Heading into 2018, the global economic outlook remains optimistic – and the law firm office market is no exception.
If you’ve already consulted JLL’s 2017 Law Firm Perspective, you’ll recall that most markets will continue to shift towards tenants as office-hunting conditions become increasingly favorable. (If you haven’t read the law firm office report, download it here.)
Nationally and internationally, three main themes will impact conditions:
- Sixty-five m.s.f. of new supply will deliver this cycle, significantly shifting the market in favor of firms
- Concessions for new space will continue to trend upward as deliveries and competition for tenants increase
- The employment growth of U.S. legal services remains below that of the broader economy amid talent challenges from tech.
So, where do we stand in Philadelphia?
- Vacancy in Market West towers is rising thanks to downsizing tenants across industries such as healthcare and consulting, resulting in givebacks of both single and multi-floor blocks of space.
- Meanwhile, new construction is providing fresh options for tenants – albeit in less-tested locations. With law firms tending to favor the Core markets, such spaces may ultimately appeal more to other industries.
What Comes Next?
- A wave of tenant expirations will create more demand for large blocks and enhanced leasing activity beginning in 2018 for tenants larger than 40,000 s.f. However, with added space through rightsizing and new construction, rent growth will likely slow through 2018.
- Soon, the prestigious Class A market will have passed its peak. When this happens, options will expand for mid-sized firms on the hunt for a new space.
As the figure below shows, Philadelphia is not alone with office markets in Chicago, New York, and Los Angeles all preparing to peak. To stay up to speed as the real estate cycle progresses, follow @JLLResearch on Twitter and our website.
The office clock demonstrates where each law firm market sits within its real estate cycle. Markets generally move clockwise around the clock. Geographies on the left side of the clock are generally landlord-favorable, while markets on the right side of the clock are typically tenant-favorable.