The pandemic has likely permanently altered the legal industry globally in a number of significant ways. One of these is a drop in the need for office space; as lawyers continue to work from home at least some of the time, firms are struggling to justify the steep rent they pay each month for prime locations. In London, for example, some of the largest law firms are looking to cut office space by up to 50 percent, according to the reporting from various media earlier this year. In Hong Kong, international law firms are leaving the prestigious locations of Central and Wan Chai to move into smaller units that cost much less in rent.
However, quite the opposite is happening in mainland China, where the demand for office space has steadily risen in the past few years. While the COVID-19 pandemic did pause this somewhat, industry experts expect this to be nothing more than a minor hiccup.
This trend is especially noticeable in first-tier cities like Beijing and Shanghai. “Law firms have been renting bigger offices in Beijing since 2019, and we expect to see more of this due to the recent drop of rental fee of office buildings,” says Jonathan Wei, managing director and head of Project & Occupier services in China at Cushman & Wakefield, a global commercial real estate services firm.
“The situation in Shanghai is also looking good, mainly because, on the one hand, domestic large firms keep acquiring small firms, especially after the pandemic; on the other hand, legal demands in medical and intellectual property sectors are increasing, making law firms grow.”
Second- and third-tier cities are also becoming popular. Since the second half of 2020, a few law firms have established new offices in eastern, southern, central and western China. For example, East & Concord set up offices in Chengdu and Nanjing, V&T in Haikou and Nanjing, Hai Run Law Firm in Dalian, and JunZeJun Law Offices in Zhengzhou. Wei believes that increased demand for legal services, and clients’ ability to afford them, are among the factors pulling law firms to smaller cities.
“As a result of growing foreign trade and domestic economic development, law firms will continue to expand their presence. With the gradual increase of law firms’ business in second-and third-tier cities and the continuous improvement of the payment ability of clients, more large law firms are considering setting up offices in these cities, where business growth is relatively fast and concentrated,” says Wei.
But the growth in demand for office space is not expected to be even among all firms, which larger firms leading the way. In comparison, small and medium-sized firms are slightly more conservative when it comes to expansion. “Larger firms seem to be in a better position and are seizing the opportunity to explore organic and acquisition led growth, whereas a handful of smaller specialist firms downsized during the pandemic,” says James Macdonald, head and senior director of research at Savills China, who adds that foreign law firms are equally conservative. Wei agrees with that latter point, noting that issues like the trade war and rocky relationships between China and certain foreign countries have resulted in foreign law firms showing less interest in renting more office space.
Still, as we reach the halfway point of 2021, Wei expects the trend of expansion to continue for the time being, particularly because of the slight decrease in rents as mentioned above. But he is also optimistic for the long term. “Law firms are very sensitive to market trends; at the meantime, their decisions usually tend to be conservative and careful,” says Wei. “Therefore, the future of law firms’ office renting and moving largely depends on the macroeconomic environment. The better China’s economy develops, the more optimised the legal system will become. We see a bright future of law firms’ development in China because business always needs the guarding of legal.”
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