's annual law firm perspective illuminates the issue. Following six consecutive quarters of negative net absorption in the office market, law firms are capitalizing on the excess of space released by energy-related tenants. Though sublease space has decreased for the fourth consecutive quarter, it remains at roughly 10.4M SF.
Houston is the only city in the bottoming phase of the business cycle, according to JLL. That is piquing the interest of local law firms looking for deals. Many are willing to pay up. The traditional law firm destinations of Downtown, the Galleria and Greenway Plaza continue to attract prominent firms, with Houston's trophy downtown buildings capturing the lion's share of leasing.
Law firms continue to downsize. Historically, firms paid around $65K for 1,200 to 1,400 SF per attorney. Today, that is down to $50K for 950 to 1,050 SF per attorney. JLL expects the metric to drop even lower, with a target of $40K for 700 to 800 SF.
As the market works through the inventory of sublease space and prime Class-A options are absorbed over the next 36 to 48 months, leverage will slowly begin to swing away from law firms and back toward landlords.
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