As the legal environment becomes more competitive, law firms are expanding into markets that offer lower costs, strong business environments and large, growing millennial populations – including markets like Austin, Dallas and Houston – according to “A Shifting Landscape: 2018 North American Legal Sector Trends,” a new report from commercial real estate firm CBRE.
The expansion is seen most often in lower cost markets – like those in Texas – where large law firms are entering for business expansion and tapping into new talent at competitive price points.
With the recruitment of a younger demographic also comes a shift in workplace strategy, as firms look to implement innovative space designs to appeal to millennial workers. Often, these workers are looking for healthier environments that make strong use of technology and create a more social atmosphere.
Dallas-Fort Worth (No. 7) and Houston (No. 10) are in the top 10 largest legal markets in the country ranked by total legal services employment, according to the report. Although Austin is a smaller market overall, it ranked as the highest market for growth rate for legal services and the fourth highest for lawyers, with several AM Law 200 firms either entering the market or expanding there.
Members of CBRE’s Law Firm Practice Group in Austin, Dallas-Fort Worth and Houston take a closer look at the dynamics at play in each of these pivotal legal markets.
Central Texas
As a market, Austin continues to build a strong and diversified economy, with a heavy emphasis on the tech sector. This burgeoning diversification, along with a lower overall cost of business compared to other top tech markets, has led Austin to become one of the top markets in the U.S. for legal employment growth.
The growth seen in Austin for legal services and lawyer employment since 2015 is impressive at 11.1 percent and 10.6 percent, respectively, making it the leading market in the U.S. for this industry job growth. To compare, the national average is just 3 percent. Not only is the market seeing rapid job growth, but the total annual cost of business for international and national legal companies is still below the national average, lending itself to room for more growth in the coming years.
In total, from Q3 2017 to Q2 2018, Austin saw 321,507-square-feet of transactions from law firms with over 45 percent of these being located in the central business district. Although legal firms have in the past been more traditional in their commercial real estate needs, firms moving to Austin are increasingly seeking to modernize their spaces and create more efficiencies, such as fewer conference rooms and increased flex space.
In addition to a rapidly growing tech market, the large medical footprint and access to the seat of the state government means Austin is a market that can easily support both specialized practices and large, multi-practice firms. All of these factors together continue to make Austin a draw for firms seeking a strong Central Texas presence.
– Jerry Frey and Burke Kennedy
Dallas-Fort Worth
Dallas-Fort Worth ranked as a top-five market for legal services growth, bolstered by 4.1 percent growth in legal services employment from 2015 through 2017, outpacing the national average of 1.5 percent. DFW’s lawyer employment growth of 3.5 percent also bested the 3 percent U.S. average.
Many national law firms entered the Dallas market over the past three years, including such firms as Winston & Strawn, Barnes & Thornburg and Kirkland & Ellis, demonstrating the strong business environment and established nature of the market.
With the number of lawyers and legal services employees growing, law firms are needing more office space. DFW expanded its law firm space year-over-year with 476,204 square feet of law firm space transactions recorded from Q3 2017 through Q2 2018. Of these transactions, 44.1 percent were expansions, 50.5 percent were stable and 5.5 percent were new to the market.
The Dallas central business district continues to be the favorite home base for law firms, with more than 70.4 percent of the law firm space transactions. However, a new trend is law firms pouring into the Uptown submarket as well as the north side of the Downtown Arts District.
– Phil Puckett and Harlan Davis
Houston
CBRE’s 2018 North American Legal Sector Trends Report shows that Houston law firms are choosing different approaches to workplace strategy and that one size does not fit all.
Law firms are like other professional services providers – there are local, regional, national and global firms. Nearly all the regional, national and global firms with offices in Houston are adopting modern real estate trends, such as smaller individual offices, eliminating storage space and utilizing glass to create a brighter, modern space. Those same firms are frequently attracted to new, high-quality buildings. For example, Winston & Strawn recently executed a lease for two floors in Skanska’s Capitol Tower.
Overall, the market recorded 619,846 square-feet of law firm space transactions from Q3 2017 through Q2 2018. These transactions were essentially split between firms that were growing and those that were contracting. The two most prominent transactions during this period were Vinson & Elkins’ leasing the top floors of the to-be-built project at Block 58 and Sidley Austin’s expansion at Wells Fargo Plaza. Houston had 174,244 total square feet of expansion, second to Washington, D.C., which expanded by 176,366 total square feet.
While the number of lawyers in the Houston market decreased 1.6 percent from 2015 to 2017, the legal services labor market grew 3.6 percent during the same time period, well above the national average of 1.5 percent. CBRE research estimates that legal service employment will continue to grow over 2.1 percent in the next few years, while the national market is expected to contract over 5 percent.
The Houston legal industry has seen significant changes in the past decade. Competition from national firms entering and expanding in Houston has had a major impact.
– Kevin Kushner, Charles Gordon and Brandon Clarke