An overview and expert insights of the office market for key geographies in Asia Pacific and recent activity in the legal sector for the second half of 2022.
Law Firms are undertaking space planning and workplace strategy exercises to understand how the office space is being used and how it should be effectively configured for the future.
Law firms are closely evaluating how their staff are using the office. In particular, many firms are undertaking audit exercises to collect data on how many days per week staff are attending the office, the areas of the office that are attracting the highest traffic and identifying space that they need more of or can do without.
Small meeting rooms and phone booths are popular spaces featuring heavily in new workplace designs, as law firms recognise that the rise of video calls in open plan offices is disruptive. Lawyers without the luxury of a private office are gravitating towards the smaller meeting rooms to undertake quiet/analytical activities and to dial into calls.
The shortage of purpose-built spaces is driving firms to consider what the future of the workplace looks like to ensure that it is keeping up with changing ways of working. Most firms have implemented a return-to-work policy that typically involves a requirement to come into the office to connect with colleagues and clients at least 2 days per week.
Law firm activity in Melbourne:
- Hall & Wilcox are expected to relocate to 500 Bourke Street, 3,000 – 3,500sqm. Finalising lease documentation.
- Holding Redlich are looking to relocate to 500 Bourke Street, approx. 5,000sqm. The market is suggesting that they will commit shortly to this building.
- Arnold Bloch Leibler are likely to renew at its existing premises at 333 Collins Street.
Law firm activity in Sydney:
- McCullough Robertson are in the market for 1500 – 1800sqm as they consider relocation options in parallel with a renewal at 25 Martin Place.
- Ashurst LLP is said to be relocating from 5 Martin Place to 39 Martin Place. They currently occupy approximately 13,700sqm.
For more expert insights and recommendations for occupiers in the legal sector in Australia, contact Hannah Kimber.
Market activity in Beijing is slowly recovering amongst a broader climate of economic uncertainty.
A resurgence of COVID-19 variants in late April to early June this year severely limited relocation activity during the quarter, especially in Chaoyang District. Beijing experienced an overall negative quarterly take-up of -83,000sqm vs a positive 97,000sqm 10-year quarterly average. Space surrender activity was driven primarily by the downsizing of technology firms.
Legal sector activity remained steady as several firms focused on renewing their leases and expanding and improving facilities within existing buildings as the market begins to recover.
Law firm activity:
- Jincheng Tongda & Neal 金城同达 is said to have completed an expansion in China World Tower A, Chaoyang District, CBD, for approximately 2,000sqm.
- Covington & Burling LLP is said to have renewed its lease at Yintai Centre, Chaoyang District, CBD.
For more expert insights and recommendations for occupiers in the legal sector in Beijing, contact Yevgeny Bam.
Momentum in the Hong Kong real estate market has picked up slightly, as social distancing measures have been relaxed.
Hong Kong has dealt with a fifth wave of coronavirus restrictions, resulting in a marked increase in high quality and experienced lawyers, other professionals, and their families leaving Hong Kong.
Although business activity levels have remained buoyant in the legal industry over the past three months in Hong Kong (partly contributed by the continued outflow of quality workers as well as some large law firms and corporate businesses looking to invest for longer term expansion in the region), cost-optimization remained a priority for most law firms in the office leasing market. Overall Grade A office rents were stable, only edging down 0.1% QOQ, bringing the YTD drop to 1.5%.
As business sentiment and labour market conditions recover, we expect that the further relaxation of border controls will help leasing momentum in H2 2022.
Law firm activity:
- Addleshaw Goddard has announced the closure of its Hong Kong office in Three Garden Road – Champion Tower measuring 7,339sqft.
- The UK law firm, DWF, is expanding into the Hong Kong market by partnering with Hauzen LLP. Hauzen LLP are currently located in Tower Two, Lippo Centre on Hong Kong Island.
For more expert insights and recommendations for occupiers in the legal sector in Hong Kong, contact Richie Lau.
Shanghai occupiers might have a narrow window of opportunity to improve commercial terms in 2022, despite the pro-landlord conditions in Class A+ / Premium buildings. Local law firms drove the notable market movements in the quarter, mainly in already consolidated Class A buildings.
After the Q2 2022 city-wide lockdown and the resulting poor economic situation, quarterly rents have surprisingly remained flat. However, a Y-o-Y drop is expected. The Shanghai office market is resuming activity, albeit with little immediate change in vacancy (CBD Grade A at 9.2%, -0.5% Q-o-Q) and rents (RMB 9.19/sqm/day, +0.1% Q-o-Q), except for some new small vacancies in core CBD buildings that had zero vacancy in the last few years.
As occupiers revise their office space needs and budgets, vacancy levels could rise, explaining the forecasted drop in annual rents from which proactive tenants looking to renew, relocate and/or expand can benefit. However, this drop will likely be brief and will not affect Class A+ / Premium buildings, which show a stable or rising rental trend, with particularly low vacancies across all submarkets. Activity in the law firm industry in the last quarter was driven almost exclusively by local firms, as has been the case for the last few years, with some medium-sized relocations concentrated in Lujiazui, Pudong area.
International law firms currently revising their portfolios can greatly benefit financially and qualitatively by considering non-traditional locations such as consolidated DBD, which has increasingly attracted MNCs with large office space requirements, as well as flexible space solutions, which have greatly diversified and sophisticated in the last 5 years.
Law firm activity:
- Tahota Law Firm relocated to Lumina Phase 2, Xuhui Riverside District, leasing 2,500sqm.
- GF Law Firm relocated to Taikang Insurance Building, Pudong District, leasing 2,400sqm.
- Duan & Duan relocated to Shanghai Tower, Pudong District, taking up 2,600sqm.
- Hengdu Law Firm downsized in Jin Mao Tower, Pudong District, giving back 600sqm.
- Hylands Law expanded in Jin Mao Tower, Pudong District, taking additional 1,200sqm.
For more expert insights and recommendations for occupiers in the legal sector in Shanghai, contact Aliro Franco.
Office demand is on a recovery path, but it is not strong enough to start pushing vacancy downward. The vacancy rate is likely to start rising again in 2023, due to the increased supply. Rents are expected to remain in a gradual downtrend and incentives continue to increase.
In Q2 2022, vacancy rates in Tokyo’s central five wards remained flat. Demand is recovering, but not strongly enough to reverse the vacancy trend, and we expect demand to remain weaker than pre-2019 levels due to workplace downsizing trends. For tenants, we expect a widening variety of high-grade office options to arise from intensifying leasing activities in office developments close to completion and the likely vacancies in existing offices.
Higher grade offices will allow modern office strategies that fit with new workplace trends, providing an advantage amid the fierce competition for talent. International law firms have continued to explore more flexible workplace designs as opposed to the more traditional legal office layout. This increase in flexible work and collaboration space has resulted in increased density and decreased floorplate requirements.
Law firms are increasingly exploring workplace updates to modernize their existing space whilst also minimizing space requirements. This has resulted in a decrease in the number of office relocations and an increase in renewal and refurbishment projects.
Law firm activity:
- Baker McKenzie completed an office refurbishment project to update workplace and stay in their current building.
- Norton Rose renewed their lease at Otemachi First Square East Tower
For more expert insights and recommendations for occupiers in the legal sector in Japan, contact Ai Nakagawa.
Higher operational costs faced by landlords arising from inflationary pressures will likely flow through to occupiers via increased service charges. Law firms will continue to face competition for limited good-quality office space for expansion and relocation.
In Q2 2022, Core CBD Premium & Grade A rents increased for the fourth consecutive quarter to SGD11.10 per sqft from the last quarter SGD10.30 per sqft. This shows a 1.8% QOQ increase following the previous 1.3% quarter gain. Supported by a broad-based economic recovery, more employees returning to the office and a flight to quality, rents are forecasted to grow by 5–7% for the whole of 2022. Vacancy rates are forecasted to tighten further by year-end.
Law firms that are currently revising their portfolios and workplace have started including a criterion for buildings with good green credentials and incorporating ESG into new workplace design. This will put prime office space in the Core CBD with green credentials as well as efficient specifications at an advantage.
We recommend that occupiers finalise their future office decisions and decide upon their desired real estate footprints as the bargaining power in lease negotiations is shifting in favour of landlords. For law firms that have not embarked on their ESG journey, we recommend that they start to explore their options.
Law firm activity:
- Norton Rose Fulbright has commenced an office search of approx. 20,000 sqft.
- KC Partnership relocated and rightsized from approx. 11,000sqft at Suntec to approx. 7,000sqft at Harbourfront.
- BCLP is in the process of renewing its lease of approx. 7,000sqft at Republic Plaza.