City: Smaller firms looking for greater agility in office space
Smaller commercial law firms in the City of London are pushing for short leases to give them more flexibility, while big firms signed five “mega-deals” on new offices last year, accounting for much of the 1.5m sq ft leased – the highest total for 20 years.
Researchers said the number of letting deals was down by a third in 2022, with the reduction concentrated among law firms with “smaller requirements” and a 59% drop in the number of firms leasing less than 10,000 sq ft.
But the five mega-deals (involving office space of over 100,000 sq ft), with Clifford Chance’s acquisition of just over 327,000 sq ft at 2 Aldermanbury Square in the City being the largest, pushed the average deal size up to 43,700 sq ft.
Discounting the mega-deals, the average deal size last year amounted to only around 14,800 sq ft.
Commercial property specialist DeVono said: “The rise in the average size of space leased is reflective of both increased activity by larger law firms and a slowdown in leasing by smaller firms, comparative to recent years.”
For London law firms leasing below 10,000 sq ft in 2022, the average lease length fell from 7.1 in 2021 to 5.1 years.
“Shorter leases for smaller firms allows for a greater level of agility with future office space decisions, both for timing and size.”
In the report, The changing face of legal workplaces London 2023, researchers said secondhand space was “the most feasible option” for most law firms, constituting 59% of the deals in 2022.
“This is particularly the case for smaller firms where secondhand space accounts for 88% of the deals below 10,000 sq ft in 2022.”
Pre-letting new space was dominated by big firms, using “best-in-class spaces” to achieve ESG (environmental, social and governance) goals.
The “dominance” of larger firms when it came to pre-letting new space was “all the more observable” from activity recorded in the first half of this year.
As “economic uncertainty intensified” this year, the average lease length fell to 6.9 years for all deals.
Loyalty to the City as “the most desirable location” for law firms in London remained strong last year, accounting for 68% of law firm leasing activity.
Out of 30 law firms signing up for new space, 28 stayed in the City, with two firms moving out to the ‘E1 district’, which includes Spitalfields and other areas bordering the square mile.
Two firms moved into the City from ‘Midtown’, the area between the City and the West End where lettings were up 48% on 2021.
Researchers said the results of a legal workplace survey showed that “the ‘new normal’ is far from having arrived”, and law firms’ needs remained “in a transitory state”.
Many businesses had adopted remote working as standard since the pandemic, supported by a roll-out of hybrid working policies, but “in-office attendance levels have also increased as have in-person interactions”, meaning that the need for office space continued to be scrutinised.
Law firms put a ‘social kitchen’ top of the list of extremely important features for an office, followed by a ‘formal internal meeting room’. These were followed jointly by quiet work areas, shared open-plan desks and ‘wellness spaces’.
Researchers said the outlook for 2024 “very much about getting back to in-person meetings”, particularly with colleagues.
Shaun Dawson, director and head of insights at DeVono, commented: “The legal workplace is adapting and thriving as a new generation of workers, decision makers and clients are demanding more from the office.”
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