As most of the world starts shaking off the shadow of the COVID-19 pandemic, an increasing number of companies, including industry titans such as Apple and Tesla, are demanding an end to remote work and that employees return to the office. But some employers have found themselves still dangling hybrid options to lure back workers acclimated to the flexibility and autonomy of the work-from-home arrangements.
The resistance against a complete reversion to pre-pandemic behaviours in the labour force has cast doubts as to whether the teetering office market can achieve a vigorous rebound. But the legal world has painted a more complicated picture that varies across different parts of the world.
In the United States, for example, Reuters reported that law firms leasing office space preferred relocations rather than lease renewals in the first half of the year. But law firms in Hong Kong are displaying a different tendency when it comes to their needs for office space throughout the pandemic, according to commercial real estate services firm JLL.
“In Hong Kong, a trend that is largely unique to law firms is the usage of their office during the pandemic,” says Sam Gourlay, head of JLL’s Tenant Representation in the city. He notes that law firms have ranked among the top sectors for office usage even with the option of flexibility when the pandemic clamped down on in-person activities. “As such, very few law firms have ‘right-sized’ over the past 12 to 24 months as space remains at a premium within their partnerships,” says Gourlay.
Jeremy Sheldon, JLL’s head of Leasing Advisory in Asia-Pacific, concurs. “The overriding factors we have seen are the usual economic factors that deter-mine the everyday operations of all firms. There is pressure to be in the office as we need people to be seen, and to learn your trade if you are not in the office. A lot of firms are operating at pre-pandemic levels.”
Sheldon observes that most law firms in Hong Kong that his company dealt with have chosen lease renewals as opposed to relocations. “In a time of market volatility, why risk capital expenditure on wholesale office relocations when restacking or renewing and seeing what the future holds is the more sensible approach?”
Gourlay believes that there are three major factors influencing businesses’ decisions to choose between relocation or lease renewal: Workplace requirements, long-term cost certainty, and considerations for talent retention and attraction. For the legal industry, the third indicator carries even more weight in its current calculus.
“Whilst Hong Kong’s travel restrictions have significantly loosened, there is a latent demand for experienced professionals in the legal sector that will take time to normalise as talent returns to the city,” notes Gourlay. “In the interim, law firms as with many other sectors are placing their staff’s needs above that of cost reduction and new workplace strategies.”
Compared to the U.S. market, the monetary incentives for relocations are much slimmer for firms in Hong Kong with limited cost-saving effects. Gourlay points out that the Central district remains the predominant location for the legal sector, with 77.4 percent of firms located in the city’s financial heart compared with 14.8 percent in Island East, the second-most popular district.
“Costs rewards for relocating away from Central - the traditional legal hub - have diminished as the rental gap between Central and Island East has narrowed from $74 per square foot (net floor area) in January 2019, to $48 per square foot in September 2022,” notes Gourlay.
Gourlay expects law firms to revisit cost saving and workplace-related real estate solutions as easing pandemic-related restrictions are hopeful in quenching the thirst for overseas talents.
The primary trend, he predicts, will be “partner and staff engagement strategies, as law firms seek to repurpose underutilised spaces within their offices to provide more open settings for sharing, learning and socialising.” A far greater lead time prior to lease expiry will also be required by Hong Kong firms compared with peers in the U.S. and the UK, Gourlay adds.
Sheldon paints a bright picture for Hong Kong’s economic rebound in the medium to long run “and thus needs thereafter. We are likely to see relocations or more wholesale restacks in the future as the economic picture becomes clearer.”
Across the wider office market in Asia, Sheldon highlights the robust economic outlook of the APAC region spurred by the rapid growth of Southeast Asia and India. “This may create a ‘steady as she goes’ mentality but most of the practices can see the opportunity for growth in many theatres of operation as the next 12 to 18 months unfolds. The idea of work agility - the ability to work from home - has likely bought companies time to make decisions” regarding office space considerations.
Ultimately, in Sheldon’s view, the office also provides a location for socialisation apart from serving a work function. “The basic human need will ensure that the office remains a place to congregate for all, and the pandemic hasn’t changed that.”
