Law Firm Perspective : Winds of change bring opportunity and a ‘new normal’

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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.

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Law Firm Perspective : Winds of change bring opportunity and a ‘new normal’

  1. 1. Law Firm PerspectiveEMEA 2011Winds of change bringopportunity and a ‘new normal’Conditions are highly variable within the real estate markets at thecore of law firm portfolios. A number of markets are seeing rentalcost escalation driven by the diminishing availability of high qualityspace options, while others present good opportunities for law firms toenhance their position.As clouds continue to build on the macroeconomic horizon, andcaution returns, law firms will need to adopt a forensic approach to themanagement of their real estate portfolio. This will ensure that assetsare optimised and that firms outperform their direct competitors.Opportunism will be evident in some EMEA real estate markets aslaw firms react to the changing environment. The traditional focuson prime locations and trophy buildings will remain, but it will also beaccompanied by a new emphasis on workplace productivity and spaceefficiency. This constitutes a ‘new normal’ for those managing realestate within the legal sector.
  2. 2. Jones Lang LaSalle Law Firm Perspective • EMEA • 2011 3Jones Lang LaSalle Law Firm GroupThose individuals tasked with management responsibility for major to efficiently manage their real estate in such a way as to generateglobal, national or regional law firms find themselves increasingly in the maximum productivity. Accordingly, we are proud to present our Lawreal estate business as a matter of necessity. Managing multiple offices Firm Perspective for the EMEA region.in different cities and/or countries means that an increasing amount oftime is required to deal with portfolios that are ever more complex and The EMEA region is increasingly diverse. This report featureshave critical events arising on a frequent basis. These events are nearly information and analysis on 10 mature and emerging legal marketsalways contextual, meaning that they require an understanding of local across the EMEA region. We trust you will find this information useful,market conditions in order for proper evaluation and action. and solicit your feedback if there are areas you would like to see expanded and/or improved.With a client list that is truly worldwide, Jones Lang LaSalleunderstands the importance of providing timely, accurate and relevantmarket information to our law firm clients in order to enable them
  3. 3. 4 Law Firm Perspective • EMEA • 2011 Jones Lang LaSalleIn this reportLaw 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
  4. 4. Jones Lang LaSalle Law Firm Perspective • EMEA • 2011 5Law firm office clock Rental Growth Rents London City Slowing Falling Moscow Rental Growth Rents Accelerating Bottoming Out Abu Dhabi Dubai Paris, Warsaw Madrid Brussels Amsterdam Rome Frankfurt, MilanReading the clockThe Jones Lang LaSalle law firm office clock demonstrates where each market sits within its real estate cycle related to the submarkets wherelaw firms tend to be located (the majority of which are located in prime CBD locations). Markets typically move clockwise around the clock, withmarkets 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 thelikelihood 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 ofthe markets discussed in this report at or beyond 6 o’clock.
  5. 5. 6 Law Firm Perspective • EMEA • 2011 Jones Lang LaSalle
  6. 6. Jones Lang LaSalle Law Firm Perspective • EMEA • 2011 7Law firm sector perspectiveEconomic environment in limbo, yielding a cloudy business Emerging markets driving opportunitiesenvironment ahead An uncertain economic environment is but one of the factors impactingConfidence levels, both consumer-related and business-related, have law firms operating in Europe, the Middle East and Africa today.plummeted across the globe in recent weeks due to the stability of the Although global expansion on the scale seen before the global financialEurozone, the lack of a clear agenda in the U.S., and signs of slower crisis may have slowed, firms are continuing to develop their presenceeconomic growth in the world’s fastest growing economies like China, in new and emerging legal markets.India and Brazil. Leading indicators of business activity suggest thateconomic growth slowed during Q2, most notably in advanced economies. In the EMEA region, the Middle East has experienced some of the greatest growth of recent years, with Dubai and Abu Dhabi emergingThese heightened uncertainties have propelled businesses across the as hubs for international law firms looking to operate in the Middleglobe to revise growth plans and in certain industries, review headcount East and service the many sovereign, corporate, energy and financialand shelf plans for future hiring and investment. As a result, global rates services entities operating in the region. Expansionary growth hasof economic growth have been revised downward since the beginning been tempered over the last 18 months, but many law firms continue toof the year across the board. The downward revisions to growth have reinforce their presence in the region, evaluate their portfolio strategypushed decision makers and businesses to the sidelines, creating and take advantage of the significant real estate opportunities availableincreased economic stagnation and an even greater sense of uncertainty in the market.for the remainder of 2011 and into 2012. Russia and Central and Eastern Europe have also been markets of growing interest to international law firms operating in the EMEA Global GDP revised lower for most global economies region. Over the past 12 months Moscow in particular has witnessed a 11.0% Previous forecast 2011 Current forecast 2011 Revised lower resurgence in activity from law firms, after a period of contraction in the 9.0% immediate aftermath of the financial crisis.Annualized rates of growth 7.0% 5.0% It is clear however, that the process of emerging market expansion is 3.0% not unidirectional. China’s second largest law firm Yingke has shown 1.0% clear ambitions to expand into Europe over the past months setting up operations in Hungary and Italy, and recently announcing plans to set Russia Japan Italy Canada China India France UK US Germany -1.0% up a new Western European headquarters in London. Source: Global Insight, Jones Lang LaSalle Legislative change in the UK In addition to growth and consolidation in new markets, change can beContinued divergence in economic performance seen in a wide range of areas and is continuing to shape the operatingEconomic forecasts point to continued divergence in the pace of growth landscape for international law firms. In the UK new legislation suchbetween advanced and emerging economies. Growth in advanced as the Legal Services Act has the potential to substantially change theeconomies is projected to average 2.2% per year during 2011-12. This shape of the legal sector.would represent a modest deceleration from the 2.8% achieved in 2010.Growth in most emerging economies continues to be strong, and growth The introduction of ABS or alternative business structures look setis predicted to decelerate only slightly from the high levels of last year, to increase the range of ownership models available to law firms inwith around 6.5% projected for emerging economies in 2011, compared the UK allowing them access to private capital or to float on the stockwith just over 7% in 2010. Such divergent growth potential will have exchange for the first time. Irwin Mitchell were one of the first UK firmsimportant implications for both business and real estate strategy for those to announce they were likely to raise capital in this way, and are unlikelyinternational law firms seeking to expand in the coming years. to be the last firm to take advantage of the funding opportunities the
  7. 7. 8 Law Firm Perspective • EMEA • 2011 Jones Lang LaSalleLaw firm sector perspective (cont’d)legislation allows. The regulation is intended to drive deregulation and efforts in turn support the ability to work across geographic boundariesliberalisation of the UK legal market, allowing new market entrants to in a fluid manner. Technology that supports the different ways in whichengage in the provision of legal services. Regulatory change will continue people work enhances the ability of firms to be nimble.to have a major impact on the growth and structure of the legal sectorgoing forward. Law firms are likely to be impacted both directly, through Laptop computers, tablets, pocket sized handheld computing deviceslegislation like the Legal services act, and indirectly, by regulation such as / PDA’s, social networking, user friendly intranets, voice over IP,Solvency II and broader financial regulatory change which will impact key quality audiovisual capabilities, and secure infrastructures allow firmsclient groups such as insurance and financial services. to respond to shifting client drivers seamlessly. These technological advances also provide the ability of space uses to overlap andWar for talent in Europe ultimately reduce the required footprint of the individual spaces.Other European markets are also seeing substantive change withinthe legal sector. In France a number of smaller new firms are entering Towards a more productive futurethe market driving greater specialisation and stratification. There are There are clearly a number of change factors impacting the way lawalso significant numbers of lawyers moving between practices in the firms do business and organise their real estate. This section of theFrench market. This ‘war for talent’ is in evidence in markets across the report has sought to highlight some of the most important.EMEA region and is an important driver of law firm location decisions,in established and emerging markets alike. Real estate can have One of the main real estate trends that law firms are implementing isa big impact on talent retention and this dynamic should be a core to eliminate excess space, a term we refer to throughout the reportconsideration for anyone managing a law firms’ international portfolio. as rightsizing. Firms can be growing from a revenue and headcount standpoint, but the space they occupy is often not in line with theOutsourcing of legal services efficiency standards new space would offer. As a result of this, howThe tough economic environment has led to further development in the firms eliminate this excess space is often predicated on whether a firmlegal services outsourcing market, as clients demand greater savings and decides to relocate or renew at their current building or space. Withreduced costs from law firms. After an initial expansion around 2005, the the outlook for organic growth uncertain, driving greater efficiency andlegal services outsourcing market (or LPO market) has been through a productivity from the existing portfolio will be increasingly important.process a consolidation, with the number of providers reducing. The very nature of the way people work is evolving with incredibleThe scope of services outsourced can vary from back office processes speed. For the first time in history, four generations of workerssuch as word processing or graphics and design, to accounting and IT interact in the work place. Their work styles and needs vary as muchfunctions. India, the Philippines and increasingly South Africa have been as their ages. Alternative workplace strategies and better spacesome of the markets to benefit most from this process over the past utilisation allows organizations to meet the various needs of workers5 years. How far this legal service outsourcing process develops by providing a variety of work spaces. Whether an individual workswill depend on a range of factors, but it is another change likely to autonomously in a single office, at a client’s office, or from home, orbe reinforced by continuing economic uncertainty and pressure on whether an individual works collaboratively in an open workstationcorporate balance sheets. environment, shared office, café or team room, multiple types of space design can facilitate an individual’s work style. The pressure on lawTechnology firms to meet these challenges and reconfigure their real estate is onlyTechnology continues to revolutionise how organisations do business. likely to increase in these uncertain economic times.While we have a long way to go before becoming the “paperlesssociety” envisioned several years ago, electronic document storageand retrieval will allow significant take back of space previously used forstorage while improving the ability of firms to be organised. These
  8. 8. Jones Lang LaSalle Law Firm Perspective • EMEA • 2011 9 Local market law firm perspective
  9. 9. 10 Law Firm Perspective • EMEA • 2011 Jones Lang LaSalleLondon City Over the first half of 2011, we have seen a notable increase in demand for office space, Law firm concentration and compositionhowever, we are yet to see this translate into transactions and there is a likelihood thatweak economic activity and Eurozone fears will push real estate decisions into 2012. 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 FringeActivity in the legal sector is currently driven by a combination of imminent lease events locations or Canary Wharf in order to benefit from discounted rents.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 mergerpartners. There are currently seven law firm enquiries greater than 100,000 sq ft in the 7% 48market and 15 between 10,000 and 99,999 sq ft, the majority all driven by lease eventsrather than growth.The first half of 2011 has seen occupier take-up below average, with 235,000 sq ftacross 11 deals transacted over the first half of 2011. The most significant law firm deal to Percent of market occupied Number of law firms occupyingcomplete this year has been Trowers & Hamlins, who took 70,900 sq ft on an assignment by law firms more than 5,000 SQ M in the marketfrom Linklaters, reflecting a passing rent of £44.30 per sq ft. In addition, CMS CameronMckenna has agreed to take a partial pre-let on 200,000 sq ft at Hammerson’s Principal Law firm market activityPlace and expect to move in early 2015. Recent completed law firm transactionsA key trend law firms are facing in the market is trying to take back office staff out ofLondon, and use space more efficiently. For example, A&O have outsourced true backoffice functions outside of the UK. Although general market sentiment is not as strongas it was 18 months ago, we are still seeing relatively favourable conditions with generouslease incentives and landlords are willing to share a percentage of the value created. PRICING and incentives Trowers & Hamlins Kirkland Ellis Maples & Calder Prime Rent 3 Bunhill Row 30 St. Mary Axe 200 Aldersgate Street € 656 sq m per annum (£55.00 sq ft per annum) 6,600 SQ M (70,900 SF) 1,500 SQ M (16,650 SF) 1,000 SQ M (10,850 SF) Lease Expiry Expansion Lease Expiry Description of Available Incentives 16-24 months rent free Law firm requirements Overall Vacancy Rate: actively in the market: 6.9% CMS Cameron McKenna Lease Event Bird & Bird Consolodation Nabarro Lease Event OUTLOOKTop 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 firms1. 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 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  10. 10. Jones Lang LaSalle Law Firm Perspective • EMEA • 2011 11FrankfurtOccupier activity in Frankfurt has been stable across all sectors in the first half Law firm concentration and compositionof the year, with a notable increase in competition for space over the year todate. The trend from the past three to four years to relocate into the Trophy and Frankfurt’s ‘Banking district’ and ‘Westend’ are the most popular districts for lawtop buildings around the Old Opera is still in evidence in the market, alongside a firms in Frankfurt. Nearly all international law firms are concentrated in centralgrowing number of requirements seeking more efficient space. The acquisitions in locations around the Old Opera.the first half of 2011 from SJ Berwin, Jones Day, Luther and Mayer Brown providefurther evidence of the continued demand from law firms for a top-quality locationand building in Frankfurt. We have also seen other law firms which already occupy 7% 13Grade A buildings in good locations, leveraging the favourable market conditions torenegotiate their terms.The low vacancy around the Old Opera and the limited pipeline for 2011-2012 willrestrict the number of relocation alternatives over the next 18 months; however in Percent of market occupied Number of law firms occupying2013-2014 the number of new developments and vacant buildings will increase. As by law firms more than 5,000 SQ M in the marketa result of the relatively limited supply pipeline in the short term, we expect to seea slight increase of the top rent and a decrease of incentive packages from 10.0 to Law firm market activity15.0% for five years to 8.0 to 12.0%. Recent completed law firm transactions PRICING and incentives SJ Berwin Jones Day Luther Prime Rent OPER 46 NEXTOWER, Die Welle, An der Welle € 396 sq m per annum Bockenheimer Anlage 46 Thurn-und-Taxis-Platz 6 2 - 10 4,671 SQ M 2,800 SQ M 2,228 SQ M Description of Available Incentives Relocation Relocation Relocation 10-15% rent free on a 5 year term Overall Vacancy Rate: 14.3% OUTLOOKTop 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. 2011 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  11. 11. 12 Law Firm Perspective • EMEA • 2011 Jones Lang LaSalleParisThe French Legal market is currently going through significant change at a sectorlevel, with the emergence of several new law firms, driving growing specialization in Law firm concentration and compositionthe market. An evolution in working habits is also gradually translating into changing Law firms are generally located in period buildings, in some of the most prestigious addressesreal estate strategies. 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”There is a marked trend towards leaving the independent town houses and period (between Place de l’Etoile and Concorde) to the “Financial District” (towards the east of thebuildings traditionally occupied by law firms, to settle in brand new offices, providing CBD, between Concorde and Place Vendôme). This was well illustrated recently by Cliffordlarger floor plates (above 2,000 sq m). Shared business centres are even emerging Chance and Prauskaer, who relocated from the Trocadero to Place Vendôme.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 verylimited 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 2%Percent of market occupied 59 Number of law firms occupyinglengths (in excess of 9 years), in order to benefit from more favourable leasing by law firms more than 5,000 SQ M in the marketconditions, the turnover of stock is directly impacted and remains low. Smaller,independent units are more widely available in Paris CBD. Law firm market activityLimited development opportunities within the historical core of Paris CBD will Recent completed law firm transactionsmean that supply in the markets traditionally preferred by law firms will remain tightgoing forward. This is likely to impact prime rents which will be subject to moderateupward pressure. PRICING and incentives McDermott Will & Emery Cabinet Lussan Cabinet Normand & Assoc. Prime Rent 23 Rue de l’Université 280-282 Blvd St Germain 32 Ave Raymond Poincaré € 830 sq m per annum 2,000 SQ M 1,156 SQ M 1,060 SQ M Relocation Relocation Description of Available Incentives The level of incentives remains highly dependent on the transaction size: Law firm requirements Overall Vacancy Rate: actively in the market: • or the medium and small practices (1,000-5,000 sq m) 20% of the F 5% yearly headline rent. Latham Watkins Assoc. Rightsizing • or the big practices (above 5,000 sq m) a maximum of 15% of the F Hogan Lovells Consolidation yearly headline rent. Weil, Gotshal Manges Growing OUTLOOKTop 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. 2011 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  12. 12. Jones Lang LaSalle Law Firm Perspective • EMEA • 2011 13AmsterdamAlthough the Amsterdam market saw competition for space increase in Q2 - up 81% Law firm concentration and compositionon Q1 - the environment of subdued occupier demand and stable supply is expectedto persist over the coming quarters. Demand from law firms is also subdued, with The major law firms in Amsterdam are located in the Zuidas district. The largestrecent transactions volumes limited. In the wider market, moves continue to be international and domestic law firms are generally located in this area. The Zuidasdriven by cost containment rather than any expansion. 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 ofIn the core markets for law firms choice is more limited than overall market vacancy Amsterdam especially around the canals at the Herengracht and Keizersgracht.rates suggest, with Grade A vacancy in Zuidas at 8.9% and eroding slightly. The The buildings here have a modern classical image which suits the law firm occupier. 5% 11overall market is still characterised by a large amount of oversupply, particularly inmore peripheral areas where choice is inflated by less suitable accommodation anda lack of alternative uses. In the medium term this could reduce as the municipalityis actively encouraging conversion to hotels outside of the City core. Percent of market occupied Number of law firms occupyingBoth Prime rents and secondary rents have remained flat, although incentives by law firms more than 5,000 SQ M in the marketcould increase later this year as the market encourages absorption. The amountof incentives (rent free period) differs per sub district. At the Zuidas area, the prime Law firm market activityoffice location in Amsterdam, incentives range from 10 to 16 months based on a Recent completed law firm transactionsstandard 5+5 year contract. Overall for the city of Amsterdam incentives fall withina range of 10 to 18 months, so in general net effective rents are 20 to 25% belowprime headline rents. PRICING and incentives Boekel De Nerée Allen Overy Prime Rent 11,400 SQ M 9,913 SQ M Renewal € 335 sq m per annum Description of Available Incentives Incentives equate to around 10 to 16 months rent-free based on a Law firm requirements Overall Vacancy Rate: actively in the market: standard 5+5 year contract Lexence Stable 11% OUTLOOKTop 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. 2011 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  13. 13. 14 Law Firm Perspective • EMEA • 2011 Jones Lang LaSalleBrusselsLaw firms in Brussels are currently less active than 24 months ago, due in large part Law firm concentration and compositionto the poor economic climate. Despite this, a range of law firms are trying to benefitfrom the economic downturn and are either looking to renegotiate their current Most of the law firms in Brussels are located in three major districts: theleases or looking for properties at bargain conditions. 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 lawMost well-established law firms are not seeing expansionary growth for the moment. firms in the city.One of the key trends seen in the market recently has been an emphasis onworkplace productivity and greater space efficiency. Law firms are considering other 2% 12ways of working such as more open plan, home working and desk sharing. Thoughlaw firms have not been traditionally focused on cost reduction, there is now agreater willingness in the market to investigate ways of reducing costs. For example,Cleary Gottlieb has recently renegotiated its lease and has been able to obtain20.0% rent reduction over a new six-year lease contract. Percent of market occupied Number of law firms occupying by law firms more than 5,000 SQ M in the marketWith availability reaching 11.2% in Brussels and competition for space limited, thereare clear opportunities in the Brussels market for those able to act. New speculative Law firm market activitydevelopment has dried up in Brussels and future deliveries are to be extremely Recent completed law firm transactionslimited in the medium term. Although competition will be highest for the best space,landlords are fearful of tenants relocating, as they anticipate extreme difficulty inrapidly identifying a suitable replacement.PRICING AND incentivesPRICING and incentives Van Bael Bellis Claeys Engels Cleary Gottlieb Steen Hamilton Prime Rent Avenue Louise165 Bd du souverain, 280 Rue de la loi, 57 € 310 sq m per annum 4,101 SQ M 3,945 SQ M 10,279 SQ M Renewal Renewal Renewal (with extension Description of Available Incentives of 1,000 SQ M) 12% average rent free on a five year term Law firm requirements Overall Vacancy Rate: actively in the market: Loyens Advocaten Juridis Stable Growing 11.2% OUTLOOKTop 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. 2011 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  14. 14. Jones Lang LaSalle Law Firm Perspective • EMEA • 2011 15MilanThe CBD and Semicentre are currently the most active markets in Milan, accounting Law firm concentration and compositionfor more than half of the City take up in first six months of 2011. Law firms aretraditionally based in the CBD of Milan; however, in the last two years, there have The major law firms in Milan are located in the central business district, withbeen some transactions in the semicentre, due in part to lack of available space only a few firms located in the Semi-Center. Law firms are particularly attractedwithin the CBD. Within the CBD, demand from law firms is typically focused on the to prime office space in the historical heart of the city centre, which often offersHistorical City Centre. Competition for space has been increasing with take-up in the greater proximity to their client base. Typical requirements in this area oftenfirst half of 2011 up 57.0% on the equivalent period of 2010. focus on centrally-located, fully-refurbished historical buildings, with a traditional facade. 3% 4Both the Centre and Semicentre have limited availability of space, and acorrespondingly low vacancy rate. We expect this to remain the case in the nextyears, with rents likely to be facing upward pressure. While there is a lack of newdevelopments in the Centre, Porta Nuova, located in the most active part of theSemicentre, is a significant scheme due to be completed in 2012 and could be a Percent of market occupied Number of law firms occupyingstrategic option for law firms looking for large units of Grade A space. Aside from by law firms more than 5,000 SQ M in the marketthis, speculative development starts remain rare with many projects awaitingplanning consent and unlikely to commence without a significant pre-let. Vacancy in Law firm market activitythe CBD is currently 6.2% Recent completed law firm transactions PRICING and incentives Linklaters Bird Bird Prime Rent Via Broletto 9-11 Borgogna 8 € 530 sq m per annum 4,200 SQ M 2,300 SQ M Expansion Description of Available Incentives Average Rent free period + Incentives is 12 months Law firm requirements Overall Vacancy Rate: actively in the market: Norton Rose Ashurst Growing Growing 9.3% OUTLOOKTop 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. 2011 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  15. 15. 16 Law Firm Perspective • EMEA • 2011 Jones Lang LaSalleMadridRecent transactional activity from law firms has remained very firmly in traditional Law firm concentration and compositionsubmarkets. The CBD is the preferred area, specially Paseo de la Castellanaand the borders, towards the east, the Barrio de Salamanca, and the west on the Most law firms are located in the CBD submarket, focused around Castellana and theother side of the axis, the areas of Almagro or Zurbano. Most recent transactions surrounding areas Barrio de Salamanca and the business area Azca. Of the top 25 lawfrom law firms have been below 2,000 sq m, while larger transactions have been firms, 96% are located in or around these markets.dominated by multidisciplinary local firms such as Garrigues, Cuatrecasas, Uriay Menendez or the Legal division of PWC (Landwell). Larger transactions havegenerally been driven by the need to optimise space and consolidate offices into asuitable building reflecting the image of the firm.After considerable rental falls over the past 24 months, prime rental levels continueto trend downwards, albeit at a more moderate pace. Rent-free periods maintaintheir importance in the market. Although incentives continue to vary according to 5% Percent of market occupied 4 Number of law firms occupyingthe situation of each company and of the building in question; rent-free periods can by law firms more than 5,000 SQ M in the marketreach up to 20 months for large occupiers in Madrid, with a further 12 in other kindsof incentives. Landlords remain very keen to retain occupiers which, together withthe fact that the legal sector has very high fit out costs, is limiting the amount of Law firm market activityrelocations in the market. Recent completed law firm transactionsMany smaller law firms are located in residential buildings in CBD, as in the pastthere has not been enough suitable office space to satisfy demand. As companiesfrom other sectors move to peripheral areas to reduce costs, supply is increasing andopportunities are arising to improve building and location. The legal sector is one ofthe few sectors that has bucked the trend of relocating to cheaper peripheral locations. PRICING and incentives Olleros y Asociados Acebo Rubio Abogados AB Asesores legales Prime Rent Plaza de la Lealtad 3 Almagro 46 Velazquez 150 € 318 sq m per annum 647 SQ M 426 SQ M 400 SQ M Lease Lease Lease Description of Available Incentives Average Rent free period + Incentives is 11 months Law firm requirements Overall Vacancy Rate: actively in the market: 10.3% Arco Abogados Stable Sanchez Pintando Stable Abogados Sacristan Stable OUTLOOKTop 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. 2011 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  16. 16. Jones Lang LaSalle Law Firm Perspective • EMEA • 2011 17MoscowActivity from law firms in the Moscow market has increased significantly since early Law firm concentration and composition2010, with major firms including Baker McKenzie and Hogan Lovells returning to themarket and several significant transactions completed. Before this period, during The major law firms in Moscow prefer to locate in the Central Business District,the global financial crisis, many law firms in Moscow had to restructure real estate inside the Garden Ring. The majority of international firms occupy prime spaceholdings significantly, and much of the growth that had been seen pre-crisis was in very central locations. Some companies are located between the Gardenhalted with firms forced to downsize operations. Ring and Third Ring Road, mostly in the western part.Headline rents in Moscow fell markedly during the crisis, however limited prime 3% 4product in the CBD, has meant that the cost of prime properties has been growingquickly over recent quarters. A number of firms were able to lock in at relatively lowrents in 2010 but competition for space has increased in the first half of 2011. Somelaw firms and a number of other international occupiers are now looking at pre-letsas prime options become more limited. Percent of market occupied Number of law firms occupying by law firms more than 5,000 SQ M in the marketA tight supply environment for prime buildings in core central Moscow is likely tomean rents will continue to face upward pressure in the short term, and recent Law firm market activityplanning restrictions are likely to keep new development in central Moscow muted Recent completed law firm transactionsover the medium term. PRICING and incentives Hogan Lovells Dewey LeBoeuf Akin Gump Prime Rent BC SUMMIT BC Legend Geneva House € 828 sq m per annum Tverskaya Street, 22 Tsvetnoy Boulevard 2 2,358 SQ M 2,656 SQ M 2,602 SQ M New Deal Description of Available Incentives New Deal New Deal 5-6 months rent-free and some landlords continue to finance fit-out Overall Vacancy Rate: 16.8% OUTLOOKTop 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. 2011 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  17. 17. 18 Law Firm Perspective • EMEA • 2011 Jones Lang LaSalleWarsawThe majority of international law firms started to seek opportunities for expansion Law firm concentration and compositionin Poland and Warsaw after the Poland’s accession to the European Union. Before2004 the law firms operating in Warsaw were mainly domestic in focus. The legal The major law firms in Warsaw are located in the central locations (Centralmarket in Warsaw is currently at a relatively early stage of development although Business District and City Centre). Of the top ten firms, three are located inprospects for growth are very promising. As it stands only five of the 50 biggest law Rondo 1 office building and two are situated in 53 Emilii Plater Street (Warsawcompanies in terms of the employment have over 100 employees, with twelve firms Financial Centre), which are the most prestigious buildings in Warsaw.employing 50-100 people. 2% 0The current trend seen amongst law firms operating in Warsaw is to renew andrenegotiate in their current premises rather than relocate to new buildings. Over195,000 sq m of modern office space is under construction in Warsaw’s centrallocations, 50% of which should be completed within 12-16 months. At the end of Q22011 approximately 8.05% of stock remained vacant (6.7% in the Central Business Percent of market occupied Number of law firms occupyingDistrict and 9.0% in the City Centre), which corresponds to the 96,000 sq m of by law firms more than 5,000 SQ M in the marketavailable 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 Law firm market activityWarsaw City Centre can now be secured from €22-25 sq m per month. However, Recent completed law firm transactionsthere are some A+ developments quoting rents higher than this.COSTPRICING and incentives Wierzbowski Eversheds Kochański Zięba Rąpała Łaszczuk Wspólnicy Prime Rent Centrum Jasna Metropolitan, Plac Metropolitan, Plac € 300 per sq m per annum ul. Jasna 14/16A Piłsudskiego 1 Piłsudskiego 1 2,500 SQ M 714 SQ M 625 SQ M Description of Available Incentives Renewal New Renewal a) partial or full fit-out (depending on the transaction size and lease length) Overall Vacancy Rate: b) to 6 months rent rent free (depending on the transaction size and 4 lease length) 6.2% OUTLOOKTop 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. 2011 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  18. 18. Jones Lang LaSalle Law Firm Perspective • EMEA • 2011 19Dubai and Abu DhabiMost legal practices entered the UAE market at a time when space availability was Law firm concentration and compositionlimited. Over the past three years large volumes of new space have been deliveredwhich has resulted in greater choice for the tenant. The market has seen law firms Most of the International law firms in Dubai are located in or on the peripherymove to better quality buildings at lower rents with consolidation being the primary of the Dubai International Financial Centre. In Abu Dhabi the law firm presencedriver of law firm demand. 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 financialAlthough the large scale expansion and growth by law firms in the UAE has slowed centre, is the destination of choice for legal practices when relocation optionsin the wake of the global financial crisis, demand for top quality space remains high. are available. 5-10% 2Proximity to clients and competitors has driven many of the location decisions inthe region. In Abu Dhabi much of the legal market has been focused on the energysector and sovereign wealth, whereas in Dubai the focus has been much more onfinancial services. Average requirements usually range from 10,000 to 20,000 sq ftin Dubai falling to 2,500 to 5,000 sq ft in Abu Dhabi. Percent of market occupied Number of law firms occupying by law firms more than 5,000 SQ M in the marketOverall 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 Law firm market activitythe ground. Competition is markedly higher for appropriately located, prime space Recent completed law firm transactionsfavoured by law firms. Despite this fact, given current availability of better qualityspace, the time is right for law firms to review their long term occupation strategy inthe UAE. PRICING and incentives Freshfields Clyde Co Al Tamimi Prime Rent Currency Tower Rolex Tower The Exchange Dubai: 305 sq m per annum, DIFC (AED per 220 sq ft) € 1,400 SQ M (15,000 SF) 4,200 SQ M (45,000 SF) 1,900 SQ M (20,000 SF) €445 sq m per annum, Non DIFC (AED per 150 sq ft) New Lease (Relocation) New Lease (Relocation) New Lease (Relocation) Abu Dhabi: €347 sq m per annum (AED 1,850 per sq m per annum) Overall Vacancy Rate (Dubai): Overall Vacancy Rate (Abu Dhabi): Description of Available Incentives 44% 11.5% 1 month rent free period per year of lease commitment OUTLOOKTop 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. 2011 2012 2013 2014 2015 Tenant-favorable market Neutral market Landlord-favorable market
  19. 19. About Jones Lang LaSalleJones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated servicesdelivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2009 global revenueof $2.5 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices. The firm is anindustry leader in property and corporate facility management services, with a portfolio of approximately 1.6 billion square feet worldwide. LaSalleInvestment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate withapproximately $38 billion of assets under management. For further information, please visit our Web site, www.joneslanglasalle.com.About Jones Lang LaSalle Law Firm GroupOur Law Firm Group’s reach extends around the globe, with knowledge of law firm trends in every major market. With local presence in hundredsof markets around the world, you can feel confident in hiring a single firm for your real estate needs, while having the advantage of tailored localmarket expertise. Our experienced Law Firm Group can oversee your strategy, while giving you access to our integrated network of thoughtleaders, leading research analysts and local real estate experts. Moreover, Jones Lang LaSalle’s global platform provides you with comprehensivesolutions and local expertise that matches your long-term objectives across the nation and around the world. At Jones Lang LaSalle, we take astrategic approach to understanding and solving your challenges and are ready to deliver valuable counsel at every step.For more information contact:London Amsterdam Madrid Dubai and Abu DhabiRupert Perkins Pieter van der Peet Peter Kamp Robin PughDirector Tenant Representation Tenant Representation DirectorLondon Amsterdam Madrid Dubai+44 (0)20 7399 5696 +31 (0) 20 540 7932 +34 91 789 11 00 +971-4-4266966Rupert.perkins@eu.jll.com Pieter.vanderpeet@eu.jll.com Peter.kamp@eu.jll.com Robin.pugh@eu.jll.comFrankfurt Brussels Moscow ResearchMarcus Mornhart Eric Orban Kate McMurtrie Tom CarrollDirector Director Director Associate DirectorFrankfurt Brussels Moscow EMEA Research+49 (69) 20031195 +32 2 550 2529 +7 495 969 54 39 +44 203 147 1207Marcus.mornhart@eu.jll.com Eric.orban@eu.jll.com Kate.mcmurtrie@eu.jll.com Tom.carroll@eu.jll.comParis Milan WarsawSimon Williams Yannis De Francesco Anna KotDirector Director DirectorParis Milan Warsaw+33 (0)1 40 55 17 10 +39 02 85 86 86 90 +48 22 318 0039Simon.williams@eu.jll.com Yannis.defrancesco@eu.jll.com Anna.kot@eu.jll.comwww.us.joneslanglasalle.com© 2011 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including withoutlimitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in thisdocument has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information containedherein and no reliance should be placed on the information contained in this document.

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