Top law firms took more than a quarter of all office space leased in the City of London last year, leading a charge for sustainable, high-specification workplaces as companies aim to slash emissions and win the war for talent.
The 1.1mn square feet of space leased by law firms in central London last year was the most the sector has taken since before the Brexit referendum in 2016, more than 50 per cent higher than the amount taken in 2020 and 85 per cent up on 2019’s total, according to estate agency Knight Frank.
“Some of it is expansion but a lot of what we’re seeing is firms looking to trade up,” said Richard Proctor, head of tenant representation in London for Knight Frank.
Anxiety over the future of offices has dogged developers and landlords since the start of the coronavirus pandemic, with long periods of enforced homeworking and a shift to more hybrid models of work posing a threat to the traditional workspace.
While the future of older buildings, which are losing out in a new competition with employees’ own homes, remains in doubt, property owners and investors are increasingly bullish about the prospects for modern offices with low emissions.
According to Knight Frank, 94 per cent of the space taken up by law firms across the UK last year was in so-called grade A buildings, the top segment of the market, compared with 73 per cent five years ago.
Underscoring the appetite for the newest stock, three of the largest deals signed in London in 2021 were pre-let agreements to take space in office towers that are being developed.
US firm Latham & Watkins agreed to take 250,000 sq ft and UK firms Allen & Overy and Travers Smith signed up to leases on 271,000 and 160,000 sq ft of City of London office space respectively.
Those firms are shuffling out of older stock for a number of reasons, said Proctor. “A big part of that is the talent and retention piece. Wellbeing is playing a part and we have got a lot of law firms which have committed to hit net zero carbon [emissions] by certain dates. A lot of them are taking the opportunity to move to far more sustainable buildings, ”he added.
Law firms are eager to be seen to be in the most carbon-efficient buildings partly because they are now marketing themselves as advisers on environment-related issues, said Tony Williams, founder of legal consultancy Jomati.
Given the rise of remote working, Williams predicted that apart from US-based firms, which “have been on a growth splurge”, high-end law firms would not increase the size of their office footprint even if they moved to new premises. Some may even reduce in size, he added.
US firms were particularly active in London last year, accounting for 42 per cent of all the space taken by law firms in the city. “Americans have really revved up the war for talent,” said Proctor.
With firms signing up to leases of more than nine years on average last year, the spate of activity from the legal sector is unlikely to be sustained.
But as the largest firms seek to outdo competitors’ offices, it could continue in the short-term, said Proctor. “This sector in particular does keep an eye on its peers, and if there is a trend of some taking space then there could be a ripple effect.”