© 2014 The Texas Lawbook.
By Charlie Morris
Special Contributing Writer to The Texas Lawbook
Texas continues to lead the charge out of the economic downturn and more national law firms are looking to take advantage of the economic boom in the Lone Star State. During the second half of 2013, we saw significant lateral shifts within Dallas & Houston AM200 law firms including the creation of new firms in these two large metropolitan areas. The desire for law firms to create a foothold in these two dynamic legal markets has led to the largest groups of lateral attorney moves in recent history.
Houston, the fourth most populous city in the United States, is now home to 61 AM200 Law Firms, and this number has risen in recent years due to the desire for law firms to capitalize on the energy sector. One of the new firms is Reed Smith, which opened a Houston office during the first quarter of 2013. The office originally opened with a collection of attorneys from a handful of different law firms and has since built its local presence to 30 attorneys. After its unsuccessful merger with Thompson & Knight in the 2010/2011 timeframe, Reed Smith was constantly rumored to be courting various Texas suitors strong in the energy sector.
Dallas is one of the 10 largest cities in the country and Dallas/Fort Worth is the fourth largest metroplex in the United States. It has a highly educated workforce which is growing by the day, along with one of the most competitive real estate markets in terms of rental costs. The continued growth of the metroplex is sparked by the diverse business environment, which is currently home to 45 AM200 firms, a large number of which entered Dallas in the past few years.
Holland & Knight entered the market through the recruitment of more than 25 attorneys from Patton Boggs, which made a big splash during the summer of 2013. Husch Blackwell entered via a merger with a Texas-based firm, Brown McCarroll, while Lewis Brisbois and Polsinelli have grown more organically by absorbing a small group initially and then through continued growth at the expense of other large firms in North Texas. Another recent shake-up came when Sidley, which is growing dramatically in Houston as well, significantly bolstered their existing presence in North Texas with the addition of approximately 30 attorneys from Weil, Gotshal & Manges. Weil has seen a significant decline in headcount in Texas in recent months, with the reduction in Houston completed by design as part of their national strategy implemented during the first part of 2013.
Shifts within the Real Estate Submarkets
As many of these law firms continue their lateral efforts, staying attuned to the real estate markets is critical as availability shrinks and rental rates rise. In Dallas, Uptown and the Arts District continue to see the most activity within the legal sector. Very few large blocks of space remain available, which has led to the exploration of new development opportunities for multiple floor tenants. In Houston, the market has been even tighter as law firms continue to lose their negotiating power to landlords reaping the benefits of the booming energy industry.
Law firms are some of the most active tenants in both of these markets and lead candidates for new developments. Typically, these relocations do not lead to positive absorption as a 100,000 square foot law firm in an existing 1980’s building can likely keep the same number of attorney offices and fit into 75,000-80,000 square feet in a new office environment. Many firms have sought disposition and sublease opportunities in conjunction with the continued efficiency standards shaping the legal industry today and the loss of a group of attorneys to other firms.
While Houston’s market will be more directly impacted by the rise and fall of the energy sector than Dallas, both markets will continue to be some of the hottest real estate markets in the state, with the legal industry being a key driver. So long as the Texas economy continues on this path, we anticipate the continuation of these radical shifts within the legal industry in both markets.
One thing is for sure, whether in big law or in real estate, there is no better place to be than right here in the Lone Star State.
Charlie Morris is a member of Cassidy Turley’s National Law Firm Practice Group. He focuses on the representation of office tenants in the Downtown & Uptown submarkets of Dallas, with a specialization in representing the legal industry, including some of the active AM200 firms in the Dallas market.
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