A law firm’s offices have always been more than a workplace, with firms using prestigious addresses, tony art collections and sweeping views to send an unmistakable message to clients and recruits: Trust your problems, or your career, to us.
Those days will return, hopefully, sooner rather than later. For now, the trappings of physical office space—aside from technological infrastructure—don’t mean a whole lot. No one is there. No one is coming to visit. But the firms are still paying for it.
April Vasquez Leibman, a commercial real estate partner at Texas law firm Jackson Walker who works with law firms on their real estate investments, said that a preexisting trend toward reduced square footage per lawyer and more collaborative spaces could be accelerated by mandated work-from-home policies.
“Working from home used to be just for the lawyers,” she said. “Now maybe we do it for staff as well. If this forced experiment works, it could expand that to paralegals and staff as well.”
Commercial real estate firm CBRE released a report in November 2019 detailing changes in law firm real estate usage across U.S. markets, noting trends from smaller offices to shifting destinations in various markets.
In Manhattan, for example, 25% (about 8.5 million) of the 35 million square feet of commercial space occupied by law firms will be up for renewal between 2021 and 2024, according to CBRE. Law firms renewed, expanded, contracted and relocated office space totaling 1.3 million square feet in Manhattan from the third quarter of 2018 through the second quarter of 2019.
In Philadelphia, Post & Schell, Holland & Knight and DLA Piper all had leases renewing (with Holland & Knight expanding its footprint) between Q3 of 2019 and the end of Q2 2020.
In Chicago, Perkins Coie and Jones Day are both relocating in the West Loop in that same time frame, both with over 100,000 square feet of space. Both leases were signed in late 2019, with Jones Day slated to move into 110 Wacker Dr. in late 2020, while Perkins Coie will move in to the new space in late 2021.
CBRE noted that some firms have been exploring shorter leases and shared spaces, but that isn’t the norm, at least not yet.
But Vasquez Leibman thinks that will change, and quickly.
“Smart firms will start to look for options in their leases,” she said. “Expansions, reductions in space, rights of first refusal. They will need to keep their options open.”
While law firms are fortunate in that much of the work they do can be done remotely, the overhead of unused real estate looms large.
The November study showed that firms as a whole have been decreasing their real estate footprint nationally before the COVID-19 outbreak, and the epidemic doesn’t seem likely to change that trend.
CBRE, in a statement this week, said it expects that office leasing overall will decrease in the short term, vacancies will rise and more and more entities will be looking for shared or “agile” workplace offerings.
The real estate firm also said that in general, commercial real estate transactions have slowed, bidding pools are smaller and the number of entities bringing property to market has slowed. There have also been increases in repricing asks.
Vasquez said that while she expects some landlords to strictly enforce lease contracts in the short term, she also expects the majority will be flexible about working with their tenants, if only out of fear the tenant might make a move when the dust clears or even go bankrupt if they are forced to continue paying full rent.
While the latter scenario is not likely for very large law firms, the former has very real potential.
Rick Barkham, global chief economist and chief of Americas research at CBRE, said in an email that he expects the commercial real estate market to take a hit from the current crisis, but that it would begin to see a recovery by the end of the year.
Will law firms be comfortably back to their old office ways by then, or will their approaches be transformed?
“It’s only been a couple of weeks,” Vasquez Leibman said. “Once we know how long this may last, there may be firmer points or opinions. But right now, it is full speculation.”