03.19 Legal Briefs - LSAG Newsletter

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.

18 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE