Amid challenging operating conditions, law firms around Australia are increasingly cutting back on space requirements and reconsidering their need to be located in high rise premises, according to the latest report.

In its Global Law Firm Perspective report, real estate services provider Jones Lang LaSalle says cost and size of premises were becoming increasingly under the spotlight down under from firms whose profit margins were being impacted by an increasing willingness on the part of clients to shop around for more cost effective services and a continued flow of new entrants from overseas.

“The Premium-grade, high-rise premises traditionally favoured by major law firms in Australia are now being reconsidered by many international firms,” JLL said in its report. “Major accounting firms have long adopted a more cost-driven approach to premises and this is increasingly seen as the more appropriate model for law firms in the future.”

The effect of softer market conditions can be seen in recent developments in Sydney, where incentives have been on the rise in recent times and both of the two largest deals so far this year – the 9,500 square metre relocation of Minter Ellison to Governor Macquarie Tower at 1 Farrer Place and the 12,000 square metre recommitment by King & Wood Mallesons at Governor Phillip Tower also at 1 Farrer Place – involved a reduction in space of around 20 per cent.

In Melbourne, meanwhile, overall levels of space being rented have remained steady during major lease negotiations thus far this year, face rentals are at best remaining steady or slightly declining while incentives are creeping up.

Recent activity suggests space requirements may also be on the decline in that market, with Norton Rose in the market for a reduced area of 6,000 to 7,000 square metres (compared with their current size of 8,900 square metres) and Maddocks likely to retain its current tenant size in a rumoured relocation to Collins Square but also likely to consolidate its occupancy from the current six levels to three.

In addition to the effect of international competition, JLL says demand for space is also being impacted by changing workplace models as firms embrace more open forms of collaborative environments and the much anticipated reduction in paper retention finally becomes an increasing reality.

It says conditions in the Sydney market will remain favourable to tenants until at least the end of 2016, and that coming years offer opportunities to move away from high-rent towers and make use of current conditions to lock in favourable long-term deals with flexible expansion and contraction terms.

Likewise, while the supply of new buildings within the legal precinct in Melbourne will be limited over the next few years, JLL says opportunities still exist to back-fill existing buildings and the overall market remains tenant favourable. New stock coming online at 82, 447 and 477 Collins Street will also provide good opportunities after 2018.

Around Australia, law firms account for around four per cent of total occupied space in major city office markets.