Elevated legal occupier demand that started in 2022 has continued through the third quarter of 2024, suggesting a new normal level of leasing activity in the legal sector, according to a Cushman & Wakefield research report on legal sector leasing trends.
The report said third-quarter legal leasing activity reached 3.4 million square feet, which was slightly below post-pandemic averages. That followed five million square feet of legal leasing activity during the second quarter. The firm said 2024 will likely close with about 15 million square feet of legal sector leasing, surpassing 14.8 million square feet in 2022 but falling short of record leasing in 2023 of 16.9 million square feet.
About 60% of leasing activity in 2024 is concentrated in major markets. There, it reached 7.2 million square feet, exceeding the full years of 2020 and 2021 but slightly below 7.5 million square feet in major markets in 2022, said Cushman & Wakefield.
Market-level performance varies, as expected, the firm said. Through the third quarter, leasing activity in five of the ten major markets increased, with the most significant increase in the Dallas/Fort Worth market, which captured 928,000 square feet of legal leasing activity in 2024. That is a 135% year-over-year increase compared with the first three quarters of 2023. The surge has been driven by many notable Am Law 200 firms expanding their footprint in the Metroplex following a wave of corporate relocations, according to the report.
Major markets in California also saw elevated levels of leasing activity. Los Angeles and San Francisco both leased 50% more legal space than last year. Atlanta logged 226,500 square feet of leasing activity during the third quarter, an upward trend from the first two quarters combined. The Atlanta market was boosted by Manning & Martin’s 104,000-square-foot relocation, the largest lease in the country in Q3 2024.
New York City remains the nation’s most active legal market with 1.7 million square feet of legal leasing. However, that number represented a 30% year-over-year decrease. Legal leasing in the Washington, D.C., metro dropped 9%, but the market remains the second most active legal market with one million square feet of leasing activity through the third quarter.
“These decreases should not be interpreted as curtailed demand in either market,” said Cushman & Wakefield. “In fact, both markets are above or in line with their respective five-year averages. The decline in activity in both markets follows exceptionally strong periods in 2023 and underscores the cyclical nature of occupier demand in the commercial real estate business.”
Legal occupiers have largely maintained their footprints since 2021, the report said. In 2021, 32% of firms opted to keep their lease size the same when renewing or relocating. By 2024, that percentage had increased to 44%. The share of firms expanding their lease size has remained consistent over the past three years, and the share of firms reducing their lease sizes has dropped to 24% from 37%.
Although fewer firms are downsizing, the average net change in lease size began trending downward in 2024. The total amount of space returned by downsizing firms still surpasses the new space leased by expanding firms, the report said. Relocating firms generally reduce their office space by an average of 15.1%, while those that renew their leases in place experience an average reduction of just 2.5%.