Analysis

Why COVID-19 Could Shrink Your Lavish BigLaw Office

By Brandon Lowrey
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Law360 (May 18, 2020, 8:59 PM EDT) -- Cravath Swaine & Moore LLP's offices soar over Manhattan's Central Park like a 600,000-square-foot palace within a skyscraper, replete with marble floors, mahogany-paneled walls, paintings and other such stately furnishings.

The storied law firm pays $54 million a year for the space.

Kirkland & Ellis LLP's New York office spans over 500,000 square feet in a Midtown building, though it is dwarfed by the firm's 675,000-square-foot Chicago headquarters that fills more than half of an entire office tower. Latham & Watkins LLP leases 407,000 square feet spread over 10 floors of a Rockefeller Center skyscraper.

Right now, these offices are missing just one crucial thing: people.

The COVID-19 pandemic has forced BigLaw firms to abandon their most opulent offices and transform their lawyers into remote workers, revealing to many firm leaders that their enormous real estate costs might not be as justifiable as they had been in decades past.

Experts say the pandemic is sure to accelerate a trend among law firms to cut back on the kind of real estate typified by Cravath's current offices. Real estate, after all, is usually firms' highest expense after salaries. Firms have already been experimenting with ideas like shared offices and remote work, and the austerity that may be required to make it through the oncoming downturn is likely to budge even the most change-averse firms.

"As each week passes, we're hearing firms and partners getting more and more comfortable with potentially seeking new concepts that 30 days ago they wouldn't consider," said Sherry Cushman, vice chair of real estate services firm Cushman & Wakefield. "They're more comfortable with remote working, downsizing and doing more hoteling."

Cravath is among the firms planning to take up less space in Manhattan. The firm cut a deal before the pandemic to move into a smaller and more modern office in 2024. Several law firms, including Cravath, declined to comment for this article.

Cushman and other industry experts and consultants said that management for major firms are contemplating reducing the number of people physically present in their offices and subleasing some of their copious space. Some firm leaders floated transitioning support staff to fully remote roles, including secretaries, paralegals, and accounting and billing professionals.

Law firms spend anywhere from 4% to 14% of their gross revenue on office space, according to Cushman, so savings in this area could be significant — particularly in places like Manhattan where leases can easily exceed $100 per square foot.

The logistics of getting attorneys into an office post-lockdown could also prove daunting. Even if workers were to brave the gauntlet of public transit to get to the building, they would encounter a lobby full of their fellow office workers trying to ascend to their floors on elevators while maintaining a safe social distance from others, experts said.

It could take several hours to move hundreds of thousands of people in and out of a skyscraper daily.

Timothy Bromiley, principal of design firm Gensler, marveled at the sudden influx of interest he's received from law firms trying to minimize space use and push employees into remote work.

He said he performed a study for a New York BigLaw firm in recent weeks that found the firm could easily reduce its square footage by about 25% because of its strong work-from-home program. At least one other major firm has commissioned a similar report from him, he said.

"This didn't exist before the crisis," Bromiley said.

Moving Pains

Even before the pandemic, firms were facing pressure to downsize from every direction.

Technological advances have put entire law libraries on the cloud and entire filing cabinets on thumb drives, negating the need for vast spaces for research and storage.

Additionally, competition for the best legal talent has heated up in recent years, and millennials, who will soon become the majority of the U.S. workforce, aren't enamored with big offices. They'll take higher pay and more remote-work days over previous generations' markers of prestige, like making partner and getting that corner office, according to Cushman & Wakefield data.

These forces likely contributed to a rare occurrence last year: 53% of law firms in the 10 primary markets relocated, Cushman said. Firms that moved downsized by an average of 29%, and firms that stayed put reduced their space usage by 19% by subleasing or restructuring their leases.

"We were already in a change faster than we've ever seen it," Cushman said. "It's going to be uber-speed now. There's going to be a lot of exploration, and I think there are going to be some firms that are going to be incredibly progressive and set the stage for what the future of law may look like."

In New York City, several big firms have fled Midtown for the pristine towers of Hudson Yards in recent years.

Skadden Arps Slate Meagher & Flom LLP dove in at the beginning of the exodus, inking a deal in 2015 to anchor developer Brookfield Property Partner LP's $2 billion One Manhattan West tower. The terms of the deal weren't disclosed, but Skadden ditched its 826,000-square-foot Times Square digs for 520,000 square feet in Hudson Yards.

Cooley LLP, McKool Smith LLP, Boies Schiller Flexner LLP, Debevoise & Plimpton LLP and Cravath are among the firms also lured to Hudson Yards, though not all are shrinking. When Cravath moves in 2024, it will shed some space, down to 481,000 square feet. McKool Smith, meanwhile, has gone from about 33,000 square feet to 64,000 square feet.

The differences in costs to the firms aren't clear, as space in the new Hudson Yards buildings may cost more per square foot but may also be subject to potential tax breaks.

The firms touted their moves in press releases during rosier months and years past. Each of these firms and several developers declined to comment or did not respond to requests for comment about their real estate for this article.

Privately, however, firm leaders have been fretting about office space on industry conference calls, according to several consultants.

While the pandemic might prompt some moves and subleasing, it has also likely scuttled some deals.

British BigLaw giant Allen & Overy LLP had been close to moving its Manhattan office but instead recently opted to renew its current lease for another five years. The firm declined to comment on its reasoning for staying put, saying through a spokesperson that it is always considering its options.

"In New York, we looked closely at other properties but concluded that our current office provides enough scope for our ambitious growth plans in the U.S. and we decided to extend the lease by five years," the firm said.

The Incredible Shrinking Lawyer

Lawyers take up a lot of room.

In banking, insurance and technology workplaces, each employee is allotted around 100 to 200 square feet of space on average, according to 2019 Cushman & Wakefield data. An attorney at a law firm, meanwhile, inhabits a whopping 600 square feet of office space. It was over 1,000 a decade ago.

To be fair, the attorney's traditionally spacious habitat includes room for support staff, physical files, and even the occasional endangered law library — a prime target for firms looking to save space.

But technology has largely negated the need for all of these people and things to be physically present at the law firm's offices.

Support staff including paralegals, secretaries and bookkeepers were hit hard with layoffs during the Great Recession and have already taken some losses in the current downturn. Some firms may opt to keep them remote even after the pandemic.

"I wouldn't be surprised if a lot of secretaries never come back [to physical offices]," Bromiley said. "Same with accounting and billing."

A lot of attorneys wouldn't mind the same opportunity.

Bromiley said that at firms he's surveyed during the pandemic, half of the attorneys don't want to return to the office five days a week, while about 30% can't wait to get back to their old routine.

Many firms are turning to developing so-called hoteling systems, in which attorneys who are coming in to work can book one of the firm's interchangeable offices for the day. According to a 2019 Cushman & Wakefield report, just 14% of firms had enacted any hoteling policies, with only 2% using the system more than 10% of the time.

But that was measured before the crisis.

Law Offices: The Next Generation

The venerable offices of firms like Cravath certainly look the part of an established and successful law firm, and that matters.

John Remsen of TheRemsenGroup, a law firm business consultancy, said some clients have expectations for how a law firm should look. Clients might be taken aback if Cravath were housed in a strip mall in Queens.

"Some clients are very impressed by opulent offices," he said.

But not every firm is Cravath, and not every firm demands a client to even come into the office.

It might be important for a plaintiffs firm to exude success, Remsen said, but, say, an insurance defense firm could do fine in a cheap suburban office park.

Clients would be willing to turn to a firm with a $54 million lease for bet-the-company litigation. For the slip-and-fall cases, they'll probably pick up the phone and call the lawyer in the suburban strip mall.

Terry Isner, owner of Jaffe public relations, said a posh law office can send a strong message to clients: We can afford all of this because we're good.

"Traditionally, the law firm always kind of having these fabulous art collections, large offices and beautiful furniture, it seems, has created its own style of what was expected at law firms," he said.

But this style might be nearing its expiration date, Isner and other experts said. The pandemic has shown that the very purpose of physical offices needs to be reevaluated.

Attorneys might not need to be there every day when they just need to buckle down and work in solitary silence. But experts said most attorneys would still like a physical place to sometimes collaborate and brainstorm with their teams.

Next-generation law offices will fill that niche with a greater focus on common and meeting areas, experts said.

Skadden's new offices are seen as a new design standard. Gone are the big vanity offices. Instead, private offices are smaller and standardized. Myriad common areas lend themselves to formal and informal group work. A massive conference room can accommodate up to 400 people.

Cushman said Skadden's design exemplifies how the paradigm has shifted to a focus on technology — now the third-highest expense for law firms — collaboration and creativity.

"It's absolutely a focus on the 'we' and not the 'me,'" Cushman said. "It's not about the individual attorneys anymore; it's about the firm and how you can serve your client."

Generation-X and younger attorneys are also more likely to see the traditional law office's style as wasteful, particularly after having witnessed some intense bloodletting during the Great Recession and facing more in the developing downturn, Isner said. Spendy offices could end up hampering recruitment efforts by inspiring resentment rather than awe.

Even now, firms are enacting layoffs and furloughs and partners are giving up cash, among other harsh cost-cutting measures. Most associates are already scared for their jobs, a recent survey showed.

Uncomfortable questions might occur as laid-off colleagues march through hundreds of thousands of square feet of tasteful paintings, leather furniture and marble-tiled hallways toward the exit.

"Where are these thousands and thousands of dollars going, and why isn't my friend here anymore?" Isner said. "And then you look back at that office space and artwork, and you start to sour."

--Editing by Aaron Pelc and Emily Kokoll.

Clarification: This story has been edited to clarify that some firms have already moved to Hudson Yards.

For a reprint of this article, please contact reprints@law360.com.

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