Correction, 8/26/14, 9:55 a.m. EST: An earlier version of this story incorrectly stated the amount of space Sheppard, Mullin, Richter & Hampton will occupy in its new Washington, D.C., office location. The firm will occupy 58,000 square feet. The story has been revised accordingly. We regret the error.
Law firms are trading down in square footage per attorney when they take out new leases, and increasingly are looking for flexible, more economical spaces in line with the corporate clients they serve, commercial real estate experts say.
More law firms also are taking a page from the corporate playbook and having professional real estate directors and chief operating officers—including accountants—make cost-driven choices about office space, taking the decisions out of the partners’ hands. As a result, square footage per lawyer is falling, and individual offices are giving way to larger “communal” working areas and multipurpose spaces.
“They are facing pressure to be lean and mean,” says Sherry Cushman, executive managing director and leader of the global legal sector advisory group at Cushman & Wakefield Inc., a commercial real estate company.
On average, law firms occupy two or three times as much space per employee as most other businesses, including banking, insurance and technology. But that is changing.
“Twenty years ago, if they walked into a beautiful office, [clients] would say, ‘Wow, my lawyers must be smart.’ But now they walk in and they don’t want to say, ‘Wow, this is why my fees are so high,’” says Cushman, whose own law firm clients include Baker & Hostetler, Shook Hardy & Bacon and Clifford Chance.
Cushman & Wakefield will release its 2014 National Benchmark Survey in the first quarter of next year, in which it will provide real estate statistics based on its survey results from 300 law firms—26 percent of which were Am Law 100 and 200 firms and the rest regional and local. But already some of the trends are apparent.
The national average law firm spends 6.2 percent of gross revenue on real estate expenses, according to Cushman & Wakefield’s most recent benchmark survey in 2013. That is two or three percentage points less than the share spent about 10 years ago, Cushman says, and firms are trying to reduce it further.
The average ratio of space per lawyer is 823 square feet, but that is based on many older leases that were taken out when firms were anticipating growth. (Most law firm leases are for 10-15 years, with one or two options to renew at five-year intervals.) The actual square footage per lawyer if they filled every seat is more like 686 square feet, according to Cushman. Most law firms are targeting 600 square feet per lawyer with serious consideration being given to single-size offices for all attorneys, she adds.
Jones Lang LaSalle’s annual law firm survey released last fall similarly indicated a downsizing trend in space per lawyer, as reported by The Am Law Daily. It will release its own survey results next month.
Thomas Doughty, international director and cochair of Jones Lang’s global law firm practice group, says many firms are doubling up their associates and going to only two office sizes, one for partners and one for associates. In New York, some law firms that were in glamorous Midtown locations are moving or are considering moves downtown to lower-cost downtown Manhattan, or to Midtown West, he says, where they are also trying new layouts. Jones Day, for example, announced in November it would move its office from East 41st Street to eight floors at Brookfield Place on Vesey Street in lower Manhattan in 2016, as previously reported in The Am Law Daily.
“In general, anywhere the cost of space is higher, there is a heavier emphasis on using less of it,” Doughty says.
At the same time, firms are looking for brighter offices with flexible spaces that are suited to the technologies that lawyers and executives everywhere are using, such as laptops, tablets and mobile phones that allow them to work from anywhere. Firms also need less secretarial space than before because the attorneys do more of the clerical work themselves. For example, Cushman cited one law firm in Washington, D.C., that plans to move from its current 42,000 square feet to just 17,000 square feet.
Earlier this year, Arnold & Porter said that it would downsize by 100,000 square feet when it relocates to a new office next year, citing cost pressures, according to The Washington Post. The firm has executed a 20-year lease with Boston Properties for a new, mixed-use development on Massachusetts Avenue in Washington, D.C.’s Penn Quarter neighborhood. Arnold & Porter expects to move to the new location in October 2015, a spokesman told The Am Law Daily this week.
Reed Smith recently renewed its lease at 1301 K Street in Washington, D.C., for 80,000 square feet, says finance and real estate partner Olivia Shay-Byrne. Although the firm has been in the same location for 15 years, it is completely reconfiguring its offices to keep partner and associate office sizes more in line with each other, as well as creating transparent walls and more communal space while drastically reducing library space.
“Before we had partners and associates all over the different floors, and now you will be with your own practice group and secretaries,” Shay-Byrne says. “We will have to see how it goes, but the idea is cost savings and to be more efficient.”
Other firms making real estate moves include:
Covington & Burling: The firm is shifting its headquarters to a new CityCenterDC space in Washington, D.C., this fall after signing a letter of intent in 2012. Covington is leaving its current offices on Pennsylvania Avenue to occupy the new building in a redeveloped part of town located on the site of the city’s former convention center.
Pillsbury Winthrop Shaw Pittman: Its D.C. offices will be moved downtown by the end of this year to 1200 17th Street—where it is assuming 101,000 square feet of space—from 2300 N Street in the city’s northwest corridor.
Sheppard, Mullin, Richter & Hampton: The firm announced in a news release that it has moved its D.C. offices to 2099 Pennsylvania Avenue in the city’s northwest corridor after 11 years at its previous location at 1300 I Street. The firm will take up three floors of the new building owned by Paramount. Los Angeles-based Sheppard Mullin opened its Beltway office in 2006 with five attorneys and has since grown to 60. Nonetheless, its new space will occupy 58,000 square feet, which is less than its old location.
Greenberg Traurig: Its lease for 30,254 square feet in West Palm Beach was renewed this month for an additional 13 years, according to sister publication Globe St.com, in a deal reportedly valued at $23 million.
Dykema Gossett: The firm will remain in downtown Dallas after it renewed its lease on the 42nd floor of the Comerica Bank tower this month, taking 24,000 square feet of space, according to the Dallas Morning News. Other firms, including Gardere Wynne Sewell and Winstead, have recently relocated away from the city’s downtown financial district as well to newer spaces uptown.
Sidley Austin: The firm has signed a lease for the top two-and-a-half floors of a new McKinney & Olive building, a 20-story office tower under construction in Dallas, according to the Dallas Morning News, citing developer Crescent Real Estate Holdings. Sidley will move 100 employees there when it opens in two years. In the meantime, the law firm moved into temporary offices in the Trammel Crow center in April, the newspaper reports.
Stinson Leonard Street: Expected growth is one reason why the firm says it is relocating its Denver office to Plaza Tower One at 6400 South Fiddler’s Green Circle. It had previously been located at 5613 DTC Parkway. Stinson Leonard Street is the product of a merger that took effect at the start of the year between Stinson Morrison Hecker and Leonard, Street and Deinard. The combined firm has offices in 14 cities and more than 520 attorneys, as reported in The Am Law Daily last September.
Goodwin Procter: The Boston-based firm will occupy 375,000 square feet of space on 12 floors of a 17-story building that is being built to suit on the city’s waterfront at 100 Northern Avenue. It will house 800 attorneys and staff. The firm will leave its Boston offices at 53 State Street in the summer of 2016t to assume its new location, where the tower will be named after the firm.
Sedgwick: The firm will be relocating next month to 26,074 square feet at One Newark Center in New Jersey. The building is owned by Mack-Cali Realty Corp. and its joint venture partner Praedium Group. The company previously leased 23,000 square feet at 3 Gateway Center in Newark.