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THOUGHT LEADERSHIP SERIES THE EVOLVING LAW FIRM OFFICE MARKET: KEY TRENDS IN 10 MAJOR U.S. CITIES NOVEMBER 2019 KEY FINDINGS » As space efficiency has become a primary real estate strategy for most major law firms, the amount of square TABLE OF CONTENTS feet leased per attorney has generally decreased over the past 10–15 years across the ten markets studied. I. Recent Trends in the U.S. Law 04 However, factors such as fluctuating attorney counts, Firm Office Market subleasing of space, and variances in space design » Feature: Trends in Law Firm versus space utilization make it difficult to draw direct Workplace Strategy 06 conclusions from the amount of leased space per attorney. In short, the intent behind how law firms lease II. Key Law Firm Real Estate and use office space does not always match the reality Trends for 10 Major U.S. Cities of how much space they occupy. Nonetheless, these figures have generally trended downward even as many a. Atlanta 08 firms have dedicated more space to shared amenity b. Boston 10 and meeting areas. » Legal services employment in the 10 markets studied c. Chicago 12 has remained relatively flat over the past five years, d. Dallas 14 averaging only 0.5% annual growth. However, this was a considerable change from the layoffs many firms e. Los Angeles 16 endured during and after the Great Recession. Sluggish growth in legal services employment is expected to f. Miami 18 continue with forecasted annual growth for these markets averaging only 0.2% over the next five years. g. New York 20 Recruitment and retention is a priority. h. Philadelphia 22 » Rental rates for law firm leases have increased over the past 15 years, with most cities seeing a marked i. San Francisco 24 rise in rents over the past five years; the 10 markets j. Washington 26 studied saw a 21% average increase in law firm rental rates during the 2015–2019 period compared with III. Market Summary and Action Steps 28 the 2010–2014 timeframe. This significant increase is mostly attributed to a flight-to-quality trend among law firms, as the increase in efficiency allowed many firms to upgrade their space while maintaining or reducing overall occupancy costs. 2 | © NEWMARK KNIGHT FRANK | RESEARCH | NOVEMBER 2019 THOUGHT LEADERSHIP SERIES | 3 Factors such as fluctuating attorney counts, subleasing of space, and variances in space design versus space utilization make it difficult to draw direct conclusions from the amount of leased space per attorney. In short, the intent behind how law firms lease and use office space does not always match the reality of how much space they occupy. I. RECENT TRENDS IN THE U.S. LAW FIRM OFFICE MARKET Legal Services Employment has a significant impact on the as the size of firms’ operations, the requirements surrounding Whether firms have renegotiated or relocated has a large impact services employment is expected to continue with forecasted commercial real estate market nationwide. As one of the largest confidentiality and branding, and the need for practice groups to on their space utilization. In short, the intent behind how law annual growth for these markets averaging only 0.2% over the office tenant types, trends within the law firm sector have a major work in the same office. firms lease and use office space does not always match the next five years. Law firms are improving the efficiency of how effect on overall office space demand. In the markets with the reality of how much space they occupy. Nonetheless, these they work, as new technology does some of the tasks that junior The markets chosen for this study represent the 10 largest largest concentrations of top-tier law firms, these trends can bring figures have generally trended downward even as many firms attorneys used to handle. national markets by legal services employment. They are about significant change to regional market fundamentals and have dedicated more space to shared amenity and meeting geographically diverse and represent a full spectrum of law Rental rates for law firm leases have increased over the past 15 economic indicators. Since there is regional variance among top areas. For the purposes of this study, square feet leased per specialties. The purpose of the study is to provide a snapshot years, with most cities seeing a marked rise in rents over the past employment sectors—for example, financial services and banking attorney is presented as a range and a median to account for the of the law firm real estate market in each major city and to five years; the 10 markets studied saw a 21% average increase in in New York, the federal government in Washington, DC and the variables that have affected occupancy over the course of the see how recent trends have influenced rental rates and the law firm rental rates during the 2015–2019 period compared with technology sector in San Francisco—the level of legal services years studied. the 2010–2014 timeframe. This significant increase is mostly amount of space leased by law firms. In order to keep the scope employment as well as the most prevalent types of law practiced In most cities studied, law firms currently lease less office attributed to a flight-to-quality trend among law firms, as the manageable, this study focuses primarily on Am Law 100 firms vary widely across U.S. cities. space collectively than they did 10–15 years ago. This is due increase in efficiency allowed many firms to upgrade their space (a ranking of the 100 largest U.S. law firms by gross revenue as Recently, legal services—a sector that is heavily office-using—has to both the densification trends noted previously and the fact while maintaining or reducing overall occupancy costs. reported by law publication The American Lawyer). followed some national office trends, while staying away from that the law firm sector has seen slow employment growth over Overall, real estate trends have been fairly consistent across As space efficiency has become a primary real estate strategy others. For example, like many other industries, law firms have the past several years. Legal services employment in the 10 these 10 markets, as many Am Law 100 firms have a national for most major law firms, the amount of square feet leased sought to make more efficient use of their space. In many cities, markets studied has remained relatively flat over the past five presence, and thus their real estate strategies are implemented per attorney has generally decreased over the past 10–15 densification has been widespread, especially when firms have years, averaging only 0.5% annual growth. In addition, enrollment simultaneously across multiple cities. Please see the table at relocated to newer office space in recent years. On the other years across the 10 markets studied. However, factors such as in law schools has declined since the Great Recession. Law the back of this report for a statistical summary of the 10 hand, the legal sector has not been an early adopter of coworking fluctuating attorney counts, subleasing of space, and variances school enrollment grew at a steady rate between 1985 and 2010, markets studied. formats and shared-space layouts, as has been the case in in space design versus space utilization make it difficult to draw followed by a decline of nearly 30% by 2015, with law school other sectors. This is attributable to a variety of factors, such direct conclusions from the amount of leased space per attorney. graduations following a similar trend. Sluggish growth in legal 4 | © NEWMARK KNIGHT FRANK | RESEARCH | NOVEMBER 2019 THOUGHT LEADERSHIP SERIES | 5 As law firms endeavor to keep operating margins and expenses TRENDS IN LAW FIRM in line with revenue growth, managing partners and firm WORKPLACE STRATEGY administrators are consistently evaluating the feasibility and financial impact of implementing various organizational By Madeline Dunsmore practice- and client-driven changes. Increasingly, law firm Regional Workplace Manager, leadership is incorporating new strategies to help support Washington, DC performance from a firm’s people, place, and practice. FEATURE Thinking Through Recruitment and The Changing Old Law vs. Space as a Tool Retention Workplace Landscape New Law Today, a successful people-strategy includes Many of today’s firms struggle in creating a In general, the total headcount of law firm Some smaller boutique firms are adopting developing a dynamic work environment sustainable pipeline of talent, particularly for employees is decreasing. With the reduction technology at a much faster rate than large flexible enough to meet the demands of a legal associates. The work assigned to associates in number of paralegals, secretaries, and legacy firms. Especially on the West Coast, we culture that engages partners, associates, is changing and many firms no longer focus on administrative personnel, there are fewer people are beginning to see the adoption of virtual legal support and clients. Less square footage mentorship and growing associates into future who need office space. This, coupled with the teams and virtual court rooms. This can allow per attorney is balanced by more collaborative partners. There is an accelerating trend of five- or move to single-size offices for partners and the some attorneys more flexibility, and more spaces, connectivity, mentorship, amenities, six-year associates as partners stay on longer, broader focus on space efficiency, is driving down work-from-home time decreases the need for and efficiencies that address client demands. and many associates are frustrated by the lack demand for law firm office space. However, firms space. Additional flexibility also serves the goal A smaller real estate footprint is balanced by of upward mobility. In some cases this has led to that invest in more collaboration and community of improving retention of high-quality talent.

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