Wall Street Law Firms Lift NYC Real Estate With Return to Office

Law firms are taking a lead role in filling New York City’s all-too-empty office buildings, thanks to an insistence that attorneys must stop working from home.

The legal business rivals the financial sector as the most active Manhattan lessors in the past two quarters, real estate firm Savills said in a report. The two sectors accounted for more than half of leasing activity in the third quarter, according to Savills.

Davis Polk & Wardwell’s commitment to more than 700,000 square feet at 450 Lexington Ave. and Wachtell, Lipton, Rosen & Katz’s renewal of nearly 260,000 square feet at 51 West 52nd St. marked the two biggest office transactions in Manhattan in the third quarter, real estate firm CBRE said.

The push to get workers in the office is helping to spur the leasing activity, said William Elder, managing director at RXR Realty. “Everybody at the leadership level of these firms wants to get people back,” he said.

Interactive map: Top 40 law firm leases across Lower Manhattan are in some of the highest-rent neighborhoods.

The law firm leasing activity is a boost for the New York City real estate market as other sectors such as technology hesitate on office decisions, said Devon Munos, senior director and head of research platform initiatives at Savills.

Manhattan leasing fell 31% in the third quarter compared with the same period a year ago, according to Savills. The annual office leasing total is on track to fall short of 2022’s result, the firm said.

‘Apprenticeship’

Law firms’ commitment to office work reverses their embrace of remote work during the height of the coronavirus pandemic. Most top New York law firms now direct lawyers to be back in the office at least three days each week.

“Our practice is an apprenticeship,” Fried Frank real estate partner Valerie Kelly said. “So in order to really teach young lawyers how to practice law, we have to be together, and there’s a real commitment to that.”

Law firms that previously suggested lightly that lawyers return to the office are now crafting mandates with teeth. Davis Polk, Sidley Austin, and Simpson Thacher & Bartlett are among firms that have said they might cut bonus pay for associates who do not meet in-office attendance requirements.

Five firms require attorneys to work in the office four days each week—Davis Polk; Ropes & Gray; Vinson & Elkins; Weil Gotshal & Manges; and Skadden, Arps, Slate, Meagher & Flom. Only two—Quinn Emanuel Urquhart & Sullivan and Wilson Sonsini Goodrich and Rosati—have no mandatory minimums.

Many of the law firms’ New York clients, the big banks, are already in offices five days each week, giving the legal operations additional incentives to push attorneys to return, Elder said. Morgan Stanley, JPMorgan Chase, and Goldman Sachs require employees to be in the office five days a week.

Office attendance pushes will intensify in the weeks and months ahead, Elder said. “You’re going to see a lot more people back in the office here shortly.”

“Better Than Home”

Law firm real estate activity growth is part coincidental because expiring long-term leases require them to act. Still, more than 42% of law firm relocations and renewals over the first half of 2023 were expansions, Savills found.

Davis Polk added of 30,000 square feet in a renewal announced in August. Milbank in April said it was adding 28,000 square feet to its Hudson Yards office. Sheppard Mullin expanded its space to 108,020 at 30 Rockefeller Plaza. And last year, Kirkland & Ellis added 60,513 square feet at 601 Lexington Ave.

Firms are moving away from big offices for senior partners and and instead are dedicating more square footage to conference and gathering spaces. With offices as one of their biggest overhead costs, firms want to make the space attractive so lawyers use it.

“There’s a sense that the office space has to be better than home, which means the technology has to be better and the people interaction has to be better because that’s the main reason you go in,” said Thomas Fulcher, vice chairman at Savills.

Fried Frank signed a renewal in July 2021 to keep its 400,000 square-foot space at One New York Plaza and is in the process of completing a remodel. “We would have had to grow our footprint if we had stayed in the same size office configuration,” said Jennifer Yashar, a real estate partner at the firm.