After staffing costs, office leasing is the largest expense for most law firms and many are now taking advantage of low occupancy rates to lock in long-term deals at attractive prices. But it is not only the opportunity to lock in a good rate that encourages firms to make the move – other factors such as environmental concerns, client perception and staff satisfaction also come into play.
Colliers International managing director of office leasing Simon Hunt says that a 6% vacancy rate is considered average and that vacancy rates higher than that provide opportunities to get prime real estate at attractive pricing. Of all the capital cities, only Adelaide at 4.7% has a vacancy rate below 6%; Brisbane, at 11.3%, has the most available office space.
“In some cities like Brisbane and Perth there’s a large supply of office buildings so law firms have plenty of options,” Hunt says. “But law firms that have moved are looking at a number of factors including more efficient work spaces and density levels more in line with the Australian office market.”
The average density of an office in Australia is one person per 15 square metres, Hunt says, but law firms who signed leases in the 90s and earlier this decade averaged one person per 20 square metres. “Law firms are actually leasing less space but the space they do lease is more efficient,” Hunt says.
In October, Cooper Grace Ward moved into new premises at 400 George Street in Brisbane. Managing partner Chris Ward says that, rather than downsizing, the firm needed to move to new premises to provide more space for his growing firm.
“It was obvious that space was going to be an issue for us,” Ward says, adding that the new office has ‘huge’ floor plates of 1,400 square metres. The firm takes up three floors for a total of 4,300 square metres.
However, despite moving to brand new office space in a five green star building, the firm was able to reduce the price it was paying per square metre. “It’s fair to say it was a good deal,” Ward says. “The owners of the building were keen to get a major private tenant and it seems that law firms are attractive tenants so they were very commercial in their offer.”
Ward hired CBRE as an external consultant to help with the move and says that it was well worth the fee. CBRE lined up four offers and Ward was able to choose between them. Fortunately for him, the best offer came from the building that he had favoured during the process. The firm signed a 10-year lease, with the option for a further five, and moved into the new location 12 days after construction on the building was completed.
While the firm is getting a good deal on the rent, the move itself was quite expensive. “If you costed every hour spent, as well as all the external consultants, the cost of the move was well over a million dollars,” Ward says.
Allens Arthur Robinson shunned the option of moving to a new building and decided instead to move to 101 Collins Street in Melbourne in the space that was formerly occupied by Blake Dawson. Chief operating officer Craig Wallace says that priorities have changed in the 15 years since the firm signed its lease with 530 Collins Street and the move was made to ensure proximity to its clients.
“When we first moved to 530 in the early 90s one of the major considerations then was the need to be very near to the court,” Wallace says. “What’s transpired over the past 15 years is that, while it is still good to be near the courts, electronic data transfer means it’s less important and we would argue that the most important factor now is being in close proximity to our major clients.”
Allens has a lease at its current location that runs until 2012 and will not start its 12-year lease at 101 Collins until July 2011. Wallace says that will provide the opportunity to do the fit out and, ideally, move into the new office by Christmas 2011.
Unlike Cooper Grace Ward, Allens was not looking for more space but wanted to provide its staff with an environmentally friendly office that is conducive to good communication. “From a staff prospective, 101 Collins offers quite an exciting proposition,” Wallace says. “The design of the new office means that it’s going to create much better communication and much more collaborative working environment.”
Wallace says that each floor is 60% bigger than what it currently has and that the total space is bigger than what Blakes had. “It’s the original Blakes space plus additional floors as well,” he says.
Allens and Cooper Grace Ward are not the only firms to take advantage of a favourable office leasing market. Freehills is planning on moving to 163 Castlereagh Street in Sydney when the building is completed in 2013 and Clayton Utz will take 55% of the office space available at 1 Bligh Street Tower in Sydney when it is completed next year. And back in Melbourne, Mills Oakley has signed on for new premises at 530 Collins St.
Source: Colliers International Research
*Figures are average central core, premium grade second half 2009, forecast for first half of 2010.