A major Atlanta law firm's significant amount of office space is up for grabs, highlighting the legal sector's activity in a national office market that is slowly rebuilding its leasing momentum.
Stream Realty Partners listed for lease about 182,000 square feet across eight floors at 999 Peachtree St. in Midtown Atlanta, all of which is occupied by global law firm Eversheds Sutherland, according to CoStar data. While the law firm’s lease expiration date has not been disclosed, the listing indicates the firm could be weighing a possible relocation, downsizing or alternative adjustment involving its local real estate, falling in line with other major companies around the country as they adjust to shifting economic realities and demands from the pandemic.
Both Piedmont Office Realty Trust, the owner of the nearly 622,000-square-foot tower, and Stream Realty Partners declined to comment on Eversheds Sutherland's lease or occupancy plans. While the law firm didn't reply to email and phone call requests to comment, the building was about 89.5% leased as of June 30, according to Securities and Exchange Commission information filed by Piedmont, an Atlanta-based real estate investment trust. Piedmont acquired 999 Peachtree in 2021 for about $224 million from fellow office REIT Franklin Street Properties.
Some major law firms have increasingly used office space as a tool to attract and retain talent, sometimes moving into newer, higher-quality space, a practice that has become especially aggressive in recent years to the benefit of landlords of top-tier properties. The legal sector has been particularly active in an uncertain office market as other industries mostly stick to the sidelines. While some law firms have opted to reduce office footprints and hop to smaller spaces in newer properties, other firms have signed some of the country's largest deals in the past couple of years.
Law firms across the country "are expected to continue to be in the market for office space given their proclivity for in-office work and apprentice-based business model," according to a recent Cushman & Wakefield report.
The legal industry collectively signed on for about 17 million square feet nationally in 2023, according to the report, an assertive rebound from early years of the pandemic when law firms were pulling back on deals or hesitant to take on new space. The burst of new leases has also pushed the legal sector to the forefront of the national office market as other industries remain wary about making long-term commitments to office space.
With the tech industry pulling back on expanding office portfolios and government offices slow to enforce return-to-office policies, law firms stepped up to account for roughly 9% of all office leasing activity last year in the country's largest legal markets, according to Cushman & Wakefield. Those largest legal markets include Boston, Atlanta, Chicago, New York and Philadelphia. That's almost double the share that law firms accounted for in 2022.
Trading Up
To be clear, Eversheds Sutherland could ultimately end up keeping its space at 999 Peachtree that CoStar data shows it has occupied since 1990. However, if it does choose to move elsewhere, it would extend a long string of law firms bouncing around local markets to take advantage of upgraded options upon lease expirations for older spaces.
For example, global law firm Norton Rose Fulbright relocated its downtown Houston office to a 118,000-square-foot space in Skanska’s new tower at 1550 Lamar St. earlier this summer. The shift was a downsizing from around 228,000 square feet that the firm once leased at 1301 McKinney St., a nearby property built in the early 1980s.
Law firm Butler Snow recently confirmed its plan to relocate from downtown Nashville, Tennessee, to a new development a few blocks away. The firm signed a 31,000-square-foot deal for the top two floors of a recently constructed office tower in Germantown’s Neuhoff District, slightly less than the roughly 46,000 square feet it had been leasing in the Pinnacle at Symphony Place property.
Several law firms in Denver have signed on to help lease the city's Block 162, a 30-story tower that has already filled about two-thirds of its around 600,000 square feet of office space in large part because of interest among companies in the legal sector.
Law firm Paul, Weiss, Rifkind, Wharton & Garrison signed New York's largest office deal of 2023 when it moved its headquarters to about 765,000 square feet across 18 floors at 1345 Avenue of the Americas as part of a 20-year deal. Davis Polk & Wardwell, another Manhattan firm, signed the second-largest deal when it renewed its lease at 450 Lexington Ave.
Repositioned for Growth
For landlords of buildings law firms are leaving behind, a few have turned to renovations and lease concessions to both retain existing tenant rosters as well as reposition properties to help boost demand.
The 999 Peachtree listing lands a few months ahead of Piedmont's scheduled completion of renovations on the late 1980s-era tower. The renovation covers both lobbies, the addition of a new tenant lounge, conference facilities, a fitness center and additional food and beverage offerings, spokeswoman Sarah Heimlich told CoStar News. Those amenities have proven attractive among prospective tenants.
"We have not seen a resurgence of large leases and, while we have this incredibly active leasing market, the average deal size continues to be pretty well below the old normal," said Phil Mobley, CoStar's national director of office analytics. "A lot of the bigger occupiers that were more active are now less so and more likely to stay where they are. And in many places, we're starting to run out of the best-located, premium new construction space that a lot of occupiers were looking at 18 to 24 months ago."
The 28-story 999 Peachtree, developed by Childress Klein, opened in 1987 and is home to multiple law firms, including Eversheds Sutherland, Ballard Spahr and Fox Rothschild.
Yet even beyond law firms, the property has a diverse tenant roster that includes companies that have committed to space in the building for extended periods. Gensler, the world's largest architecture firm, recently extended its lease at 999 Peachtree for about 23,000 square feet, Heimlich said.
Executives at office REITs have said shifting dynamics are leading to a rebound in demand among companies as they prove willing to commit to more space for longer periods of time. For many landlords, especially owners of high-quality properties, leasing momentum is expected to translate into increased occupancy, a welcome boost after record amounts of sublet availability and companies offloading space.
The national office vacancy rate, fueled by companies offloading record amounts of sublease space and responding to the effects of remote work, has climbed to about 14%, according to CoStar data. Tenants collectively handed back upward of 65 million square feet last year, boosting the total to more than 180 million square feet of move-outs since the start of 2020.
Atlanta's office market is still facing some pandemic-induced challenges, with quarterly leasing activity in the region dropping about 25% from an average of 4.3 million square feet in the pre-COVID years to about 3.2 million square feet between 2020 to now, according to CoStar data. Even so, there is a growing sense of optimism as some of Atlanta's larger employers have newly implemented office attendance requirements and large landlords such as Piedmont and Cousins Properties have reported an uptick in office deals.
For the Record
Christopher Dean, Madison McClellan and Malik Leaphart at Stream Realty Partners represent Piedmont Office Realty Trust on leasing at 999 Peachtree.