law firm perspective : winds of change bring opportunity and a ‘new normal’

EMEA 2011Law Firm Perspective

Winds of change bring opportunity and a ‘new normal’Conditions are highly variable within the real estate markets at the core of law firm portfolios. A number of markets are seeing rental cost escalation driven by the diminishing availability of high quality space options, while others present good opportunities for law firms to enhance their position.

As clouds continue to build on the macroeconomic horizon, and caution returns, law firms will need to adopt a forensic approach to the management of their real estate portfolio. This will ensure that assets are optimised and that firms outperform their direct competitors.

Opportunism will be evident in some EMEA real estate markets as law firms react to the changing environment. The traditional focus on prime locations and trophy buildings will remain, but it will also be accompanied by a new emphasis on workplace productivity and space efficiency. This constitutes a ‘new normal’ for those managing real estate within the legal sector.

Law Firm Perspective • EMEA • 2011 3Jones Lang LaSalle

Jones Lang LaSalle Law Firm Group

Those individuals tasked with management responsibility for major global, national or regional law firms find themselves increasingly in the real estate business as a matter of necessity. Managing multiple offices in different cities and/or countries means that an increasing amount of time is required to deal with portfolios that are ever more complex and have critical events arising on a frequent basis. These events are nearly always contextual, meaning that they require an understanding of local market conditions in order for proper evaluation and action.

With a client list that is truly worldwide, Jones Lang LaSalle understands the importance of providing timely, accurate and relevant market information to our law firm clients in order to enable them

to efficiently manage their real estate in such a way as to generate maximum productivity. Accordingly, we are proud to present our Law Firm Perspective for the EMEA region.

The EMEA region is increasingly diverse. This report features information and analysis on 10 mature and emerging legal markets across the EMEA region. We trust you will find this information useful, and solicit your feedback if there are areas you would like to see expanded and/or improved.

4 Law Firm Perspective • EMEA • 2011 Jones Lang LaSalle

In this report

Law firm office clock 5Law firm sector perspective 7Law firm office market perspective 8Law firm office markets London City 10 Frankfurt 11 Paris 12 Amsterdam 13 Brussels 14 Milan 15 Madrid 16 Moscow 17 Warsaw 18 Dubai and Abu Dhabi 19


Law firm office clock

Reading the clockThe Jones Lang LaSalle law firm office clock demonstrates where each market sits within its real estate cycle related to the submarkets where law firms tend to be located (the majority of which are located in prime CBD locations). Markets typically move clockwise around the clock, with markets on the left side of the clock generally landlord-favourable and markets on the right side of the clock generally tenant-favourable.

A little over half of the 66 office markets plotted on our full EMEA Office Property Clock occupy positions at or beyond 6 o’clock, reflecting the likelihood of growth in prime rents before the end of the year. This trend is closely reflected in those markets of interest to law firms with 6 of the markets discussed in this report at or beyond 6 o’clock.

Rental Growth Slowing

Rents Falling

Rental Growth Accelerating

Rents Bottoming Out

Madrid Brussels Amsterdam Rome Frankfurt, Milan

Paris, Warsaw

Moscow

London City

Abu Dhabi Abu Dhabi

Dubai


Law firm sector perspective

Economic environment in limbo, yielding a cloudy business environment aheadConfidence levels, both consumer-related and business-related, have plummeted across the globe in recent weeks due to the stability of the Eurozone, the lack of a clear agenda in the U.S., and signs of slower economic growth in the world’s fastest growing economies like China, India and Brazil. Leading indicators of business activity suggest that economic growth slowed during Q2, most notably in advanced economies.

These heightened uncertainties have propelled businesses across the globe to revise growth plans and in certain industries, review headcount and shelf plans for future hiring and investment. As a result, global rates of economic growth have been revised downward since the beginning of the year across the board. The downward revisions to growth have pushed decision makers and businesses to the sidelines, creating increased economic stagnation and an even greater sense of uncertainty for the remainder of 2011 and into 2012.

Continued divergence in economic performanceEconomic forecasts point to continued divergence in the pace of growth between advanced and emerging economies. Growth in advanced economies is projected to average 2.2% per year during 2011-12. This would represent a modest deceleration from the 2.8% achieved in 2010. Growth in most emerging economies continues to be strong, and growth is predicted to decelerate only slightly from the high levels of last year, with around 6.5% projected for emerging economies in 2011, compared with just over 7% in 2010. Such divergent growth potential will have important implications for both business and real estate strategy for those international law firms seeking to expand in the coming years.

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

Chin

a

India

Japa

n

Rus

sia

Ger

many

Fra

nce

Italy

UK

US

Can

ada

Previous forecast 2011 Current forecast 2011

Revised lower

Global GDP revised lower for most global economies

Annu

alize

d ra

tes o

f gro

wth

Source: Global Insight, Jones Lang LaSalle

Emerging markets driving opportunitiesAn uncertain economic environment is but one of the factors impacting law firms operating in Europe, the Middle East and Africa today. Although global expansion on the scale seen before the global financial crisis may have slowed, firms are continuing to develop their presence in new and emerging legal markets.

In the EMEA region, the Middle East has experienced some of the greatest growth of recent years, with Dubai and Abu Dhabi emerging as hubs for international law firms looking to operate in the Middle East and service the many sovereign, corporate, energy and financial services entities operating in the region. Expansionary growth has been tempered over the last 18 months, but many law firms continue to reinforce their presence in the region, evaluate their portfolio strategy and take advantage of the significant real estate opportunities available in the market.

Russia and Central and Eastern Europe have also been markets of growing interest to international law firms operating in the EMEA region. Over the past 12 months Moscow in particular has witnessed a resurgence in activity from law firms, after a period of contraction in the immediate aftermath of the financial crisis.

It is clear however, that the process of emerging market expansion is not unidirectional. China’s second largest law firm Yingke has shown clear ambitions to expand into Europe over the past months setting up operations in Hungary and Italy, and recently announcing plans to set up a new Western European headquarters in London.

Legislative change in the UKIn addition to growth and consolidation in new markets, change can be seen in a wide range of areas and is continuing to shape the operating landscape for international law firms. In the UK new legislation such as the Legal Services Act has the potential to substantially change the shape of the legal sector.

The introduction of ABS or alternative business structures look set to increase the range of ownership models available to law firms in the UK allowing them access to private capital or to float on the stock exchange for the first time. Irwin Mitchell were one of the first UK firms to announce they were likely to raise capital in this way, and are unlikely to be the last firm to take advantage of the funding opportunities the


Law firm sector perspective (cont’d)

legislation allows. The regulation is intended to drive deregulation and liberalisation of the UK legal market, allowing new market entrants to engage in the provision of legal services. Regulatory change will continue to have a major impact on the growth and structure of the legal sector going forward. Law firms are likely to be impacted both directly, through legislation like the Legal services act, and indirectly, by regulation such as Solvency II and broader financial regulatory change which will impact key client groups such as insurance and financial services.

War for talent in EuropeOther European markets are also seeing substantive change within the legal sector. In France a number of smaller new firms are entering the market driving greater specialisation and stratification. There are also significant numbers of lawyers moving between practices in the French market. This ‘war for talent’ is in evidence in markets across the EMEA region and is an important driver of law firm location decisions, in established and emerging markets alike. Real estate can have a big impact on talent retention and this dynamic should be a core consideration for anyone managing a law firms’ international portfolio.

Outsourcing of legal servicesThe tough economic environment has led to further development in the legal services outsourcing market, as clients demand greater savings and reduced costs from law firms. After an initial expansion around 2005, the legal services outsourcing market (or LPO market) has been through a process a consolidation, with the number of providers reducing.

The scope of services outsourced can vary from back office processes such as word processing or graphics and design, to accounting and IT functions. India, the Philippines and increasingly South Africa have been some of the markets to benefit most from this process over the past 5 years. How far this legal service outsourcing process develops will depend on a range of factors, but it is another change likely to be reinforced by continuing economic uncertainty and pressure on corporate balance sheets.

TechnologyTechnology continues to revolutionise how organisations do business. While we have a long way to go before becoming the “paperless society” envisioned several years ago, electronic document storage and retrieval will allow significant take back of space previously used for storage while improving the ability of firms to be organised. These

efforts in turn support the ability to work across geographic boundaries in a fluid manner. Technology that supports the different ways in which people work enhances the ability of firms to be nimble.

Laptop computers, tablets, pocket sized handheld computing devices / PDA’s, social networking, user friendly intranets, voice over IP, quality audiovisual capabilities, and secure infrastructures allow firms to respond to shifting client drivers seamlessly. These technological advances also provide the ability of space uses to overlap and ultimately reduce the required footprint of the individual spaces.

Towards a more productive futureThere are clearly a number of change factors impacting the way law firms do business and organise their real estate. This section of the report has sought to highlight some of the most important.

One of the main real estate trends that law firms are implementing is to eliminate excess space, a term we refer to throughout the report as rightsizing. Firms can be growing from a revenue and headcount standpoint, but the space they occupy is often not in line with the efficiency standards new space would offer. As a result of this, how firms eliminate this excess space is often predicated on whether a firm decides to relocate or renew at their current building or space. With the outlook for organic growth uncertain, driving greater efficiency and productivity from the existing portfolio will be increasingly important.

The very nature of the way people work is evolving with incredible speed. For the first time in history, four generations of workers interact in the work place. Their work styles and needs vary as much as their ages. Alternative workplace strategies and better space utilisation allows organizations to meet the various needs of workers by providing a variety of work spaces. Whether an individual works autonomously in a single office, at a client’s office, or from home, or whether an individual works collaboratively in an open workstation environment, shared office, café or team room, multiple types of space design can facilitate an individual’s work style. The pressure on law firms to meet these challenges and reconfigure their real estate is only likely to increase in these uncertain economic times.


Local market law firm perspective


Over the first half of 2011, we have seen a notable increase in demand for office space, however, we are yet to see this translate into transactions and there is a likelihood that weak economic activity and Eurozone fears will push real estate decisions into 2012.

Activity in the legal sector is currently driven by a combination of imminent lease events and an increasing level of merger activity. Occupiers such as Hammonds and Sullivan & Cromwell are staying put and company mergers include DAC Beachcroft, Barlow Lyde & Gilbert and Edwards Wildman Palmer, with many other mid-tier firms looking for merger partners. There are currently seven law firm enquiries greater than 100,000 sq ft in the market and 15 between 10,000 and 99,999 sq ft, the majority all driven by lease events rather than growth.

The first half of 2011 has seen occupier take-up below average, with 235,000 sq ft across 11 deals transacted over the first half of 2011. The most significant law firm deal to complete this year has been Trowers & Hamlins, who took 70,900 sq ft on an assignment from Linklaters, reflecting a passing rent of £44.30 per sq ft. In addition, CMS Cameron Mckenna has agreed to take a partial pre-let on 200,000 sq ft at Hammerson’s Principal Place and expect to move in early 2015.

A key trend law firms are facing in the market is trying to take back office staff out of London, and use space more efficiently. For example, A&O have outsourced true back office functions outside of the UK. Although general market sentiment is not as strong as it was 18 months ago, we are still seeing relatively favourable conditions with generous lease incentives and landlords are willing to share a percentage of the value created.

London City

Small-to mid-sized law firms tend to locate in Central Core areas for profile, whereas large-established law firms will locate in peripheral City Fringe locations or Canary Wharf in order to benefit from discounted rents.

Percent of market occupied by law firms

Number of law firms occupying more than 5,000 SQ M in the market

7% 48

Top 3 challenges for law firms1. Making space use more efficient and flexible. 2. Rightsizing the amount of space. 3. Driving Cost out of the Portfolio. Top 3 opportunities for law firms 1. Continue to move support and back office functions out of expensive or core locations. 2. Pre-letting before the market rises. 3. New tower buildings coming online from 2014 onwards.

2011 2014 2015 2012 2013 Tenant-favorable market Neutral market Landlord-favorable market

Trowers & Hamlins 3 Bunhill Row 6,600 SQ M (70,900 SF) Lease Expiry

Recent completed law firm transactions

Law firm requirements actively in the market: CMS Cameron McKennaBird & BirdNabarro

Kirkland Ellis 30 St. Mary Axe 1,500 SQ M (16,650 SF) Expansion

Maples & Calder 200 Aldersgate Street 1,000 SQ M (10,850 SF) Lease Expiry

Lease Event

Consolodation

Lease Event

LAW FIRM CONCENTRATION AND COMPOSITION

LAW FIRM MARKET ACTIvITY

OUTLOOK

Overall vacancy Rate:

6.9%

PRICING AND INCENTIvESPrime Rent

€ 656 sq m per annum (£55.00 sq ft per annum)

Description of Available Incentives

16-24 months rent free


Occupier activity in Frankfurt has been stable across all sectors in the first half of the year, with a notable increase in competition for space over the year to date. The trend from the past three to four years to relocate into the Trophy and top buildings around the Old Opera is still in evidence in the market, alongside a growing number of requirements seeking more efficient space. The acquisitions in the first half of 2011 from SJ Berwin, Jones Day, Luther and Mayer Brown provide further evidence of the continued demand from law firms for a top-quality location and building in Frankfurt. We have also seen other law firms which already occupy Grade A buildings in good locations, leveraging the favourable market conditions to renegotiate their terms.

The low vacancy around the Old Opera and the limited pipeline for 2011-2012 will restrict the number of relocation alternatives over the next 18 months; however in 2013-2014 the number of new developments and vacant buildings will increase. As a result of the relatively limited supply pipeline in the short term, we expect to see a slight increase of the top rent and a decrease of incentive packages from 10.0 to 15.0% for five years to 8.0 to 12.0%.

Frankfurt

Frankfurt’s ‘Banking district’ and ‘Westend’ are the most popular districts for law firms in Frankfurt. Nearly all international law firms are concentrated in central locations around the Old Opera.



7% 13

Top 3 challenges for law firms1. Limited Pipeline for 2012-2013 around Old Opera. 2. Limited number of existing buildings of Grade A standard. 3. Rents are expected to increase, albeit slowly. Top 3 opportunities for law firms1. Good opportunities for occupiers facing lease expiries in 2014-2015. 2. Significant levels of completions expected over medium-term with many individual developments in 1B locations possible. 3. Cost of prime office space in Frankfurt remains less than many other European Cities.


SJ Berwin OPER 46 Bockenheimer Anlage 46 4,671 SQ M Relocation


Jones Day NEXTOWER, Thurn-und-Taxis-Platz 6 2,800 SQ M Relocation

Luther Die Welle, An der Welle 2 - 10 2,228 SQ M Relocation



OUTLOOK


14.3%


€ 396 sq m per annum


10-15% rent free on a 5 year term


The French Legal market is currently going through significant change at a sector level, with the emergence of several new law firms, driving growing specialization in the market. An evolution in working habits is also gradually translating into changing real estate strategies.

There is a marked trend towards leaving the independent town houses and period buildings traditionally occupied by law firms, to settle in brand new offices, providing larger floor plates (above 2,000 sq m). Shared business centres are even emerging as new office solutions adopted by law firms.

Overall, larger law firms looking for space in excess of 5,000 sq m will find a very limited number of large units of prime space in the prestigious locations required. Furthermore, as big players are ready to agree on longer than average lease lengths (in excess of 9 years), in order to benefit from more favourable leasing conditions, the turnover of stock is directly impacted and remains low. Smaller, independent units are more widely available in Paris CBD.

Limited development opportunities within the historical core of Paris CBD will mean that supply in the markets traditionally preferred by law firms will remain tight going forward. This is likely to impact prime rents which will be subject to moderate upward pressure.

Paris

Law firms are generally located in period buildings, in some of the most prestigious addresses in Paris. These are mostly on the right side of the river Seine, in the central business district. Within the CBD the core market for law firms has slowly evolved from the “Golden Triangle” (between Place de l’Etoile and Concorde) to the “Financial District” (towards the east of the CBD, between Concorde and Place vendôme). This was well illustrated recently by Clifford Chance and Prauskaer, who relocated from the Trocadero to Place vendôme.



2% 59

Top 3 challenges for law firms1. Shortage of prime space in the traditional CBD locations. 2. The tough economic environment is likely to force law firms to speed up the process of workplace transformation to drive greater productivity, including better space utilisation. 3. Rightsizing and better controlling real estate costs, while achieving portfolio flexibility. Top 3 opportunities for law firms1. Even though prime supply is limited, demand is also currently low. Lease terms can therefore be renegotiated to the benefit of large tenants, on the condition of lease extension (this has been done recently by Linklaters or Freshfields for instance). 2. Incentives currently offered by landlords can be quite significant.


McDermott Will & Emery 23 Rue de l’Université 2,000 SQ M


Law firm requirements actively in the market: Latham & Watkins Assoc.Hogan Lovells Weil, Gotshal & Manges

Cabinet Lussan 280-282 Blvd St Germain 1,156 SQ M Relocation

Cabinet Normand & Assoc. 32 Ave Raymond Poincaré1,060 SQ MRelocation



OUTLOOK

Rightsizing

Consolidation

Growing


5%




The level of incentives remains highly dependent on the transaction size: • For the medium and small practices (1,000-5,000 sq m) 20% of the

yearly headline rent.• For the big practices (above 5,000 sq m) a maximum of 15% of the

yearly headline rent.


Although the Amsterdam market saw competition for space increase in Q2 - up 81% on Q1 - the environment of subdued occupier demand and stable supply is expected to persist over the coming quarters. Demand from law firms is also subdued, with recent transactions volumes limited. In the wider market, moves continue to be driven by cost containment rather than any expansion.

In the core markets for law firms choice is more limited than overall market vacancy rates suggest, with Grade A vacancy in Zuidas at 8.9% and eroding slightly. The overall market is still characterised by a large amount of oversupply, particularly in more peripheral areas where choice is inflated by less suitable accommodation and a lack of alternative uses. In the medium term this could reduce as the municipality is actively encouraging conversion to hotels outside of the City core.

Both Prime rents and secondary rents have remained flat, although incentives could increase later this year as the market encourages absorption. The amount of incentives (rent free period) differs per sub district. At the Zuidas area, the prime office location in Amsterdam, incentives range from 10 to 16 months based on a standard 5+5 year contract. Overall for the city of Amsterdam incentives fall within a range of 10 to 18 months, so in general net effective rents are 20 to 25% below prime headline rents.

Amsterdam

The major law firms in Amsterdam are located in the Zuidas district. The largest international and domestic law firms are generally located in this area. The Zuidas can be characterized as a multifunctional location with good accessibility by road and public transport. Many smaller law firms are located in the city centre of Amsterdam especially around the canals at the Herengracht and Keizersgracht. The buildings here have a modern classical image which suits the law firm occupier.



5% 11



Top 3 challenges for law firms1. Limited new construction over the next three years will force law firms with near-term lease expiries to renew in place or consider second-generation space. 2. High fit out costs will continue to influence relocation decisions. 3. Adapting to emerging trends in flexible working. Top 3 opportunities for law firms1. Supply within the Amsterdam office market remains relatively high, this means if law firms are willing to renew or relocate their business they do have leverage. 2. Opportunities to drive efficiency and productivity in the workplace. 3. Limited competition anticipated in the market in the short term.


Boekel De Nerée 11,400 SQ M Renewal


Law firm requirements actively in the market:

Lexence

Allen & Overy 9,913 SQ M

Stable

OUTLOOK


11%




Incentives equate to around 10 to 16 months rent-free based on a standard 5+5 year contract


Law firms in Brussels are currently less active than 24 months ago, due in large part to the poor economic climate. Despite this, a range of law firms are trying to benefit from the economic downturn and are either looking to renegotiate their current leases or looking for properties at bargain conditions.

Most well-established law firms are not seeing expansionary growth for the moment. One of the key trends seen in the market recently has been an emphasis on workplace productivity and greater space efficiency. Law firms are considering other ways of working such as more open plan, home working and desk sharing. Though law firms have not been traditionally focused on cost reduction, there is now a greater willingness in the market to investigate ways of reducing costs. For example, Cleary Gottlieb has recently renegotiated its lease and has been able to obtain 20.0% rent reduction over a new six-year lease contract.

With availability reaching 11.2% in Brussels and competition for space limited, there are clear opportunities in the Brussels market for those able to act. New speculative development has dried up in Brussels and future deliveries are to be extremely limited in the medium term. Although competition will be highest for the best space, landlords are fearful of tenants relocating, as they anticipate extreme difficulty in rapidly identifying a suitable replacement.

Brussels

Most of the law firms in Brussels are located in three major districts: the Decentralised district, the Louise and the Leopold district. Each one of these areas counts for approximately 25.0 percent of the total area occupied by law firms in the city.

PRICING AND INCENTIvES



2% 12



Top 3 challenges for law firms1. Existing lease commitments could limit leverage to benefit from current real estate market opportunities. 2. The rents in Brussels are very low and law firms are known to be investing in fitting-out in an expensive manner. Owners know that and are using this argument to limit incentives in the case of renegotiations. 3. Right-sizing the portfolio. Top 3 opportunities for law firms1. Owners of vacant property are now very eager to lease them. Some properties (of good quality) have had vacancies for over three years. The proposed terms and conditions are extremely attractive. 2. As the investment market is also weathering difficulties and investors are looking for long-term leased properties, owners will either do everything to attract a tenant or do their utmost (tempered by above comment in “challenges”) to keep their existing tenants. 3. Consolidation and upgrading quality of portfolio.


van Bael & Bellis Avenue Louise165 4,101 SQ M Renewal


Law firm requirements actively in the market: Loyens AdvocatenJuridis

Claeys & Engels Bd du souverain, 280 3,945 SQ M Renewal

Cleary Gottlieb Steen HamiltonRue de la loi, 5710,279 SQ MRenewal (with extension of 1,000 SQ M)

Stable

Growing

OUTLOOK


11.2%




12% average rent free on a five year term


The CBD and Semicentre are currently the most active markets in Milan, accounting for more than half of the City take up in first six months of 2011. Law firms are traditionally based in the CBD of Milan; however, in the last two years, there have been some transactions in the semicentre, due in part to lack of available space within the CBD. Within the CBD, demand from law firms is typically focused on the Historical City Centre. Competition for space has been increasing with take-up in the first half of 2011 up 57.0% on the equivalent period of 2010.

Both the Centre and Semicentre have limited availability of space, and a correspondingly low vacancy rate. We expect this to remain the case in the next years, with rents likely to be facing upward pressure. While there is a lack of new developments in the Centre, Porta Nuova, located in the most active part of the Semicentre, is a significant scheme due to be completed in 2012 and could be a strategic option for law firms looking for large units of Grade A space. Aside from this, speculative development starts remain rare with many projects awaiting planning consent and unlikely to commence without a significant pre-let. vacancy in the CBD is currently 6.2%

Milan

The major law firms in Milan are located in the central business district, with only a few firms located in the Semi-Center. Law firms are particularly attracted to prime office space in the historical heart of the city centre, which often offers greater proximity to their client base. Typical requirements in this area often focus on centrally-located, fully-refurbished historical buildings, with a traditional facade.



3% 4

Top 3 challenges for law firms1. Limited supply of grade A building options in the CBD. 2. Law firms preference for historical buildings in CBD can mean compromises in terms of building efficiency. 3. Risk of increasing rents in CBD in the next quarters. Top 3 opportunities for law firms1. Release of historical buildings in the CBD from consolidating banks. 2. Top quality developments close to CBD may offer an alternative. 3. Working closely with partners to establish potentially imminent or off-market space options in the CBD.


Linklaters via Broletto 9-11 4,200 SQ MExpansion


Law firm requirements actively in the market: Norton Rose Ashurst

Bird & Bird Borgogna 8 2,300 SQ M

Growing

Growing



OUTLOOK


9.3%




Average Rent free period + Incentives is 12 months


Recent transactional activity from law firms has remained very firmly in traditional submarkets. The CBD is the preferred area, specially Paseo de la Castellana and the borders, towards the east, the Barrio de Salamanca, and the west on the other side of the axis, the areas of Almagro or Zurbano. Most recent transactions from law firms have been below 2,000 sq m, while larger transactions have been dominated by multidisciplinary local firms such as Garrigues, Cuatrecasas, Uria y Menendez or the Legal division of PWC (Landwell). Larger transactions have generally been driven by the need to optimise space and consolidate offices into a suitable building reflecting the image of the firm. After considerable rental falls over the past 24 months, prime rental levels continue to trend downwards, albeit at a more moderate pace. Rent-free periods maintain their importance in the market. Although incentives continue to vary according to the situation of each company and of the building in question; rent-free periods can reach up to 20 months for large occupiers in Madrid, with a further 12 in other kinds of incentives. Landlords remain very keen to retain occupiers which, together with the fact that the legal sector has very high fit out costs, is limiting the amount of relocations in the market. Many smaller law firms are located in residential buildings in CBD, as in the past there has not been enough suitable office space to satisfy demand. As companies from other sectors move to peripheral areas to reduce costs, supply is increasing and opportunities are arising to improve building and location. The legal sector is one of the few sectors that has bucked the trend of relocating to cheaper peripheral locations.

Madrid

Most law firms are located in the CBD submarket, focused around Castellana and the surrounding areas Barrio de Salamanca and the business area Azca. Of the top 25 law firms, 96% are located in or around these markets.



5% 4

Top 3 challenges for law firms1. As economic conditions improve over the medium term, the lack of future supply will push pricing up and will weaken occupiers negotiating position. 2. Demand is also expected to increase in the prime segment over the medium term, driving greater competition between occupiers. 3. Driving greater space efficiency and productivity from existing real estate. Top 3 opportunities for law firms1. Rents are low compared to historical averages and have the potential to soften further in the short term. 2. Weak demand and high vacancy mean current market conditions are ripe for identifying quality buildings in excellent locations at low rental levels. 3. Choice for occupiers is likely to increase further in the short term.


Olleros y Asociados Plaza de la Lealtad 3 647 SQ M Lease


Law firm requirements actively in the market: Arco AbogadosSanchez Pintando Abogados Sacristan

Acebo & Rubio Abogados Almagro 46 426 SQ M Lease

AB Asesores legales velazquez 150 400 SQ M Lease

Stable

Stable

Stable



OUTLOOK


10.3%




Average Rent free period + Incentives is 11 months


Activity from law firms in the Moscow market has increased significantly since early 2010, with major firms including Baker McKenzie and Hogan Lovells returning to the market and several significant transactions completed. Before this period, during the global financial crisis, many law firms in Moscow had to restructure real estate holdings significantly, and much of the growth that had been seen pre-crisis was halted with firms forced to downsize operations.

Headline rents in Moscow fell markedly during the crisis, however limited prime product in the CBD, has meant that the cost of prime properties has been growing quickly over recent quarters. A number of firms were able to lock in at relatively low rents in 2010 but competition for space has increased in the first half of 2011. Some law firms and a number of other international occupiers are now looking at pre-lets as prime options become more limited.

A tight supply environment for prime buildings in core central Moscow is likely to mean rents will continue to face upward pressure in the short term, and recent planning restrictions are likely to keep new development in central Moscow muted over the medium term.

Moscow

The major law firms in Moscow prefer to locate in the Central Business District, inside the Garden Ring. The majority of international firms occupy prime space in very central locations. Some companies are located between the Garden Ring and Third Ring Road, mostly in the western part.



3% 4

Top 3 challenges for law firms1. Restriction on new office construction in the city centre will limit supply and risks to push rents in Prime buildings higher. 2. Infrastructure development beyond the City Centre is slow to improve and therefore it will continue to be difficult for city centre occupiers to consider decentralisation. 3. Macroeconomic factors may make it difficult for law firms to confirm expansion or relocation plans that would enable them to secure their portfolio position for next 5-7 years.Top 3 opportunities for law firms1. Construction activity in Moscow City is re-activated and this will provide more choice for law firms in the future. 2. Construction of a new high quality project at Belorusskaya Square will provide an additional 64,000 sq m of new premises in 2013 in this new business district that has successfully attracted a number of major auditing, legal, and investment banking tenants. 3. Although the mid-term forecast is for rental growth in Prime districts, such growth is not anticipated to be as volatile as in 2007, when prime asking rates rose to USD 1200-1500+ per sq m p.a.


Hogan Lovells BC SUMMIT Tverskaya Street, 22 2,656 SQ M New Deal



Dewey & LeBoeuf BC Legend Tsvetnoy Boulevard 2 2,602 SQ M New Deal

Akin Gump Geneva House 2,358 SQ M New Deal

16.8%



OUTLOOK




5-6 months rent-free and some landlords continue to finance fit-out


The majority of international law firms started to seek opportunities for expansion in Poland and Warsaw after the Poland’s accession to the European Union. Before 2004 the law firms operating in Warsaw were mainly domestic in focus. The legal market in Warsaw is currently at a relatively early stage of development although prospects for growth are very promising. As it stands only five of the 50 biggest law companies in terms of the employment have over 100 employees, with twelve firms employing 50-100 people.

The current trend seen amongst law firms operating in Warsaw is to renew and renegotiate in their current premises rather than relocate to new buildings. Over 195,000 sq m of modern office space is under construction in Warsaw’s central locations, 50% of which should be completed within 12-16 months. At the end of Q2 2011 approximately 8.05% of stock remained vacant (6.7% in the Central Business District and 9.0% in the City Centre), which corresponds to the 96,000 sq m of available space for potential tenants. Prime headline rents in Warsaw are growing, as the demand side has improved and vacancy rate falls. Prime office space in Warsaw City Centre can now be secured from €22-25 sq m per month. However, there are some A+ developments quoting rents higher than this.

Warsaw

The major law firms in Warsaw are located in the central locations (Central Business District and City Centre). Of the top ten firms, three are located in Rondo 1 office building and two are situated in 53 Emilii Plater Street (Warsaw Financial Centre), which are the most prestigious buildings in Warsaw.

COST



2% 0

Top 3 challenges for law firms1. Rising rents within the CBD district. 2. Dropping vacancy rate causing limited immediate available supply. 3. Landlords beginning to harden negotiating stance, with incentives falling. Top 3 opportunities for law firms1. Relatively large number of pipeline developments due to complete over the medium term. 2. Lease terms remain at historically attractive levels for pre-let agreements. 3. Competition for space is likely to remain at moderate levels.


Wierzbowski Eversheds Centrum Jasna ul. Jasna 14/16A 2,500 SQ M Renewal


Kochański Zięba Rąpała Metropolitan, Plac Piłsudskiego 1 714 SQ M New

Łaszczuk & Wspólnicy Metropolitan, Plac Piłsudskiego 1 625 SQ MRenewal



OUTLOOK


€ 300 per sq m per annum


a) partial or full fit-out (depending on the transaction size and lease length) b) 4 to 6 months rent rent free (depending on the transaction size and

lease length)


6.2%


Most legal practices entered the UAE market at a time when space availability was limited. Over the past three years large volumes of new space have been delivered which has resulted in greater choice for the tenant. The market has seen law firms move to better quality buildings at lower rents with consolidation being the primary driver of law firm demand.

Although the large scale expansion and growth by law firms in the UAE has slowed in the wake of the global financial crisis, demand for top quality space remains high. Proximity to clients and competitors has driven many of the location decisions in the region. In Abu Dhabi much of the legal market has been focused on the energy sector and sovereign wealth, whereas in Dubai the focus has been much more on financial services. Average requirements usually range from 10,000 to 20,000 sq ft in Dubai falling to 2,500 to 5,000 sq ft in Abu Dhabi.

Overall market conditions are tenant-favourable in both Dubai and Abu Dhabi, however headline statistics often belie the actual conditions that law firms will find on the ground. Competition is markedly higher for appropriately located, prime space favoured by law firms. Despite this fact, given current availability of better quality space, the time is right for law firms to review their long term occupation strategy in the UAE.

Freshfields Currency Tower 1,400 SQ M (15,000 SF) New Lease (Relocation)


Clyde & Co Rolex Tower 4,200 SQ M (45,000 SF) New Lease (Relocation)

Al Tamimi The Exchange 1,900 SQ M (20,000 SF) New Lease (Relocation)

Dubai and Abu Dhabi

Top 3 challenges for law firms1. Finding appropriately located, single ownership, prime office space. 2. Attracting talent in the Middle East. 3. Increasing competition in the market place. Top 3 opportunities for law firms1. Greater space availability. 2. Increasing landlord incentives. 3. Tenant friendly leases.





5-10% 2


OUTLOOK


Dubai: €305 sq m per annum, DIFC (AED per 220 sq ft) €445 sq m per annum, Non DIFC (AED per 150 sq ft)


1 month rent free period per year of lease commitment

Abu Dhabi: €347 sq m per annum (AED 1,850 per sq m per annum)Overall vacancy Rate (Abu Dhabi):

11.5%

Most of the International law firms in Dubai are located in or on the periphery of the Dubai International Financial Centre. In Abu Dhabi the law firm presence is focused on Al Bateen and Hamdan Street areas on Abu Dhabi Island. The new development by Mubadala on Sowwah Island, Abu Dhabi’s new financial centre, is the destination of choice for legal practices when relocation options are available.

Overall vacancy Rate (Dubai):

44%

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For more information contact:

LondonRupert PerkinsDirectorLondon+44 (0)20 7399 [email protected] FrankfurtMarcus MornhartDirectorFrankfurt+49 (69) [email protected]

ParisSimon WilliamsDirectorParis+33 (0)1 40 55 17 [email protected]

AmsterdamPieter van der PeetTenant Representation Amsterdam+31 (0) 20 540 [email protected] BrusselsEric OrbanDirectorBrussels +32 2 550 [email protected] MilanYannis De FrancescoDirector Milan+39 02 85 86 86 [email protected]

MadridPeter KampTenant Representation Madrid+34 91 789 11 [email protected] MoscowKate McMurtrieDirector Moscow+7 495 969 54 [email protected] WarsawAnna KotDirectorWarsaw+48 22 318 [email protected]

Dubai and Abu DhabiRobin [email protected] ResearchTom CarrollAssociate DirectorEMEA Research+44 203 147 [email protected]

law firm perspective : winds of change bring opportunity and a ‘new normal’

Real Estate