Big Law Requires Big Office Leases

Cushman & Wakefield’s head of the legal advisory group, Sherry Cushman

NEW YORK CITY—The legal sector has reached $287 billion in US annual revenue. This is more gross revenue than Amazon and Google combined. In real estate leasing, New York City is the largest law firm market in the country, followed by Washington, DC, at a close second.

That’s why Cushman & Wakefield expanded their legal advisory group to 350 brokers. Six years ago, the real estate firm dedicated substantial resources to boost the group’s research and analysis work evaluating the real estate component of the business of law.

For the last three years, Cushman & Wakefield has surveyed 750 law firm associates, who confidentially responded. Fifty percent are from the AM Law 100 list. (GlobeSt.com’s sister publication, The American Lawyer, publishes an annual national ranking of the top 100 law firms based on financial performance. Twenty-five of these are headquartered in New York.) This type of information helps Cushman advise firms on both immediate needs and long-term succession planning.

GlobeSt.com interviewed Cushman & Wakefield’s executive managing director and head of the legal advisory group, Sherry Cushman; and executive vice chairman and chairman of the tenant advisory group, Dale Schlather, to learn more about the latest trends in New York law firm office leasing.

Cushman has advised law firm tenants for more than 30 years and has witnessed major shifts in standard practices. The days of unlimited billable hours have been replaced with competitive fee structures and fixed fee billing. Like other corporations, law firms are now being pushed to maintain profits and to control overhead.

Rising expenses and shrinking fees are driving changes in real estate decisions. The greatest expense of law firms is salaries, followed by real estate and then technology. With tech costs soaring, even with record-breaking revenue, law firms have massive expenses. “So they are really looking to real estate to cut costs,” says Cushman.

Law firms are also using real estate to help provide services, upgrade technology and create more collaborative environments. “They are putting more space into the ’we space’ and less into the ‘me space,’” says Cushman. This means office sizes are shrinking but common areas are growing. 

“People are getting out from behind closed doors and interacting more, generating more business together and supporting the whole firm versus the individuals or individual practices,” says Cushman. “It’s a real shift.”

Cushman & Wakefield’s chairman of the tenant advisory group, Dale Schlather

Schlather, who also has worked at Cushman for more than 30 years, says the company tracks the nearly 34 million square feet of office space occupied by law firms in New York City. He says this amounts to approximately 11.8% of the rentable gross square footage in Manhattan commercial real estate. Law firms sign lease terms for approximately 15 years. However, Schlather notes firms tend to remain in their locations for 30 or 40 years.

Because of technology law firms need less space. One secretary typically used to work for two or three lawyers. Now pools of secretaries often provide one secretary per seven or eight lawyers. “They don’t need all those secretarial stations. They don’t need libraries. They don’t need as many rooms,” says Schlather.

A hot topic on people’s minds is whether Big Law will move to the newest offices being built at Hudson Yards. Currently, Midtown has the highest concentration of the legal sector but the buildings are an average of 60 years old. Cushman points to law firms Milbank, Tweed, Hadley & McCoy; Skadden, Arps, Slate, Meagher & Flom; and Boies, Schiller & Flexner, which will all relocate to Hudson Yards.

The days where partners made all of the business decisions have passed for many firms. The global real estate director of Skadden came from Blackrock. BakerHostetler’s CFO previously worked at Ernst & Young. Non-attorney executive leaders offer expertise from other industries and often help make the decisions regarding location and office leases.

Older interior designs (1980s – 2000s)/ courtesy of Cushman & Wakefield

Cushman says even though rental rates will be higher, law firms can create savings with space efficiencies. Older buildings having poorly designed floor plates, columns, dark interiors and outdated features can result in astronomically expensive renovations. “It’s about how the rent combined with the efficiency factors and then the out-of-pocket capital to build these spaces will affect the cost to sit an attorney in the space for 15 years,” says Cushman.

She notes Skadden currently provides more than 1,000 square feet per attorney, which significantly will be reduced with the office’s higher rent at Hudson Yards. However, the new office with all of it state-of-the-art amenities is considered by some a necessity to recruit and maintain top talent.

Updated office space rendering/ courtesy of Cushman & Wakefield

Cushman notes that nationally 50% of practicing lawyers are baby boomers. In 2025, more than 50% will be millennials. The entire marketplace of law is transitioning to a younger generation, and they are influencing law firms’ real estate decisions today.

Whether this generation will want to live in Hudson Yards as their “eat, work and play” neighborhood, all within a six block radius, or whether upon having children, millennials will move to the suburbs still remains to be seen.

Cushman & Wakefield reviews demographics to provide law firms comprehensive information that could help plan for office vacancies or requirements. These statistics can indicate how employees will factor real estate decisions into their careers. Cushman notes 60% of graduates of law school last year were women. Yet 82% of partners at law firms in the US are men.

She describes the moving of law firm offices as a “big checkerboard” in Manhattan’s real estate. When Skadden moves from 4 Times Square, who will backfill that space? Cushman says the only way the landlord will capture other high quality tenants to move into the vacated space will be to lower the rent.

Schlather notes these decision are not only about adjusting space and saving money. But they are about how people work together, communicate and create an environment that reflects what they are trying to accomplish as a firm.