Law firms are snatching up real estate following a pandemic-induced lull, according to new data.
Leasing activity by firms jumped more than 43% in the second quarter of 2022 after getting off to a slow start in the first three months of the year, commercial leasing advisor Savills found. That includes seven transactions over 100,000 square feet, a significant increase from a first quarter dominated by smaller leases.
Big Law’s office return after two-plus years of largely remote work is raising questions for firms about how much space they need and what it should look like. Office space is one of the largest costs for firms, many of which have embraced the flexibility found during the pandemic.
“What we were seeing was a lot of renewals and short-term deals in order to kind of stall any long-term decisions when we really weren’t sure what was going to happen to the future of the office space,” said Devon Munos, a senior director at Savills and one of the authors of the report.
“At this point into the pandemic, we’re feeling a little bit more certainty about what role the office plays and what these law firms want to use the office to do and how they want to bring their employees back to it,” she said.
Savills reviewed law firm transactions over 20,000 square feet across key US markets. Firms leased a total of 1.6 million square feet during the quarter, the researchers found.
The largest deal was Baker Botts’ lease extension of a 172,301-square foot, 8-floor office lease in downtown Houston, which was announced this week.
The space “has consistently offered our lawyers, staff and valued clients excellent service and amenities,” said Baker Botts partner in charge Russell Lewis in a statement announcing the renewal. Lewis said the firm will be “extensively modernizing” the space to meet its needs.
UK “Magic Circle” firm Clifford Chance’s move to 140,000-square-foot space at 2 Manhattan West in New York and litigation powerhouse Quinn Emanuel Urquhart & Sullivan’s lease renewal for its 135,000-square-foot space in its hometown of Los Angeles were also some of the year’s largest deals, both signed in the second quarter.
Lawyers during the pandemic relocated to different cities across the country outside major law firm markets like New York, Chicago and Washington. That’s prompted law firms to open new offices in locations like Salt Lake City, South Florida and across Texas.
Kirkland & Ellis leased a 75,000 square foot space in Salt Lake City earlier this year, for example. The firm announced in May that it’s launching an office in Miami, the new go-to spot for Big Law that has recently welcomed other entrants like Quinn Emanuel, King & Spalding, Winston & Strawn and Sidley Austin.
Relocations like Clifford Chance’s made up 63% of leasing so far in 2022, swinging back to pre-pandemic norms, the report said. Relocations accounted for only 30% of leasing in 2020.
The moves, enabled by soft market conditions, are giving firms the opportunity to reimagine office space altogether, Munos said.
“We’re excited to design a space for growth and an increasingly agile workforce—as you will have seen across the industry,” said Evan Cohen, regional managing partner for the Americas at Clifford Chance said in an email. The firm’s new Manhattan space is slated to be completed in 2023.
Savills acknowledged that leasing volume may no longer reach the highs seen in previous years, as firms seek efficiency and flexible in-office work schedules become more widely accepted.
Law firms were already becoming more efficient in utilizing their space prior to the pandemic, decreasing their square foot per attorney ratio, Munos said. The pandemic has pushed that even further.
“So rather than having space for a law firm library, they’re going to encourage the use of collaboration space and open spaces,” she said.
“At the end of the day, real estate’s expensive—talent is even more so, and I think there’s this continued respect for the needs of the people the needs and desires of the people who are bringing in the work,” said Tom Fulcher, chair of the legal tenant practice group at Savills and co-author of the report.
As firms considering shrinking their office footprints, they also face a cross current in the need to make employees feel valued and give them a reason to come into the office, Fulcher said.
“How do we earn the commute?” he said.