03.19 Legal Briefs - LSAG Newsletter

LEGAL BRIEFS VOL. 1 | 2019

Helping Law Firms Prepare for What’s Next

#1 in Tenant Rep 5 Years in a Row!

WHAT’S INSIDE

03 11 16

07 14 18

The Law Firm of the Future is Happening Now

2018 Mergers: An All-Time High

NYC Law Firms Are on the Move

The Digital Future of the Legal Sector

Women in Law – New York City 2018

2018 Year in Review

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2018 Mergers: An All-Time High BY DEREK DANIELS & DAVID C. SMITH The world of corporate mergers and acquisitions (M&A) had an extremely strong 2018. According to Thomson Reuters’s Q3 report, worldwide M&A in the first nine months of 2018 was up 37% across all industries from the same time period a year earlier 1 . Law firms have also been extremely active recently in the M&A space. Dentons may be the poster child of the globalization of the modern law firm. Initially created by the merger of three firms in 2013, Denton’s has grown its influence through nearly 20 different mergers, alliances or associations 2 . It now consists of over 9,000 attorneys across 175 different global offices. It has been the most active firm in terms of merging / acquiring over the past two years, but it is far from the only one looking to grow aggressively. There were over 100 different law firm mergers in each of 2017 and 2018, according to Altman Weil 3 . The 106 deals in 2018 are the highest for the current economic expansion, surpassing the 10-year average of 77 deals per year by 28% and doubling the total number of mergers executed in 2009.

TOTAL ANNUAL LAW FIRM COMBINATIONS

120

102 106

100

91

88

85

82

80

10-year avg: 77

60 60

60

53

39

40

20

0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Altman Weil; Cushman & Wakefield Research

1 Thomson Reuters, “ Merger & Acquisitions Review: First Nine Months 2018 ,” September 2018, p.2, available from ThomsonReuters.com, accessed January 11, 2019. 2 According to the company’s website (https://www.dentons.com/en/ whats-different-about-dentons/a-legacy-of-innovation/timeline) 3 Altman Weil MERGERline

CUSHMAN & WAKEFIELD | 3

NUMBER OF DEALS (3+)

Over the past two years there have been 163 acquiring firms and 208 acquired firms involved in the 208 deals. There have been 21 law firms that acquired or merged with more than one other firm. The repeat customers were involved in almost a third of the deals (67 of 208), and there were three firms with five or more acquisitions in the last two years. Not surprisingly, the firms involved in multiple mergers over the past 24 months are bigger. The median size of these 21 firms is 725 lawyers, while the median size of acquiring firms involved in just one deal in 2017 and 2018 is 69 attorneys. An Annual Comparison: 2018 vs. 2017 Although the total number of mergers was a close comparison between 2018 and 2017 there were variations across regions and attorney headcounts. Acquisitions were numerous for small to low-midsize firms (<20 lawyers) in 2017 and 2018 although 2018 saw a noticeable uptick in acquisitions of firms in the low-midsize range (6-20 lawyers). Among the largest set of acquisitions (100+ lawyers) five of the thirteen acquired firms were headquartered outside the U.S. The majority of these firms were based in Europe with the two largest based in London. In February 2018, St. Louis, Missouri based Bryan Cave merged with London based Berwin Leighton Paisner to form Bryan Cave Leighton Paisner LLP, ranked one of the most active global M&A practices and the world’s 4th largest real estate practice 4 . In 2017, London based Bond Dickinson merged with Winston-Salem, North Carolina based Womble Carlyle to form Womble Bond Dickinson, a new middle- market, transatlantic law firm 5 . Additionally, it was notable from a regional perspective that five of the six large set acquisitions in 2018 were for firms headquartered in the South, three of which are in Texas.

Source: Altman Weil

ACQUISITION COUNT BY FIRM SIZE

Source: Altman Weil; Cushman & Wakefield Research

4 Bryan Cave Leighton Paisner, “ Merger creates new global law firm, ‘Bryan Cave Leighton Paisner’ LLP ” February 26, 2018, available from Nlplaw.com, accessed January 14, 2019 5 Law.com, “ Womble Deal With UK’s Bond Dickinson Creates Mega-Middle-Market Firm ” June 2017, available from Law.com, accessed January 14, 2019

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ACQUIRING FIRM COUNT

There was a 30% increase of acquiring firms headquartered in the Midwest in 2018 and a nearly threefold increase of West-based firms acquiring other firms. Of the 15 acquisitions in 2018 involving firms headquartered in the West region of the U.S., six were by firms with more than 100 attorneys. Littler Mendelson was by far the largest of the set (1,500 attorneys). In two separate acquisitions they acquired Brussels based Reliance (20 attorneys) and Amsterdam based CLINT (8 attorneys). The four remaining acquiring firms were individually in the 100- 200 attorney range and acquired other West region firms with less than 10 attorneys. In 2018, the South and Northeast regions were tied with the most acquired firms (26 each). The West region saw a 36% uptick of acquired firms while Midwest regional activity was up 17% in 2018. The International count remained unchanged. International Acquisitions The pursuit by law firms to expand geographic reach and service line depth has expanded beyond the confines of the U.S. borders. There were 28 acquisitions of International firms in 2017 and 2018 combined. The activity over the past two years represents a growth in cross-border mergers. There were 14 each in 2017 and 2018 after averaging six per year between 2007 and 2016. Over the past two years, Europe accounted for the largest number of International acquired firms, but 2018 saw increases in African and Asian acquisitions. Dentons was the biggest acquirer as it merged with 15 of the 28 International firms. The average lawyer count of acquired firms was 84 lawyers. Cross-border mergers enable law firms to mirror the footprints of their largest clients in an increasingly globalized marketplace, providing them with integrated service and expanded coverage. Take for example two of the largest mergers involving U.S. firms headquartered in secondary markets (Bryan Cave in St. Louis and Womble Carlyle in Winston-Salem), both of which merged with large London-based firms. The creation of the two new firms—Bryan Cave Leighton Paisner and Womble Bond Dickinson— greatly increased the geographic coverage of each. In both cases, firm spokespeople were quoted as saying the new merged organizations would greatly increase the levels of service available to existing clients with global interests.

Source: Altman Weil; Cushman & Wakefield Research

ACQUIRED FIRM COUNT

Source: Altman Weil; Cushman & Wakefield Research

INTERNATIONAL ACQUISITIONS

Source: Altman Weil; Cushman & Wakefield Research

CUSHMAN & WAKEFIELD | 5

Market Level Comparison: 2018 Merger and acquisition activity was dominated by firms headquartered in large gateway cities and other northeastern markets. The only outliers in the top eight for 2018 were Milwaukee and Birmingham, each of which had firms involved in four acquisitions. Not surprisingly, the eight deals in those two markets were smaller than usual. Only one firm being acquired had over 100 lawyers, and the average attorney count across the eight was 45 (the median was only 5). At first glance it is more surprising that the 13 New York acquisitions, which were conducted by only four firms, involved even smaller acquisitions (average of 25 attorneys). However, 10 of the 13 acquired firms are headquartered outside of the U.S., with three in Africa, two in Asia and two in South America. Law firms will continue to look for opportunities to effectively expand their geographic footprint and broaden their specialty expertise. Global organizations will continue to create demand for more globalized law firms that can provide services on each and every continent, so the trend of cross-border mergers is not likely to go away anytime soon.

MERGERS BY ACQUIRING FIRM LOCATION

Source: Altman Weil; Cushman & Wakefield Research.

MERGERS BY ACQUIRED FIRM LOCATION

Source: Altman Weil; Cushman & Wakefield Research.

Law firms will continue to look for opportunities to effectively expand their geographic footprint and broaden their specialty expertise.

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The Law Firm of the Future is Happening Now BY TARA ROSCOE

Change on the Horizon Law firms have been under enormous pressure to evolve their workspaces to align with the vast changes that are happening now, and will only continue in the future, to the practice of law. Several sources, including Cushman & Wakefield’s past issues of Legal Briefs, have suggested that the pressure on billing rates (moving to fixed fees), the increase of commoditized work / outsourcing tasks, and competition to attract top talent are of primary concern and will impact both processes, operations, and inevitably, how law firms are designed. Tech savvy younger associates who are hungry for opportunities to learn and be mentored within collegial collaborative teams will add additional pressure on firms to evolve and embrace more progressive work styles and settings. Outside the legal sector, clients in industries such as finance, technology, and media, have worked with their designers to reimagine and reinvent their work environments to support rapidly evolving businesses. For law, a more risk adverse industry, the growing pains appear heftier. As US law firms have looked to densification strategies such as single size offices and targeted efficiency models of 600 square feet per attorney or less, they are increasingly seeking insight on how to better evolve their workstyles to adapt. Too often, they are caught between tradition (and reinforcing hierarchy) and a desire for innovation and change. In an attempt to push their own boundaries and seek more progressive workstyles, law firms can learn from several successful workplace design precedents.

CUSHMAN & WAKEFIELD | 7

What is Everybody Else Doing? The technology, financial, and media industries are the ones driving current workplace trends that are being deployed today. These companies, and a few progressive law firms, have grasped a keen understanding that younger generations of the work force want to work in stylized environments that support collaboration, reinforce a flattened non-hierarchical structure, hold trust-based policies and processes that encourage mobility and movement, health and wellness, diversity, and agile work models. Their workplaces increasingly are taking on more hospitality-like and residential characteristics with cues coming from a variety of non-workplaces such as hotel lobbies, restaurants/ cafes, co-working environments, business clubs, retail, spas, and gym facilities. The overarching message is: offices should look less and less like an “office”. Law firms are increasingly interested in hearing and seeing what trends are emerging from outside of the legal sector. What is everyone else doing? For most of the corporate office landscape, workplace design is focusing and prioritizing the following design drivers: • Health and wellness (i.e. sit-stand desks, promote physical movement over sedentary stillness) • High touch/Concierge level of user experience • Non- corporate, hospitality look and feel • Top quality amenities (i.e. best coffee, great food) • Maximized transparency (i.e. access to light, views) • Seamless and intuitive technology • Democratization of space • Untethered staff – Agile

What is viewed as a progressive

working (providing variety and choice) • Blurred boundaries between formal and informal, ‘work’ and ‘social,’ client facing and staff areas Global Issues and Differentiators Concerns over billing rates, outsourcing, retaining and attracting talent, providing environments to encourage mentoring, collaboration, and collegiality integrating sophisticated technology are not restricted to law firms within the United States. These concerns are global in nature, changing the complexion of the workplace. Interestingly, although the issues driving change in law firm design are global in nature, design solutions have diverged quite differently. What is viewed as a progressive workplace model in the US is understood to be the status quo in many other parts of the world. As law firms in the US recently have accepted single size offices, law firms in both Australia and the UK have moved far beyond this to more hybrid, flexible, and agile working models. In some cases, all attorneys are supported through open plan concepts. Although the US and Australia are aligned culturally in so many ways, it’s fair to speculate the key causal reasons for variation in our design models: 1. US law firms are often hierarchy focused: Defining how hierarchy translates into the design of office space is still a top priority for law firms in the United States. As firms increasingly speak about a desire (need) to revolutionize, they are often paralyzed to do so, as they continue to be inclined to align workspaces to titles. While Millennials are seemingly repelled by celebrating entitlement, in the US, Baby Boomers are still the

workplace model in the US is understood to be the status quo in many other parts of the world.

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To support and share how these shifts are already occurring within the legal sector, outlined below are a few test cases of law firms that have been incredibly progressive in their law firm design. While the US market is behind other markets across Europe and Asia and into Australia, it is important to note that with the ever-growing globalization of law, we anticipate these types of design shifts to greatly impact US law firm design in the coming years. Australia: Gilbert & Tobin – Open and Beyond In other parts of the world growing trends in the workplace are not just limited to tech or young companies but are also integrating into legal workplaces with great success. Gilbert & Tobin, an Australia based firm, is recognized as one of the pioneers leading the pack in law firm design. For their new office in Sydney completed in 2016, Gilbert & Tobin leveraged the opportunity to reinvent and revolutionize their workspace. This revolution was led by CEO Danny Gilbert, an Australian legal stalwart known for his innovation and fierce determination to look to the future. Danny was focused on how to best prepare the firm for the future practice of law and to create a bespoke unique environment. He and his partnership targeted ways to break tradition with a focused ambition to democratize the workplace, focusing on the health of teams, collaboration, and mentoring. It was identified early in the design strategy phase, that individually enclosed rooms (private ‘owned’ offices) would be counter intuitive to the message they were trying to convey in the new design. This was not a light decision and was greatly debated and discussed

key decision makers leading how new office space gets defined. In Australia, there appears to be a greater enthusiasm and support to push younger generations into the design conversation to help drive change. In Australia there is a notable push for duo-mentoring (mentoring up and down) with seasoned attorneys mentoring juniors in the practice of law while at the same time new younger attorneys who embrace tech-rich working styles are expected to mentor in the other direction. It is expected that they will be the ones who will drive real change and create momentum around new ways of working. 2. Real estate costs and occupancy efficiencies are leading motivators for change in the US: As law firms pursue an ideal RSF/per attorney occupancy (today +/- 600 SF), enthusiasm for workplace innovation often enters the dialog as a means to achieve this. In Australia, the motivation to evolve workspace is being instigated more by leadership’s vision to evolve the business model. This is not to say that Australian firms don’t benefit from denser and more efficient planning, but rather the key motivator is not cost savings alone and instead is being driven by an earnest quest to evolve the processes and practice of law. 3. Focus on the future and the greater good: It’s fair to acknowledge that the Australians have shown more of a willingness to experiment and have committed to adjusting their individual work styles, habits, and traditions more readily than their US counterparts for the benefit of the greater good. There are several progressive examples where newer law firm environments can support the foundational aspects of the practice (i.e. client confidentiality) while at the same time celebrating transparency, collaboration, and mentoring without building out traditional, four-walled, and assigned offices.

While the US market is behind other markets across Europe and Asia and into Australia, it is important to note that with the ever-growing globalization of law, we anticipate these types of design shifts to greatly impact US law firm design in the coming years.

CUSHMAN & WAKEFIELD | 9

confidentiality were debated long and hard. After many mock-ups and design charrettes, it became clear that the concerns over confidentiality could be appeased by encouraging some basic behavioural modifications. The new design is viewed as a great success in its ability to support concentrative work while at the same time maximizing access to light and views, encouraging connectivity and team work. UK: Eversheds – Ultimate Flexibility In 2010, Eversheds built out new space in London that continues to be viewed as one of the most progressive design models for law firms today globally. The firm wanted maximum flexibility in the new office to ‘future proof’ it and to support various team work styles. The design allowed for reconfigurability and simple on-demand customization. The foundation of the design is defined through a sophisticated set of building blocks – seen as a kit-of- parts – comprised of stackable wall and glass components, technology, and flexible furniture pieces. Wall components can be stacked on to create more privacy or removed to create openness. Furniture

as part of the design process. In the end, they implemented a 100% open plan concept. They provided sit-to-stand workstations for everyone and created a dynamic working environment through the use of organic (nonlinear) type workstations defined by a ‘tree branch-like’ layout. Work station panels undulate, creating pockets of privacy and defining team neighborhoods, hosting a spine of plantings that deliver varying degrees of privacy. Leadership instituted operational systems and technologies to propel processes within the organization towards a ‘paperlite’ and digitally rich environment. Personnel received large scale touch screen tablets for mark up and document review with the capability of these being docked with dual screens at each desk and work area. The technology rich environment enables individuals to be untethered from their workstations and to move about the floors as desired. There is great variety and diversity in workstyles and settings for individuals to choose from. The space was designed to encourage movement. There is a high ratio of quiet spaces for lawyers to move to seamlessly with wireless headsets and laptops. Concerns about

can be reconfigured to allow for variety of uses. The practice floor can go from predominantly open to predominantly closed – and anywhere in between – on an as- needed basis. Practice groups and professional staff can tailor and customize areas to support varying degrees of privacy, transparency, and collaboration. Local to Global to Local Law firms are facing a shift in priorities of incoming classes and pressures upon the profession itself. It is inevitable that more nimble, open, and agile working environments will gain popularity within law firm design. As fixed fees and fee compression are projected to be the driving force behind business competition for the next decade are expected to become increasingly the norm, a speed-to-market mindset will push the practice of law to find ways of working that maximize efficiency, streamline operations, decrease overhead, and to ultimately increase profits. Having workspace that keeps people isolated, detached, and/or disconnected will not support the dynamic teams of lawyers in the future.

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NYC Law Firms Are on the Move BY LAUREN HALE The Manhattan office market is extremely healthy. Employment is at an all-time high, 2018 tenant demand was robust and large corporate users continue to make long-term commitments to the city. New leasing activity hit a record high in 2018 with 35.9 million square feet (msf) transacted. Overall vacancy was up slightly to 9.2% in 2018, as new construction projects were completed. Overall Manhattan asking rents remained relatively flat, but Midtown South and Downtown asking rents reached all-time highs. Midtown overall asking rents finished 2018 at $75.03 per square foot (psf) and are still 11.8% off of all-time highs from 2008. The Manhattan office market is evolving from an influx of new construction as well as a shift in the tenant base. From 2016–2023, over 30.3 msf of new office product will be built, and existing stock will continue to be modernized as landlords compete with the major new developments. The average age of a Class A office building in Manhattan is 53 years old— the market is long overdue for new office buildings. Of the tenants committing to new construction, financial services has committed to 4.7 msf of space, followed by TAMI (technology, advertising, media, information) committing to 2.7 msf, and the legal sector leasing 2.3 msf. The tenants that have committed to new construction are vacating 12.9 msf—3.5 msf of which has already been re-leased. The bulk of the available 9.4 msf is in Class A space throughout Midtown, creating opportunities for many tenants to lease space in high-quality that they may not have been able to afford in the previous height of the market. While many of the tenants are reducing their footprint as they relocate to more efficient buildings, approximately 30% of tenants larger than 100,000 square feet (sf) transact four to eight years in advance of their lease expiration and are taking more space in anticipation of future growth.

The UK and Australia are responsible for some of the most progressive workplaces in the world across all sectors – including law. There is significant value in looking at what is happening outside the US to expand our local thinking and to stretch it to a global world stage. Although there is no crystal ball to tell us exactly what type of optimal work environment will support the actual future practice of law, there are a plethora of emerging trends, market indicators, and successful global precedents to point us in the right direction. ABOUT THE AUTHOR Tara Roscoe works at Woods Bagot New York, leading the North American Workplace group. Tara is a recognized as a design leader in the industry and has substantial experience working with clients to innovate and reinvent their workplace. She works across multiple sectors and with team mates within the global studio on both law firm and non-law firm projects. Tara joined Woods Bagot in 2017. Woods Bagot is recognized as one of the worlds’ most progressive and innovative Architecture firms. It first opened its doors 157 years ago in Adelaide, Australia and has 850 professionals working out of 15 offices globally. The firm completed the design and delivery of both projects referenced in this article: Gilbert & Tobin and Eversheds.

The Manhattan office market is evolving from an influx of new construction as well as a shift in the tenant base.

CUSHMAN & WAKEFIELD | 11

LEGAL SECTOR LEASING ACTIVITY

For the major law firms like Boies, Schiller, and Flexner and Skadden that have leased space in new development, the flight to modernity is largely attributed to attracting and retaining top talent. Firms can create a new identity and environment in an emerging neighborhood on Manhattan’s Far West Side. These buildings offer more efficient floorplates allowing firms to reduce their total footprint by 18.3% as well as their attorney psf ratio, while still having future growth space. Since the start of 2016, there has been a dramatic increase in concession packages, largely attributed to landlords trying to retain and attract tenants as they compete against new construction and the rising construction costs. From 2011–2015, 47 leases signed with work allowances greater than $100 psf. Over the past three years, however, 252 leases were signed with triple digit concession packages. In 2018, law firm leasing declined 2.2% from the prior year to 2.8 msf. While overall leasing was down slightly, the most notable shift was that new leases were up 45.6% in 2018 with over 2.2 msf leased. The significant amount of new leasing activity comprised 80% of the sector’s activity—a significant jump from the 54.3% average over the past five years. The average transaction size in 2018 was also bigger; it increased 35% from 23,603 sf in 2016 to 31,870 sf in 2018. Historically, the majority of law firms have leased space in Midtown. In 2005–2008, law firms leased the most space in the Sixth Avenue/ Rock Center, Grand Central, and the East Side/UN submarkets. Although, Sixth Avenue and Grand Central are still the preferred submarkets for law firms, the Penn Station submarket has replaced the East Side/UN submarket. Industry leasing activity decreased across all Midtown submarkets from 2015–2018 compared to 2005–2008, except for the Sixth Avenue/Rock Center, Grand Central, and Penn Station submarkets. In 2018 alone, four out of the five top leases are future relocations

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Square Feet in Millions New Renewal 10-Year Average: 2.8 msf

LEGAL SECTOR LEASING ACTIVITY BY MIDTOWN SUBMARKET

Square Feet in Millions

0

2

4

6

8

10

2005–2008

2015–2018

6 Ave / Rock Cntr Madison / Fifth

Grand Central Park Avenue

East Side/UN

Murray Hill

Penn Station

Times Square South West Side

to new construction or renovated assets, compared to one in 2017.

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LEGAL SECTOR RENTAL ANALYSIS Starting vs. Net Effective Rents

Each of these three areas have or are undergoing a dramatic shift. Sixth Avenue/Rock Center contains the second largest average floor plate size in Midtown, and 60% of the Class A buildings in the submarket have undergone a major capital improvement plan. The Grand Central area is at the beginning of a major transformation with the passing of the East Midtown Rezoning with One Vanderbilt and 270 Park Avenue being at the forefront of the new Grand Central. New construction in the Hudson Yards and Manhattan West projects located in the Penn Station submarket will bring 18.8 msf of new office supply from 2016–2023, and as tenants continue to densify into more efficient floorplates, it comes as no surprise that demand for the area has come from all major tenant industries. As law firm relocate, they are taking full advantage of the hefty concession packages landlords are offering throughout Manhattan. Law firms’ starting and net effective rental rates increased in 2018 to $83.16 and $67.19 psf, an annual increase of 18.3% and 6.9% respectively. Although the rental terms increased, concessions did as well with the average law firm receiving 13.4 months of free rent and $89.03 psf in tenant improvement allowance, up from 6.7 months and $62.48 psf in 2017. Of the 2018 AM Law Top 100 list, 24 of the firms named are headquartered in Manhattan and an additional 70 firms have a New York presence. Through 2018, the 94 firms will occupy 19.1 msf, or 4.8% of the Manhattan office inventory. Since 2017, 19 firms have renewed or relocated 1 — these firms have reduced their square footage by 12.4% with five of the firms planning to relocate to buildings constructed or renovated in 2018 or later. There are currently eight major AM Law firms in the market actively looking for space, including Debevoise & Plimpton LLP and Cravath, Swaine & Moore LLP—these eight firms are looking for approximately 1.8 msf, a 31% decrease than what is currently occupied.

Starting Net Effective

$100.00

12.9%

10.5%

$83.16

$74.47

$80.00

$70.32

$67.19

$64.83

$62.91

$60.00

$40.00

$/sf

$20.00

$0.00

2016

2017

2018

Concessions

Year

Work Allowance (PSF) Free Rent (Months)

2016 $53.33 2017 $62.48 2018 $89.03

8.4 6.7

13.4

TOP 2018 MANHATTAN LEASES Starting vs. Net Effective Rents

1271 Sixth Ave Midtown

1 Vanderbilt Midtown

32 Old Slip Downtown

Latham & Watkins LLP

Greenberg Traurig LLP

Cahill Gordon & Reindel LLP 202K SF

407K SF 138K SF

Blank Rome LLP 138K SF

133K SF McDermott Will & Emery

1  Firms that leased only expansion space are excluded from this count.

CUSHMAN & WAKEFIELD | 13

The Digital Future of the Legal Industry Brought to You by CoreSite When did the legal industry become so fast- paced and dynamic? Mergers are happening faster

2. Rapid adoption of cloud solutions: This trend pressures many firms to step outside their comfort zone to adopt new technologies that they don’t fully understand or don’t have the technical capacity in-house to manage. 3. Mergers and acquisitions: The fast pace of these transactions among firms can result in a hodgepodge of mismatched or redundant technologies, which challenges already overworked IT teams to integrate financial and operations systems of multiple firms. Multiregional or multinational deals are especially challenging because IT teams must contend with converting time zones, currencies, and compensation models. They also have to deal with standardizing costing, billing, and account and case management practices across offices and personnel while addressing the potential impacts of geography-driven network latency. 4. Geographical distribution: Merger or not, managing multiple geographies increases the risk of experiencing IT system latency issues. Performance lags not only frustrate users of affected applications, but can also trigger synchronization and database errors that lead to more serious issues affecting firms and their clients. 5. Security: Cyber-attacks are on the rise, both in frequency and in sophistication, with law firms serving as a primary target. That said, recent surveys 3 show that only 23% of participating law firms have cybersecurity insurance policies in place and less than 40% have a dedicated security professional on the payroll. Worse, hiring an in-house team simply isn’t feasible for most firms due largely to costs driven by the growing cybersecurity skills gap 4 in the market and relying on consumer-grade technology that is ill-equipped for mounting threats and is merely a temporary band aid to a major wound.

than ever before and are larger, higher profile, and span multiple geographies 1 . No doubt, the globalization of the legal sector is here. In addition, law firms are adopting new-age technologies like artificial intelligence (AI), cloud-platforms, and new legal case management systems 2 to modernize their operations for the Digital Age. Even legal clients are moving on from time-tested hourly billing models, pushing their counsel for more complex billing structures like alternative fee arrangements (AFA) to drive down and better manage the costs of their representation. It’s an exciting time of change and evolution for the legal field, and the firms that take pains to stay ahead of the trends will gain a distinct and potentially insurmountable competitive advantage. But like other industries experiencing seismic shifts at the most fundamental levels of their business, evolution can be a double-edged sword. While providing a range of new opportunities, it also brings a slew of never-before- seen challenges or more complexity to the ones the industry has always faced. Gone are the days of running a law firm off little more than a set of servers in a room on the 7th floor managed by “the IT guy.” Today’s challenges are more sophisticated and complex. To name a few: 1. Higher performance demands: Keeping essential systems and applications running smoothly, securely, and at peak performance is an increasingly difficult task in a globalized and tech-heavy business environment – add to it that demands are higher than ever for always-on availability and minimized latency. A CIO’s Work is Never Done: 5 Key Challenges

1 Arruda, Andrew. “Top trends, challenges, and advice for law firms in 2018.” RossIntelligence. com. https://blog.rossintelligence.com/top-trends-challenges-advice-law-firms-2018/ 2 Briggs, Kevin. “Modernizing Legal Case Management Systems.” Microsoft Industry Blogs. https://cloudblogs.microsoft.com/industry-blog/government/2017/10/20/modernizing-legal-case-management-systems/

3 LOGICFORCE. “Law Firm Cyber Security Scorecard.” Logicforce.com. https://www.logicforce.com/2018/03/28/law-firm-cyber-security-scorecard/ 4 Kennedy, Jim. “Cybersecurity skills shortage.” CSO Online. https://www.csoonline.com/article/3258994/data-protection/cybersecurity-skills-shortage.html

14 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

Overcoming challenges to the new digital status quo Each of these challenges could require a full in-house team to manage. Instead, many law firms have begun searching for assistance from managed services providers (MSPs). MSPs have the ability to provide services spanning from workload assessment, through vendor evaluation, and implementation of hybrid IT environments. When evaluating a centralized solution to build legal IT infrastructure, most MSPs choose to place client environments in a colocation facility. Colocation data centers provide a centralized point to house dedicated servers, while providing access to all the cloud, network, and IT vendors a legal firm needs to build a holistic, hybrid IT solution. The benefit is twofold: 1. The physical data center provides the scalable space, power, and cooling a business needs to host its computing hardware, with SLA guarantees around uptime and performance. 2. Interconnected colocation data centers provide dedicated access to cloud providers like Amazon, Microsoft, Google, Alibaba Cloud, Oracle, and IBM on-site. These direct connections enable a business to gain all the benefits of redundant, private cloud connectivity (think: increased security and performance) at a fraction of the cost of building out

a private network from an on-premises server closet. Added bonus: there are several network providers on-site competing for your business to provide competitive rates for the rest of your WAN solution. What does this look like in action? Ask Paul Hastings. Leading law firms like Paul Hastings use data centers as the core of their operations because they can monitor, test, and support their entire global infrastructure end-to-end from a single location. The strategy has helped the firm save significant financial resources by consolidating its physical IT footprint to four strategically chosen data centers and improve its overall risk profile, system availability, and security of confidential client and corporate information in the process. The world around the legal industry is rapidly evolving and law firms far and wide are beginning to feel it. The firms who embrace the change — and take advantage of the variety of new technologies and the experts to run them — will gain a competitive advantage never before possible in the old industry model. Those who don’t will be left wondering how they’ll compete, if they can at all.

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The world around the legal industry is rapidly evolving and law firms far and wide are beginning to feel it.

CUSHMAN & WAKEFIELD | 15

Women in Law New York City 2018 BY KATIE MICKELSEN & HANNAH DIEHL

The practice of law, as a whole, is changing – and so are the roles of women within the legal sector. And while it’s no secret that the legal industry is traditionally known for its resistance to change, women are excelling at adapting to these shifts. By taking on far greater leadership roles and driving change within law firms and corporate legal departments, women are shaking up the status quo in the legal sector’s competitive marketplace. The path to leadership may be long and bumpy, but today’s female legal professionals are up to the challenge.

With this challenge in mind, Cushman & Wakefield’s WIN (Women’s Integrated Network) and Legal Sector Advisory Group (LSAG) developed our signature Women in Law Leadership Event series. The inaugural event took place in New York City at Skadden Arp’s world headquarters in November 2016, with over 100 attendees joining seven of the top female law firm leaders for a lively discussion. In 2017, the Women in Law Leadership Event expanded in scope, with highly successful events in Chicago at Cushman & Wakefield’s headquarters in June 2017, in Washington, DC at K&L Gates in October 2017, and back to New York City and Skadden in November 2017. At each event, law firm leaders engaged in dynamic discussions on their careers, the key opportunities and mentors

that helped propel them into leadership positions, and advice for the next wave of women leaders. December 2018 marked Cushman & Wakefield’s 5th Women in Law Leadership event and 3rd annual event in New York City and it proved to be another great success! The event was hosted at the Durst Organization’s brand-new event space at 4 Times Square in Manhattan where we had over 80 guests from over 45 law firms and companies. The panel featured six powerhouse women within the legal sector engaging in a dynamic discussion of their careers, their keys to success, and their actionable recommendations on how to improve diversity within the legal sector, which continues to be a hot topic in the industry.

16 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

After a lively Q&A session with the audience, the conversations continued during the reception, with the panelists speaking one-on-one with guests while sharing additional insights and personal anecdotes of their experiences in the legal industry. Panelists included: Eileen Brumback, General Counsel, GE Aviation; Pamela Kain , North America General Counsel, Cushman & Wakefield; Elizabeth Leckie , Partner, Finance and Restructuring, New York, Allen & Overy LLP; Amy Leder , New York Executive Partner and Co-Leader of Corporate, M&A, and Securities Practice Group, Northeast Region, Holland & Knight LLP; Laura Metzger , Partner, Restructuring and Office Leader, New York, Orrick, Herrington & Sutcliff LLP; and Leslie Minier , Partner and Chief Diversity Partner, Katten Muchin Rosenman LLP; and moderated by Sherry Cushman , Executive Managing Director & Leader,

Legal Sector Advisory Group, Cushman & Wakefield. Feedback from both panelists and attendees of the series over the years has been tremendous. As one attendee noted, “I truly believe that it is through the sharing of stories and experiences, that we will turn the dial on women in leadership at all levels of an organization and in our communities. There were great examples of leadership on the panel and it was an honor to hear them as well as members of the audience who were leaders in their own right. Thank you for a truly wonderful and worthwhile event.” Cushman & Wakefield plans to continue and yet again expand our Women in Law event series in 2019. We look forward to hosting our first west coast event at the brand-new Salesforce Tower in San Francisco, CA on June 10, 2019.

CUSHMAN & WAKEFIELD | 17

2018 Year in Review – Legal Sector Real Estate

BY CHRISTA DILALO

With never ending billable-hours, looming deadlines, and various client demands, your firm’s real estate footprint may not be at the forefront of your mind… however, if you take a moment to benchmark your firm against your competition’s real estate movement and how that may have affected their profits and ability to recruit and retain talent, it becomes all the more interesting and relevant to your own personal law practice. With that in mind, we invite you to take a peek into the 2018 Legal Sector Real Estate in Review. Enjoy!

Legal sector real estate activity across the U.S. remained robust throughout 2018, totaling 12.7 million square feet (msf). Although the annual total trailed that of 2017 by a modest 3.8%, new leasing rose above 2017’s figure to 7.2 msf, while 5.4 msf of renewals were recorded. These numbers show that more and more firms are feeling the need to relocate and enter into new leases that allow them greater efficiency and workplace flexibility, which will ultimately result in higher profitability for the years to come. New York City and Washington, D.C. were home to eight of the 10 largest law firm leases of the year, together accounting for one-third of the nation’s activity. Within the country’s top 10 premier markets, the average deal size was 20,000 sf, while the average legal sector lease in the remainder of U.S. markets was only 8,000 sf. The legal sector accounted for 2.3% of all new demand in the U.S. throughout 2018, though the percentage was considerably higher for some markets. Most notably, in Washington, D.C., 11.1% of all new leasing was executed by law firms. The largest lease of the year was inked by Latham & Watkins in Midtown Manhattan. The firm is relocating into a building currently undergoing a $600 million renovation and will expand its footprint in the market by nearly 125,000 sf. This was the only law firm transaction larger than 100,000 sf in the U.S. in which the tenant increased its square footage, as most transactions in that size segment involved either no change or a decrease in the leased square footage. Fourth Quarter Highlights The legal sector recorded a strong real estate performance in Q4, with 3.2 msf of transactions signed. This is the second strongest quarter of the year, behind the 3.6 msf of leasing activity in

Q2 2018. Activity was widespread throughout the country, with the top 10 premier markets accounting for 64.7% of all activity recorded, including 1.5 msf of new transactions and 0.6 msf of renewals. Three of the top five largest transactions of the fourth quarter occurred in Washington, D.C. Williams & Connelly opted to leave the downtown area, signing a 292,000-sf, 15-year lease at the Wharf as the latest in a stream of relocations by big law firms to the southwest waterfront. The firm will move into its new facility—the second phase of a multibillion-dollar development project—in 2022. DLA Piper renewed its office in the East End, where it has served as anchor tenant since the building was developed in 2007. Winston & Strawn signed on as the anchor tenant for a Downtown property undergoing extensive redevelopment. In New York City, Cahill Gordon & Reindel signed Downtown Manhattan’s largest direct new lease of the year of any industry at just under 202,000 sf. The firm signed a 20-year lease and is expected to move into the new office in 2020. The space was formerly occupied by two insurance companies. The building, which was purchased by RXR Realty in 2014, features state-of-the-art infrastructure and column- free floor plates which allow for 360 degree views. Rounding out the top five largest transactions of Q4 2018, Smith, Gambrell & Russell (SGR) signed a new lease in Midtown Atlanta, relocating from its former office where it had been since 1991. SGR is expected to move in mid-2021 into the new 31-story luxury office tower developed by Selig Enterprises. The 3.6-acre mixed-use site features green space, a rooftop bar, and a pool. SGR is the first tenant to commit to the proposed development, bucking the trend of Midtown Atlanta law firms restacking and renewing in their existing locations.

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TOTAL LEASED SQ. FOOTAGE

Q4 2018

D.C. Metro New York City Boston Dallas/Ft. Worth Houston Philadelphia Atlanta Los Angeles San Francisco Chicago Other Markets

25%

34%

39%

2.2 MSF OF NEW LEASES 1.0 MSF OF RENEWALS

16%

5% 4% 4% 4%3%

2018

D.C. Metro New York City Boston Dallas/Ft. Worth Houston Philadelphia Atlanta Los Angeles San Francisco Chicago Other Markets

12%

39%

7.2 MSF OF NEW LEASES 5.4 MSF OF RENEWALS

21%

6%

5%

5%

4%2%2%

Source: Cushman & Wakefield Research

CUSHMAN & WAKEFIELD | 19

TOP 10 2018 LEASE TRANSACTIONS

Top Leases from Top Ten US Markets

TRANSACTION TYPE

MARKET

LEASED SF CHANGE IN LEASE SF TENANT

1

Latham & Watkins



New York City

Q2

407,000

122,748

New Lease

2 Q4 3 Q3 4 Q4 5 Q4 6 Q1 7 Q2 8 Q1 9 Q2 10 Q1



Washington, D.C.

292,000

-23,080 Williams & Connolly

New Lease



Houston

212,000

-160,587 Vinson & Elkins New Lease

— — — — — —

Washington, D.C.

208,718

Dla Piper

Renewal

Cahill Gordon & Reindel

New York City

201,621

New Lease

Thompson & Knight

Dallas/Ft. Worth

151,958

Renewal



New York City

138,000

9,000

Blank Rome

New Lease

Greenberg Traurig



New York City

132,647

-37,013

New Lease

Mcdermott Will & Emery New Lease



New York City

105,539

-62,331



Boston

105,507

-61,493

Nixon Peabody New Lease

Source: Cushman & Wakefield Research

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TOP 10 Q4 2018 LEASE TRANSACTIONS

Top Leases from Top Ten US Markets

TRANSACTION TYPE

MARKET

LEASED SF

CHANGE IN LEASE SF TENANT

1

Williams & Connolly



Washington, D.C.

292,000

-23,080

New Lease

— — — —

2 Washington, D.C. 3 New York City

208,718

DLA Piper

Renewal

Cahill Gordon & Reindel

201,621

New Lease

4 Atlanta

Smith, Gambrell & Russell



102,320

-16,153

New Lease

5 Washington, D.C. 6 New York City

Winston & Strawn



89,508

-81,283

New Lease

— —

73,485

Moses & Singer

Renewal

7 Houston 8 Boston 9 Boston

Winston & Strawn



62,515

-6,389

New Lease

— — — —

Morrison Mahoney

60,900

Renewal

Suffolk County District Attorney Renewal

59,802

10 New York City

Frankfurt Kurnit Klein and Selz



57,224

15,727

New Lease

Source: Cushman & Wakefield Research

CUSHMAN & WAKEFIELD | 21

BRIGHT INSIGHT COMING SOON The 2019 National Legal Sector Benchmark Survey Results Legal sector change is occurring at lightning speed. Change that used happen over a decade now occurs in two to three years – and staying ahead of this rapid rate of change is challenging for law firms of all shapes and sizes. Fee compression, recruiting and retention of talent, technology, client demands, and streamlined services—and the speed at which these are all changing – are just a few of the issues law firms now face on a daily basis.

Lightning travels at 750 mph. Is your firm prepared to keep up?

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For more information, or to receive a copy of the report, please contact: Hannah Diehl (202) 471 3596 hannah.diehl@cushwake.com

LEGAL SECTOR ADVISORY GROUP Cushman & Wakefield’s Legal Sector Advisory Group consists of over 350 advisors around the globe that specialize in strategizing, creating, and implementing real estate solutions that support the business of today’s legal sector. Utilizing the proprietary intelligence captured in our exclusive National Legal Sector Benchmark Survey Bright Insight report each year, balanced with our extensive experience working with local, regional, national, and global law firms, we provide thought leadership on the industry challenges facing the legal sector — and the solutions required to help firms achieve attorney consensus to effect change. CUSHMAN & WAKEFIELD Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.

For more information, contact the LSAG Team: SHERRY CUSHMAN Executive Managing Director & Leader Legal Sector Advisory Group (202) 471-3595 sherry.cushman@cushwake.com

KATIE MICKELSEN Platform Manager Legal Sector Advisory Group (202) 471-3593 katie.mickelsen@cushwake.com HANNAH DIEHL Marketing & BD Manager Legal Sector Advisory Group (202) 471-3596 hannah.diehl@cushwake.com NOEL KANE BD & Marketing Coordinator Legal Sector Advisory Group (202) 471-3598 noel.kane@cushwake.com