americanlawyer.com
november 2016
Big law gets smaller
To reduce sky-high rents and woo millennials, firms are downsizing
offices and going modern. Is this a fad, or for real?
Seth Zachary, Paul Hastings chairman, moved to a
new office one-fourth the size of his old space.
special section: Real estate
downsized!
big law
gets smaller
So long, corner offices. To reduce the rent and attract millennials, firms are
redefining space in surprising ways.
By Nell Gluckman
Transparent, egalitarian and
modern are not always words associated with the legal industry, but a
look at the newest offices of notable
Am Law 200 firms might make you
think otherwise. The industry, famously slow to let go of long-held
traditions, is in the midst of a notable shift in how it manages and designs its real estate.
The change is prompted by several realities. The price of office
space continues to rise—New York’s
toniest office space can go for more
than $100 per square foot; San Francisco, $73 per square foot. Ongoing
client pressure to cut fees has firms
looking hard at bottom-line costs;
firms devoted 7.2 percent of their
revenue to rent and other real estate
fees in 2015, according to Citi Private Bank. And staffing changes and
other factors mean that 17 percent
of a typical law firm’s office space is
unused, according to a recent study.
It all means that firm footprints
are getting smaller—20-25 percent
smaller, some architects say—and individual lawyers’ offices are shrinking,
even as firms try to beef up common
areas and add cafes and other perks to
attract and keep millennials.
“In the previous hundred years
prior to the recession of 2008 or
2009, there was far less change than
there has been since then,” says Timothy Bromiley, a leader of the professional services firms practice group
at the architecture firm Gensler.
“It’s not just saving money, but these
changes can increase performance.”
The law firm that has embraced
the new look perhaps most readily is Bromiley’s client Paul Hastings, which moved in May from its
240,000-square-foot office on 55th
Street to 200,000 square feet in the
MetLife building in New York. Like
most firms, Paul Hastings downsized
its footprint and fit roughly the same
number of people into a smaller,
more efficient space.
Every counsel and partner, including chairman Seth Zachary, has
a 140-square-foot office. That’s just
a quarter of the size of Zachary’s former office. Glass office walls let light
into the building’s interior. Some associates also sit in 140-square-foot
spaces; others have 90-square-foot
offices in the internal space once reserved for secretaries’ desks. Firstand second-year associates work
in cubicles in bright rooms facing
Manhattan’s skyline.
Gone are corner offices, and in
their place are communal work spaces
and conference rooms equipped with
cappuccino machines and healthy
snacks. “It takes personal stature out
of the equation,” Zachary says of the
decision to create uniform offices and
make the most prime real estate communal. “It’s all about the most efficient, collaborative way to work.”
Paul Hastings is far from the only
firm to take advantage of an expiring
lease by downsizing and modernizing its space. Since 2014, Goodwin
Procter moved into a new office in
Boston’s Seaport District, Dentons
About his former more spacious office, Paul Hastings
Chairman Seth Zachary says, “I’m not missing one thing.”
photography by Matt Furman
renovated in Chicago and Covington & Burling and Arnold & Porter
both relocated in Washington, D.C.
Between now and 2019, Skadden, Arps, Slate, Meagher & Flom
will move to New York’s Manhattan West; Milbank, Tweed, Hadley & McCloy and Boies, Schiller
& Flexner will relocate nearby into
Hudson Yards; White & Case will
make a move in Midtown; Weil,
Gotshal & Manges will complete a
renovation; and McDermott Will &
Emery will relocate in Chicago, as
will Vinson & Elkins in Dallas and
Munger, Tolles & Olson in Los Angeles, among others.
Some changes have raised eyebrows, such as the open floor plan
for junior associates and universalsized offices. Numerous firms declined to comment on their moves
or renovations.
Moreover, savings aren’t necessarily immediate. That’s because renovations, even in spaces of reduced size,
don’t come cheap: build-out costs
range from $140 per square foot to
well over $200 per square foot depending on the city and the quality
of space. Architects can charge up to
$10 per square foot in some markets.
And those prices don’t include the
cost of updated technology.
But for some, a change was unavoidable. Law firms are trying to
balance the cost of building a new
office with savings from a more efficient use of each square foot. And
they’re attempting to walk a fine
line between using their physical
space to demonstrate their success
and looking so ostentatious that
clients will wonder what their high
bills are going toward.
Bye-bye, mahogany paneling
Law firms have come a long way
from the wood-paneled offices of
the last century, when office size
correlated with rank and the corners
were reserved for the most senior
partners and management. As legal
consultant Edwin Reeser recalls,
when he started as an associate at
the Wall Street firm Thacher Proffitt & Wood in 1976, corridors were
narrow and lined with portraits of
the firm founders as well as paintings of sailing ships and foxhounds.
“Partners had a nice desk, and
they almost always had a conference
table that sat four to six people,” Reeser says. “It was very common for
lawyers to have client meetings in
their offices.”
Those offices might have been 250
to 350 square feet. Each partner had
his own secretary sitting outside his
door. Partners (or in many cases their
spouses) helped design their office.
“We had one law firm with 356 paint
colors. They allowed the attorneys to
pick their own paint,” says Ron Bateman, director of interior design at the
Houston office of the architectural
firm HOK.
In the early 1990s, partners started downsizing their offices, according to Matthew Barlow, executive
vice president at the commercial real
special section: Real estate
estate brokerage Savills Studley. By
then, law firms had started dedicating entire floors to conference centers where they could host clients.
After the dot-com bust in the early
2000s, a wave of firms began doubling up associates, a practice some
had always used, Barlow says.
In the U.K., lawyers have always
shared offices. Partners might have
an associate or two sitting beside
them so they could easily communicate with and train more junior lawyers, according to Tony
­W illiams, a principal at Jomati
Consultants and former managing
partner of Clifford Chance. Cultural differences also exist.
“Partners [in the U.K.] are less fixated by the idea of corner offices,”
Williams says. Acoustic filters help
reduce noise levels, and thoughtful design means that people don’t
need to sit by a window to get natural
light, he adds.
The tighter quarters have largely been driven by the high cost of
real estate in London, where rents
are about $90 a square foot before
service charges and property taxes,
Williams says.
Rising real estate costs
“Clients are demanding that [lawyers] provide more, but they want
to pay less,” says Sherry Cushman, executive managing director
and ­leader of the law firm group at
Cushman & Wakefield. At the same
time, rents and associate and staff
salaries have increased—factors that
have pushed firms to evaluate their
real estate costs more carefully.
During the years immediately following the Great Recession, firms
were hesitant to make changes to
their physical footprints. As a result,
some firms now find themselves in
25-year-old spaces, Cushman says.
But today, when firms are faced
with an expiring lease—leases are
typically 10 or 15 years—they think
about how they can reduce or stabilize real estate expenses, either by
putting more lawyers into a smaller
space or by designing the space to
make those attorneys more efficient.
That’s why firms are opting for
same-sized personal offices. They
also want “to use every inch of their
space,” she says.
Indeed, square foot per lawyer has
declined by 30-50 percent in the past
10 years, Cushman estimates. A 2016
JLL report released in October found
that firms now average 760 square feet
per attorney, compared with a prerecession average of 976 square feet per
attorney. Firms are trying to downsize
to 600 to 625 square feet per attorney,
real estate brokers say.
But more efficient space requires
an initial investment. Real estate
brokers say that firms use varying
combinations of partner capital,
contributions from the landlord and
debt to pay for expensive moves and
renovations.
While capital calls are common,
Citi Private Bank is in talks with
10 to 12 large law firms about taking on term debt to fund real estate
changes. Often when landlords offer to help with construction, they
recoup that cost later through a
rent increase, so debt can be a good
­option for some firms because interest rates are so low.
Still, Goodwin Procter’s landlord
paid “the majority” of the cost of
building the Boston office, and the
firm’s occupancy costs will be less
than those in the former space, says
Alexander Randall, a real ­estate partner and head of the leasing practice
who oversaw the firm’s move.
Paul Hastings also expects to see
“material long-term savings” from
its move, Zachary says. He declined
to discuss how the move was funded
but says the firm has “been planning
the use of our resources for the past
five years.”
Weil is in the process of renovating its space in the General Motors
building in New York, one of the
most premium office spaces. Executive partner Barry Wolf says that the
firm was able to “negotiate a very
favorable arrangement for both us
and the landlord.” Real estate costs
are in line with where they were
prerenovation in part because the
firm reduced its square footage by
20 percent, to 400,000 square feet.
Wolf declined to discuss specific
lease terms.
Generally law firms have been able
to reduce the portion of their budget
they spend on real estate. According to
a Citi Private Bank survey of 156 law
firms, occupancy costs accounted for
12.1 percent of total expenses in 2015,
a figure that has declined by an average of almost 1 percent every year
since 2010. The portion of revenue
that firms allocate for real estate has
declined by an average of 1.2 percent
during that time, to 7.2 percent in
2015. Meanwhile, firms in the bank’s
sample group reduced their square
footage per lawyer by 0.2 percent each
year between 2010 and 2015, though
cost per square foot rose an average of
1.6 percent annually.
Barlow estimates that firms spend
between $30,000 and $90,000 per
lawyer on base rent. The wide range
is a result of the fact that there is
great disparity between rent costs and
square footage per lawyer.
But while firms try to shave money off their spaces, they have also
recognized that they can use their
offices to attract talent. The number of law school students dropped
to 37,058 last year from 52,488 five
years earlier, so competition for the
best hires has grown. Firms want
offices that asso­c iates will want to
work in, whether because of the
rooftop deck, the child care center
or the bright workspace.
“People want modern desirable
space to remain competitive from a recruiting and retention standpoint,” says
Barlow. “In order to create that space, it
requires a lot of capital. In order to justify the spending of that capital, you’ve
got to get efficient.”
The Modern Firm
These features define today’s offices:
Glass. The use of glass has allowed
firms to totally reorganize floor
plans. Previously, lawyers had window offices along a floor’s periphery,
and staff and storage were located in
interior spaces.
But since the 1990s, the ratio of
lawyers to legal assistants has gone
from 1-to-1 to 4-or-5-to-1 in many
cases. Firms need less room for
desks and storage. And they’re locating lawyers in interior spaces with
lots of glass walls so light floods the
whole floor.
Glass also gives the feeling of
transparency at a time when many
firms want to be more egalitarian
and open about their operations with
their young lawyers. “Old law firm
space tends to be lots of wood, lots
of private spaces, everything’s behind
closed doors,” says Scott Edelman,
Shrinking Space
Per-lawyer office space in the U.S. is
expected to drop by 36 percent.
new york
Source: JLL
c­ hairman of Milbank, which recently finalized an agreement to move
to New York’s newest development,
Hudson Yards, in 2018. “Our aim is to
open it up.”
At Goodwin Procter, there was
some trepidation about glass walls,
according to the firm’s architect,
Carolyn Hendrie, a principal at the
architecture firm Bargmann H
­ endrie.
“What we tried to do was say, if
there’s such worry about visual privacy, you can add film,” so passersby
can’t see in, she says. Hendrie asked
lawyers to give the glass two weeks,
then she’d add film if requested.
Months later, she’s had no takers.
Uniform office size. An almost
universal feature of new offices is
smaller and same-size personal offices. Most firms still opt for an associate office of 90 to 150 square feet and
a partner office up to 225 square feet,
brokers say, though some are going
fully one-size-fits-all.
At Paul Hastings, perimeter offices, which house partners, counsel and some associates, each have a
desk, a table, shelves and a bench that
doubles as storage space. (At this firm
and others, old furniture is often donated to charity.) “It creates a greater
level of collaboration, symmetry and
team play,” chairman Zachary says.
Of his own former roomy space, he
says, “I am not missing one thing
from that office.”
At Womble Carlyle Sandridge
& Rice’s new office in Raleigh,
North Carolina, all lawyers have
150-square-foot offices with 11-foot
ceilings that make rooms feel more
spacious, says Johnny Loper, the office’s managing partner. The decision to go with one size was an “easy
conversation” among firm partners,
Loper says. “They understood clients wanted us to be efficient.”
White & Case chairman Hugh
Verrier won’t have an office at all
when the firm moves into the McGraw Hill Building in Midtown next
year. He’ll sit in communal space
with more than 40 lawyers and other
staffers with global responsibilities.
“I’ll only have a desk,” he says—the
same size as everyone else’s. “I’m totally excited.”
Communal spaces. Common
areas for events and clients receive
a lot more emphasis than partner
offices in the modern firm. This is
meant to reflect an egalitarian and
collaborative culture.
A central feature that Hendrie
designed for Goodwin Procter in
­Boston is a window-lit spiral staircase that connects all 12 floors. “It’s
special section: Real estate
more than a stairway,” Randall says.
“It’s very functional in terms of creating opportunities for folks to interact with one another.”
Randall says that because the
walls are glass, people on the stairway can see into others’ offices,
creating the feeling that everyone
is working together. There’s an elevator, but the stairway has amazing
views of ­Boston, he says.
When asked which firms are making the biggest changes, several lawyers and brokers mentioned the
outdoor terrace in Nixon Peabody’s
new Los Angeles office. “It definitely
gets the wow factor,” says office managing partner Seth Levy. “As a still
relatively new kid on the block in the
market, despite having some practitioners who are well known here, we
really wanted a space where we could
invite people in,” Levy adds. Nixon
Peabody is growing in Los Angeles,
from 36,000 to 46,000 square feet
(not including the terrace), bucking
the downsizing trend, Levy says.
The outdoor space is 2,500
square feet, 42 stories high, with
lounge chairs, couches, plants and
views of the mountains. The firm’s
Los ­Angeles office can host events
with 150 people and, with 15 of its
21 partners under the age of 50, is a
nod to a younger generation.
Amenities. Some firms have adopted amenities once associated
with their clients in the technology
industry to attract talent and boost
productivity.
Goodwin Procter’s New York office is in the same building as The
New York Times. Firm attorneys
and staff use the paper’s cafeteria.
“It really gave us a taste for that and
how that might work,” Randall says
of on-site dining. The new Boston
office has a cafeteria with big windows that serves breakfast and lunch.
He says this is important because
the Seaport District doesn’t yet have
many dining options.
Arnold & Porter’s new Washington, D.C., office also has a cafeteria,
where lawyers often have working
lunches, says one associate. (The
firm declined to comment.) The associate, who has a young child, also
pointed out the building’s state-ofthe-art child care center. “In terms
of keeping me at the firm, it’s a big
hesitation to give that up,” he says.
LoriAnn Maas, an associate principal at Studios Architecture, says
that the legal industry is catching up
to other industries in designing offices to make workers more productive. That might include a desk that
allows them to work standing up or
an area where they can lie down. “If
you’re tired, they don’t want you to
go home,” Maas says of various companies. “They want them to shower,
take a nap and refresh. Law firms are
starting to do this.”
Maas says that she’s seen at least
one firm in Los Angeles with nap
rooms and others stocked with food.
“It’s just about not interrupting the
work flow,” she says. She wouldn’t
name the firm.
New neighborhoods. Firms don’t
usually move out of the central business district into a hip new neighborhood, but in some cities, the center of
gravity is definitely shifting.
Skadden, Milbank and Boies Schiller will be the first firms in New
York to populate the far west side in
developments currently under construction. Most firms currently lease
space further east in Midtown, with
a few holdouts ­remaining downtown
in the Financial District, including
Cleary Gottlieb Steen & Hamilton
and Jones Day.
In Washington, D.C., firms including Covington & Burling,
Arnold & Porter and Finnegan,
Henderson, Farabow, Garrett &
Dunner have moved north around
the Convention Center and Mount
Vernon Square. In Dallas, firms have
moved from the Downtown Arts
District to the more expensive Uptown neighborhood, where there are
restaurants, bars, dry cleaners, grocery stores and other businesses.
“The message we got from a lot
of folks in the office is they wanted
these amenities,” says Tim Armstrong, chief operating officer of
Vinson & Elkins, which will move
its Dallas office to Uptown in 2018.
The firm’s lawyers wanted to be able
to grab lunch and run errands more
easily, Armstrong says.
Looking ahead
Which trends will stick? Architects
and brokers say that glass and uniform-sized offices are likely to stay.
“Everyone is still waiting to see
what Skadden does,” says Studley’s
Barlow. The firm hired Studios, an
architectural firm that says it specializes in the innovative. (Studios designed offices for Orrick, Herrington
& Sutcliffe and Perkins Coie and is
working with Schulte Roth & Zabel,
Arent Fox and Hogan Lovells.)
The open floor plan that Paul
Hastings designed for junior associates hasn’t yet been imitated by another major firm in the U.S. Another
trend that some industries have adopted is hoteling, where employees
don’t have an assigned desk, but can
plug in anywhere. Firms haven’t embraced that yet, either.
“For a while, no firm would do
something unless other firms had,”
Bromiley, the Gensler architect,
says. “But that has changed.”
Email: [email protected]. Julie
­Triedman contributed reporting.
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