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As Leases Expire, Most Law Firms Elect to Stay in Current Sites

An office market still tilted in tenants’ favor created ideal circumstances for law firms such as Duane Morris LLP to locate a new home in downtown San Diego in 2011, while others — including Robbins Geller Rudman & Dowd LLP and Gordon & Rees LLP — found sound financial reasons to stay right where they were.

Ed Cramp, managing partner at Duane Morris, says the firm started looking for new digs about two years ago, realizing it was running out of space at its West Broadway home for its expanding team of litigators, corporate law and intellectual property specialists. It wound up fielding offers from seven or eight prospective landlords before deciding to take a spot at Irvine Co.’s Symphony Towers on B Street.

“Our firm is in a growth mode, and we needed enough space to accommodate that staff,” Cramp said of the practice, which is part of a global firm and will set up shop in its new home with about 28 attorneys and support workers in early March.

According to a recent national report by the brokerage firm Jones Lang LaSalle, the legal industry is seeing many firms downsize and otherwise “right-size” their space needs, in part because of the tight economy but also due to the rise of technology allowing companies of all kinds to do more with less — including personnel and square footage.

Of those firms with leases expiring, nearly two-thirds nationally are deciding to stay in their current locations.

Most Activity Downtown

As of midyear 2011, law firms in San Diego County had leased 424,000 square feet, with 77 percent of activity occurring in downtown due to the leverage tenants have in that submarket, following three consecutive years of occupancy losses. The 2011 activity followed what JLL called a “banner year” in 2010, when law firms leased 731,000 square feet of office space in the San Diego region.

The largest local transactions of 2011 included Robbins Geller’s 114,000 square foot renewal with a space contraction at 655 West Broadway; and Gordon & Rees’ 41,000 square foot renewal with contraction at 101 West Broadway.

In addition to Duane Morris’ recent move to sign a five-year lease for approximately 28,000 square feet at 750 B Street, firms relocating locally in the past 12 to 18 months have included Procopio, Cory, Hargreaves & Savitch LLP, Knobbe Martens Olson & Bear LLP, Lewis Brisbois Bisgaard & Smith LLP, and Troutman Sanders LLP.

Many of the current opportunities, however, are limited to small or medium-size firms, since locations with large blocks of space in one place are dwindling in the major submarkets that draw law firms — downtown, University Towne Center (UTC), Del Mar and Mission Valley, where law firms occupy 13 percent of office space.

They represent nearly 20 percent of the local portfolio of Newport Beach-based Irvine Co. John Turner, a local regional vice president with Irvine, estimates that law firm tenants occupy 1.4 million square feet, out of the company’s total 7.4 million square feet of local office space, primarily in the downtown and UTC markets.

“We are very focused on serving that industry, but there’s no magic to it,” Turner said, noting lease costs are just part of the equation. “Every law firm has different needs, and you just have to listen to what those needs are.”

For instance, he said Irvine was able to make arrangements with Duane Morris that turned out to be much more cost-effective and less time consuming to set up operations at Symphony Towers, than would have been the case had the law firm decided to undergo major retrofits to meet its needs at its current downtown location.

Also deciding to stay put recently was the corporate law firm Goodwin Procter LLP. Jeff Talcott, an administrator with the firm, said it decided to remain in its current UTC office space owned by Irvine Co., signing a five-year lease at favorable terms, after fielding offers from five different locations in the San Diego region.

Talcott said the local climate has significantly turned in favor of tenants since the last time the firm was scouting locations five years ago.

JLL reported that law firm tenants nationally are still able to negotiate discounts of at least five percent for direct-leased space and 25 percent or more for subleased space. The San Diego average effective rent on all law firm deals signed in 2011 has continued to slide and is now $24.12 per square foot, a 30.3 percent decrease from the 2007 peak.

Misty Moore, vice president and co-chair of the law practice group in the San Diego office of Jones Lang LaSalle, said tenants are especially in the catbird’s seat in the downtown market, which has seen a general outflow of law firms in the past decade.

Many of those firms have headed north to be closer to clients in life sciences and other growing high-tech industries.

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