Bisnow Confidential: Has the DC Law Firm Wave Crashed?
With DC trophy office buildings sometimes selling for $1k a foot or more, landlords must be smelling roses. But is it really springtime?
In some cases, yes. Big law firms drive the DC trophy market, and a bunch of lease expirations in recent years, combined with the drive for more efficient space and perhaps a change of scenery, has scored coups for a number of owners and developers: Arent Fox led the new era several years ago by going to Kaplan/Small/Gewirz's 1717 K St, McDermott has gone to Boston Properties' 500 N Capitol, Covington went to Hines' 850 10th, Pillsbury moved to Akridge's 1200 17th, Holland & Knight went to PNC Place.
Down the road, Arnold & Porter is going to Boston Properties' 601 Mass, Miller & Chevalier to JBG's 900 16th, Nixon Peabody to Brookfield's 799 9th, and Venable to Gould and Oxford's 600 Mass.
And latest rumors are that Kirkland & Ellis is going to Quadrangle's 1301 Penn, and Bracewell to Brookfield's 2001 M.
There's a "flight to new product and better quality," says Cushman & Wakefield's Sherry Cushman (snapped this afternoon). "The name of the game is per attorney desk cost and efficient space." Everyone wants to downsize that per unit cost, even if they're growing. So they can often move to smaller space, at lower cost, yet sometimes actually add employees.
Meanwhile, there have been a bunch of renewals where firms stay in place (and usually give up some space): Sidley & Austin at 1501 K, Patton Boggs at 2550 M, Hogan Lovells at Columbia Square, Finnegan at 901 NY and Morgan Lewis at 1111 Penn. Steptoe is rumored to be staying at 1330 Connecticut.
But backfilling where firms leave is a mixed bag: McDermott's former building, 600 13th, has done well because it's well-located with efficient floor plates and some upgrades. A&P's 555 12th lost Fannie Mae to Carr, and others looking for tenants seem to include Venable's Terrell Place (575 7th), Holland & Knight's 2099 Pennsylvania, Pillsbury's 2300 N, Covington's 1201 Penn, Bracewell's 2000 K St, and Metropolitan Square, which houses both Miller and Kirkland.
As for the older buildings, some are responding with renovations. But if you're not an efficient building, Savills Studley's Tom Fulcher says, "You'll have to do with rent what you can't do with efficiency."
There has been a big frenzy of moves in recent years because of expirations due in the 2016-17 range. There are scattered possibilities over coming years in advance of a smaller bunch that will expire between 2020 and 2022.
So how will spec office do? One thinks of 1900 N, 2001 M, 1000 F, 900 G and Capitol Crossing. Experts say it depends on the size. The bigger your floor plates, the bigger tenants you'll need. Smaller, efficient floor plates have more of a market these days.
Are there any large law firm requirements left, say in excess of 100k SF?
Ah, Wilmer Hale? But wasn't it just the other day they combined those three buildings on Penn? Many doubt they'll have the appetite for another big move.
Cleary Gottlieb? We're not sure—but always good in a story to leave room for a sequel.
It does seem most of the law firm needs have been addressed. Which leads to our bottom line: Where are the hedge firms when we need them?
Allow us to introduce Sherlock Bisnow, who is on the prowl for fascinating and profound stories. In various cities at various times, generally depending on the weather, he will be writing exclusives like the one above under the name Bisnow Confidential, even though the very act of publication renders the title meaningless. Keep him safely off the streets by emailing him: HotScoops@Bisnow.com.