Law firms led leasing activity in the District during 2013

Law firms dominated new leasing activity in Washington’s commercial real estate market last year, signing 29 percent of the total square footage leased in the city — far surpassing that of any other industry, including government, professional services and nonprofits, according to research released last week by commercial real estate firm Cushman & Wakefield.

Legal tenants were a bright spot in an otherwise slow year for new leasing activity in the District, the report found. In 2013, 3.3 million square feet of new deals were signed, down 37 percent from 5.2 million square feet in 2012. Law firms claimed a growing piece of that pie, going from signing 23 percent of new space in 2012 to 29 percent in 2013. Meanwhile, government leasing activity, which accounted for 32 percent of 2012 total square feet, plummeted to 6 percent in 2013.

The data reiterates what has been an ongoing trend in the legal industry: Law firms, under pressure to protect profitability, are downsizing significantly in real estate and often using new leases to make the transition. There is also a domino effect underway — the biggest law firms such as Covington & Burling and Arnold & Porter are claiming top-tier office space at City CenterDC and the Boston Properties development at 601 Massachusetts Ave. NW, prompting a flurry of subsequent negotiations about what happens to the space they are leaving.

“There are some very good opportunities coming on the horizon,” said Sherry Cushman, who brokers deals for law firms and heads the legal sector advisory group at Cushman & Wakefield. “These decisions are creating a real estate ‘checkerboard’ environment for law firms.”

Since 2012, a number of major U.S. law firms have moved or announced intentions to relocate their Washington offices, including Nixon Peabody, Pillsbury Winthrop Shaw Pittman, McDermott Will & Emery, Arent Fox, Miller & Chevalier, Holland & Knight and Sutherland Asbill & Brennan.

The trend will continue well into 2014, Cushman predicted. During the height of the recession in 2008 and 2009, many law firms signed short-term leases for five years or less because they were reluctant to make long-term commitments, she said. Now that most firms have since stabilized, they are more comfortable making longer-term lease commitments. In Washington, standard law firm leases are for at least 15 years.

“I think 2014 is going to be an active year of continuation of the ‘checkerboard’ movement,” Cushman said. “Because we still are in a tenant-friendly environment, firms are absolutely taking advantage of market conditions, whether they are negotiating staying in their buildings or relocating.”

Catherine Ho covers law and lobbying for Capital Business, which she joined in 2011. She was previously a reporter at the Daily Journal in Los Angeles, covering LA civil courts and labor and employment law.
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