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LEGAL SECTOR TRENDS IN

H2 2019

2019 TABLE OF CONTENTS

1 Executive 5 Rents Summary

2 Top 25 Law 6 Other Market Firms Factors

3 Occupancy 7 Methodology & Definitions

4 Leasing 1. EXECUTIVE SUMMARY EXECUTIVE SUMMARY

OCCUPANCY LEASE EXPIRATIONS LOCATION

As of 2019, the 1,801 law firms monitored in this report More than 6.6 million sq. ft. of lease expirations are set to Midtown’s core drove occupy 34.87 million sq. ft. of office space. The top 25 take place between 2021 and 2024, an indication that leasing velocity in occupiers have footprints that range from approximately activity is likely to remain solid within the next few years. 2019, the five top 280,000 sq. ft. to 718,000 sq. ft. In aggregate, the legal Larger firms with expirations later than 2024 will also transactions of the year sector occupies 9.% of total RSF in Manhattan. likely enter the market over the next three years further took place in the fueling demand. Midtown. New product continues to attract law LEASING VELOCITY LEASE ECONOMICS firms as the largest deal of the year occurred at Legal services tenants usually seek out space in prime office 2019’s leasing velocity totaled 2.71 million sq. ft., down 2 Manhattan West. 5% from last year. Renewals saw a slight uptick in 2019 product with good accessibility to clients. Such premises often accounting for 38% of the total velocity. Relocations were command rents that exceed the average in any given still prevalent at 59% of the total but shrunk from 67% submarket. Nevertheless, general creditworthiness, in addition RENTS witnessed in 2018. to long-lease terms, helps law firms secure favorable terms.

The average taking rent for law firms in Midtown saw EMPLOYMENT SPACE USE an increase of 5% since After seeing 0.8% annual average growth from 2014 to Becoming more efficient is still a primary objective for almost all year-end 2018, pushing it 2018, legal services employment growth has accelerated this law firms in Manhattan. Currently, the most efficient law floor to a record high, while the year, up 4% since year-end 2018 to reach 83,200 jobs. plan in Manhattan features partners in interior glass offices and Downtown taking While law firm recruitment efforts have reduced emphasis on all associates in an open area, however this is not the norm. rent also jumped support staff, they continue to actively pursue candidates for Still, most law firms are moving toward single sized offices, while dramatically in 2019 due to fee-earning positions. the time associates spend in an open environment is being some deals at new extended through their third and fourth years. construction projects.

© 2020 CBRE, Inc. 4 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 2. TOP 25 LAW FIRMS TOP 25 LAW FIRMS TOTAL MANHATTAN OCCUPANCY TENANT ADDRESS (PRIMARY LISTED ONLY) TOTAL MANHATTAN SQ. FT. Sullivan & Cromwell 125 717,802 Skadden, Arps, Slate, Meagher & Flom 1 Manhattan West 643,601 Kirkland & Ellis LLP 601 548,489 Davis, Polk & Wardwell 540,209 Debevoise & Plimpton 66 Hudson Boulevard 530,721 Simpson, Thacher & Bartlett 425 Lexington Avenue 496,209 White & Case LLP 1221 Avenue of the Americas 489,218 Cravath, Swaine & Moore LLP 2 Manhattan West 481,678 Proskauer Rose LLP 11 477,758 Weil, Gotshal & Manges LLP 767 474,525 Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas 438,144 Cleary Gottlieb 1 Liberty Plaza 421,037 Latham & Watkins 1271 Avenue of the Americas 406,661 Fried, Frank, Harris, Shriver & Jacobson LLP 1 Plaza 390,087 Sidley Austin LLP 787 Seventh Avenue 357,166 250 340,548 Shearman & Sterling LLP 338,057 Milbank, Tweed, Hadley & McCloy 55 Hudson Yards 323,008 Willkie Farr & Gallagher LLP 787 Seventh Avenue 319,002 Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas 314,838 Gibson, Dunn & Crutcher 200 311,513 Cadwalader, Wickersham & Taft LLP 200 Liberty Street 294,298 Arnold & Porter Kaye Scholer LLP 250 West 292,922 Schulte, Roth & Zabel LLP 919 282,102 Winston & Strawn 200 Park Avenue 281,188 Source: CBRE Research, H2 2019. Total occupancy figures do not include space the tenant has subleased to a subtenant or space currently on the market for sublease. © 2020 CBRE, Inc. 6 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 Historically, top law firms have been attracted to Midtown’s prestigious addresses and transportation hubs. Of the top law firms TOP 25 LAW FIRMS in Midtown, the majority reside in the Six Avenue/Rock Center and Park Avenue submarkets. Penn Station has seen an increase in the law firms migrating to the area due to the new product offered OCCUPANCY ACROSS MARKETS within the submarket at Hudson Yards.

5% 5% 25% 20% 20%

15% 25% 80% 5% Midtown Downtown Park 6th/Rock Center East Side Times Sq/West Penn Station Grand Central Plaza

Source: CBRE Research, H2 2019. Primary location only. © 2020 CBRE, Inc. 7 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 2019 TOP LEASE TRANSACTIONS

TENANT LOCATION SQ. FT. TYPE Cravath, Swaine & Moore LLP 2 Manhattan West 481,678 Lease Shearman & Sterling LLP 599 Lexington Avenue 338,057 Renewal Akin, Gump, Strauss, Hauer & Feld 1 214,132 Renewal Hunton Andews Kurth 200 Park Avenue 144,451 Renewal Katten Muchin Zavis Rosenman 125,097 Lease Sheppard, Mullin, Richter & Hampton, LLP 109,572 Renewal/Expansion Kelley, Drye & Warren, LLP. 3 World Trade Center 100,000 Lease Akerman LLP 1251 Avenue of the Americas 99,615 Lease 1290 Avenue of the Americas 90,508 Lease Davis & Gilbert 1675 85,862 Lease Cozen O`Connor 3 World Trade Center 73,932 Lease 1114 Avenue of the Americas 51,641 Renewal Greenberg Traurig LLP 420 Lexington Avenue 46,744 Expansion/Renewal Gunderson Dettmer 1250 Broadway 44,718 Lease Schiff Hardin LLP 1185 Avenue of the Americas 44,689 Lease 1211 Avenue of the Americas 41,385 Lease McAloon & Friedman, P.C. 1 31,069 Lease McDermott, Will & Emery 1 Vanderbilt Ave 30,169 Expansion Kirkland & Ellis LLP 601 Lexington Avenue 29,985 Renewal Axiom Legal 3 World Trade Center 29,194 Lease Fish & Richardson, P.C. 7 27,488 Lease Norris McLaughlin & Marcus 7 Times Square Tower 27,488 Lease Kaplan Hecker & Fink LLP 350 Fifth Avenue 26,997 Lease Wilk Auslander, LLP 825 Eighth Avenue 24,396 Lease Pierce Bainbridge 24,338 Lease

Source: CBRE Research, H2 2019. © 2020 CBRE, Inc. 8 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 3. OCCUPANCY Total law firm occupancy by square footage dipped slightly from year-end 2018, declining nearly 2% to 34.87 million OCCUPANCY sq. ft., while occupancy as a percentage of total Manhattan RSF declined 10 bps to 9.3%. The trend toward more efficient space standards make it less likely that a significant uptick in occupancy levels is on the horizon.

Office Space Occupied by Law Firms (MSF) Percentage of Total Manhattan Office RSF (%)

42 16%

41 14% 40 11.7% 11.5% 11.3% 11.4% 12% 39 10.9% 10.5% 10.5% 10.1% 9.7% 38 9.4% 9.3% 10%

37 8% 36

35 34.87 6%

34 4%

33 2% 32

31 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sq. Ft. % of Manhattan RSF Source: CBRE Research, H2 2019. © 2020 CBRE, Inc. 10 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 Among the law firms with locations in Midtown, 80% are located within the Grand Central, East Side, Park Avenue, Sixth OCCUPANCY Avenue/, and the Times Square/West Side submarkets. In Downtown, virtually all locations are based in BY MARKET the Financial and City Hall submarkets.

6% 2% 8% 3% 3%

8% 33% Manhattan Midtown Downtown 42% 34% 10% 1051 610 1801 56% Locations Locations Locations 58%

13% 14% 10% Midtown Downtown Grand Central East Side Park Financial City hall Downtown West 6th/Rock Center Time Sq/West Penn Station Times Sq/South Plaza 5th/Madison

Source: CBRE Research, H2 2019. © 2020 CBRE, Inc. 11 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 Of the 1801 law firms with a Manhattan presence in 2019, the top 100 occupiers account for 60% of the total office space OCCUPANCY currently leased by the sector. Additionally, firms that occupy more than 100,000 sq. ft. account for roughly half of the total BY SQUARE FOOTAGE office space leased by the sector.

By Rank, Sq. Ft. Occupied Size Band,5% Sq. Ft. Occupied

13% 13%

9% 29% 28% 12% 1801 Firms 1644 Firms 10% 34.87 MSF 34.87 MSF 13% 8% 15% 21% 16% 13%

Top 25 26-50 51-100 101-150 250,000+ SF 100-249,999 SF 50-99,999 SF

151-250 251-450 Remainder 25-49,999 SF 10-24,999 SF Under 10,000 SF

Source: CBRE Research, H1 2019. © 2020 CBRE, Inc. 12 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 4. LEASING Law firms are expected to see at a little more than 4.0 million sq. ft. of office leases expiring through 2023, LEASE EXPIRATIONS before spiking to roughly 2.5 million sq. ft. in 2024. As law firms address these impending expirations, activity is on track to remain strong and steady in the near-term.

Law Firm Office Lease Expirations (MSF) vs. Number of Transactions

3.0

2.5

2.0 6 | 47%

6 | 73% 1.5 3 | 38% 3 | 40% 2 | 43% 2 | 22% 6 | 17% 1.0 4 | 13% 3 |11% 5 | 19% 7 | 33% 6 | 11% 3 | 23% 4 | 15% 15 | 21% 15 | 29% 1 | 2% 9 | 18% 0.5 6 | 17% 2 | 36% 13 | 17% 74 | 34% 61 | 61% 5 | 28% 50 | 23% 47 | 15% 41 | 22% 31 | 27% 17 | 7% 21 | 36% 0.0 2021 2022 2023 2024 2025 2026 2027 2028 <25k 25k-50k 50k-100k >100k Source: CBRE Research, H2 2019. Number of leases (% of sq. ft. of annual expirations). © 2020 CBRE, Inc. 14 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 Law firm leasing velocity for overall Manhattan in 2019 totaled 2.71 million sq. ft., trailing last year’s pace by 5%. Midtown LEASE VELOCITY remains the dominant force, capturing a 85% share of total BY MARKET velocity so far this year, followed by Downtown at 14%.

Law Firm Leasing Velocity by Market [New Leases + Renewals] (MSF)

5.0

4.5 3.92 4.0 3.62 3.58 3.49 3.5 0.91 3.10 0.52 0.72 2.84 2.78 2.86 3.0 0.03 1.01 2.71 0.23 2.59 0.06 0.72 0.46 0.36 0.52 2.5 2.13 2.16 0.09 0.22 2.19 0.39 0.05 0.06 0.04 0.04 0.04 2.0 0.26 0.43 0.05 0.81 0.03 1.5 3.02 2.78 0.09 2.83 2.32 2.39 2.32 2.33 2.38 2.30 2.30 1.0 1.70 1.87 0.5 1.23

0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Midtown Midtown South Downtown Number of Transactions Midtown 89 65 78 86 65 68 73 53 58 57 70 64 45 Midtown South 10 6 6 6 2 6 5 6 5 6 3 2 3 Downtown 24 18 30 31 28 38 43 41 22 21 27 25 21 TOTAL 123 89 114 123 95 112 121 100 85 84 100 91 69 Source: CBRE Research, H2 2019. © 2020 CBRE, Inc. 15 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 Total velocity for overall Manhattan swing in favor of relocations by a large margin in 2018 and 2019. The LEASE VELOCITY share of relocations has shrunk from 67% for full- year 2018 to 59% this year, as renewal volume BY TRANSACTION TYPE increased to account for 38% of 2019’s total velocity.

Law Firm Leasing Velocity by Transaction Type [New Leases + Renewals] (MSF)

5.0

4.5 3.92 4.0 3.62 3.58 3.49 3.5 3.10 1.28 2.84 2.86 2.78 2.71 3.0 1.22 2.59 1.70 1.34 2.5 0.47 2.13 2.16 1.18 2.19 1.05 0.30 0.14 1.42 2.0 1.59 0.21 1.49 1.91 0.93 0.28 0.13 1.5 1.18 1.17 0.13 2.17 0.21 0.08 1.0 0.37 2.05 2.01 0.15 1.64 0.12 1.70 1.60 0.19 1.29 0.5 1.03 0.83 0.86 0.89 0.86 0.77 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Renewal Expansion Relocation Number of Transactions Renewal 23 21 38 39 30 34 34 26 22 23 38 25 17 Expansion 19 16 7 11 9 12 7 10 10 5 9 14 9 Relocation 81 52 69 73 56 66 80 64 53 56 53 52 43 TOTAL 123 89 114 123 95 112 121 100 85 84 100 91 69

Source: CBRE Research, H1 2019. © 2020 CBRE, Inc. 16 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 5. RENTS After seeing nominal growth from 2015 to 2017, the average taking rent for law firms in all of Midtown grew a strong 9% year- over-year in 2018. Growth has continued but moderated in 2019, RENTS as law firm Midtown taking rents increased nearly 5% since year- end 2018. The higher quality assets law firms and other indutries MIDTOWN compete for now sit at an 8% premium.

Weighted Average Taking Rents ($PSF) $120

$110

$100 $97.88 $90.40 $90

$82.33 $80

$70

$60

$50

$40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Law Firm Midtown Midtown Overall Law Midtown Top 50 Buildings

Source: CBRE Research, H2 2019. Average taking rent = average asking rent X taking rent index %. Top 50 Buildings = Built/Renovated post-1970; >500k sq. ft.; between 40th and 60th Streets; floor size >20k sq. ft.; not owner occupied. © 2020 CBRE, Inc. 18 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 Average taking rent for law firms Downtown saw precipitous year-over-year growth in 2019, at 26%, due to RENTS some large transactions at new construction. Without these transactions law firm taking rents in the rest of the DOWNTOWN market averaged $53.62 per sq. ft. a 3% annual decline.

Weighted Average Taking Rents ($PSF) $75

$70 $69.40

$65 $64.78

$60 $58.80

$55

$50

$45

$40

$35

$30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Law Firm Downtown Downtown Overall Built Post-1980

Source: CBRE Research, H2 2019. Average taking rent = average asking rent X taking rent index %. © 2020 CBRE, Inc. 19 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 6. OTHER MARKET FACTORS After experiencing a considerable drop-off in 2009, legal services employment in NYC had remained range-bound for EMPLOYMENT several years, before seeing an uptick in 2016 and rising steadily through 2018. Growth accelerated in 2019, pushing total jobs up 4% since year-end 2018 to 83,100.

NYC Legal Services Employment, SA (000s Jobs)

86.0 84.9

83.9 83.9 84.0 83.5 83.2 82.9 83.1 82.4 82.1 82.1 82.0

80.2 79.9 80.0 79.1

77.7 78.0 77.6 77.3 77.2 77.1 77.2 76.6

76.0

74.0

72.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

NYC Legal Services Employment Source: BLS, FRED, Data as of December 1, 2019. © 2020 CBRE, Inc. 21 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 7. METHODOLOGY & DEFINITIONS METHODOLOGY & DEFINITIONS ” s ce i

g While the focus of our analysis is on law firms in particular, the aggregate statistics presented in this report include all organizations v r n i e

n engaged primarily in the legal industry, such as the State Attorney’s Office, as well as providers of managed legal services, e.g., S i f l document review and contract management. De Lega “

If a tenant signs a lease renewal with an expansion component, the total square footage of the transaction is considered simply a renewal. Expansions

The employment data indicates the total number of people employed by the legal services sector. The totals include support staff and those employed in the ancillary functions of legal services providers, but do not include legal occupations in other types of business, e.g., in-house counsel. Employment

When looking at space occupied by a law firm, CBRE reports the firm’s total footprint in Manhattan. In the instances where a tenant has signed a future commitment to relocate its operations from an existing location, only the future commitment’s square footage is captured. Our data excludes the firm’s location that will terminate upon commencement of the new deal or upon the actual lease expiration date. Occupancy

© 2020 CBRE, Inc. 23 LEGAL SECTOR TRENDS IN MANHATTAN | H2 2019 FOR MORE INFORMATION, PLEASE CONTACT: Philip Stern Senior Research Analyst +1 212 656 0516 [email protected]

© 2020 CBRE, Inc. Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.