Law firms represent nearly 1.3 million square feet of New Jersey’s office tenant base. And during the first half of 2009, the industry generated 250,000 square feet in leasing activity. In a market with limited leasing velocity, these tenants certainly are making an impact – with good reason.

I, personally, have been through three cycles in New Jersey real estate during my 25- year career. The current downturn thus far bodes the best for law firm tenants. Interestingly, law firm credit is strong today as compared with the past, especially when compared to other tenant sectors like financial services. There are significant letters of credit and personal guarantees by partners.

Thus, as landlords struggle to stabilize their assets as vacancy rates creep north, law firm occupancies are especially desirable because they create value. As such, the advantages of today’s supply-heavy tenant’s market – including free rent, reduced rent, larger improvement budgets, lower security deposits and other concessions – are even more accessible to law practices.

Recently, my team represented a major Newark law firm in its lease of 43,000 square feet. That deal took 15 months to complete, not due to red tape but rather because of competition between two landlords. The incumbent landlord and an outside party entered an auction-type scenario. Ultimately, this produced a highly desirable situation for the firm who chose to relocate.

Other significant Garden State law firm leases this year include Saiber’s relocation to Florham Park and Genova Burns’ move back to Newark.

LOWERING OCCUPANCY COSTS

In a climate where it is difficult to grow the top line, lowering the bottom line has become a priority. Rent is generally the second largest fixed cost for law firms, next to staffing, and, therefore, is a logical place to target reductions. The question becomes, “where to begin?”

Looking at trends among competing practices is a good first step. Our practice group at Cushman & Wakefield works with Gensler, the architectural firm, to help benchmark activity for our law firm clients. We examine factors like office size, time keeper-to-secretary ratio, in-house technology and disaster recovery programs at comparable firms. We look at our clients’ current rents and square footages and then create a metric that enables us to compare how efficient their costs are, per attorney, against those other companies.

What does this achieve? At the end of the day, if one firm has to bill 1,000 more hours to cover costs because their office configuration is less efficient, it is going to be very difficult to compete with a more streamlined organization.

When it comes to specific areas in which to trim space, we have found that attorneys’ libraries are shrinking, thanks to technology. The large partner offices of the past are beginning to get smaller as well, especially when firms relocate. We are seeing more firms adopt standards with just two office sizes for partners and associates. Larger practices are creating a conference floor that includes the reception area. Therefore, clients never see the work area, which enables the firm to spend their tenant improvement dollars at the front of the house.

Looking ahead, New Jersey is among the three top states where corporate headquarters are located. As such, it will continue to be a magnet for the law practices, both as a headquarters location and as a base for satellite offices for regional and national firms.

I do not believe we have seen the worst that the recession will bring. As a lagging indicator, commercial real estate likely will not experience notable improvement for at least another year. For law firms, this is an excellent time to reevaluate space usage. A world of opportunity exists for those looking to make great deals and increase operational efficiency.

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I hope you’ve been enjoying my posts lately. I thought I might do something different today and rustle up a few bits of info from around the WWW. These are some of the news items and blog posts that have been popular over the last few weeks. Leave me your thoughts.

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