2023 Bright Insight: The 2023 National Legal Sector Benchmark Survey Results

2 0 2 3 B R I G H T I N S I G H T

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS

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2 | BRIGHT INSIGHT

CON T E N T S

0 1 INTRODUCTION & KEY FINDINGS 0 2 LEGAL SECTOR REVENUE GROWTH: BACK TO EARTH 0 3 COMPETITIVE LANDSCAPE FOR TALENT 0 4 TALENT, FEE STRUCTURES & IT SECURITY REMAIN TOP BUSINESS PRESSURES

0 5 LEGAL SECTOR OFFICE REAL ESTATE TRENDS 0 6 WORKPLACE CHANGES

0 7 TECHNOLOGY

0 8 DIVERSITY, EQUITY & INCLUSION 0 9 FUTURE TRENDS

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 3

The legal sector is inherently multi-faceted and complex. For as many similarities as there are between firms there, are an equal or greater number of differences present in the resources they have available, the evolution of their technology, their staffing models, and their real estate. While industry change is inevitable, it’s important to consider that some change is driven by natural industry evolution while others are more provisional. Survey results from 2023 indicate that the legal sector has continued to lay the framework needed for evolutionary change as the industry continues its transition into an increasingly digitally-enabled world. Cushman & Wakefield’s Legal Sector Advisory Group (LSAG) is proud to present the firm’s 10th edition of our annual Bright Insight report in partnership with ALM/American lawyer. In this report, we dive into the past, present, and future thoughts, nuances, and practices of law firms. Utilizing our strong reputation as trusted advisors to legal services firms across the country, we have uncovered insider insights of the legal industry from large firms, boutique firms, and those in between, through our Bright Insight Benchmark and Bright Insight Associate Surveys .

4 | BRIGHT INSIGHT

Some of the top-line trends we’ve uncovered and elaborate on within this report, include:

• Law firm revenue growth in 2022, which is moderating, is expected to remain above long-term historical averages following fleetingly high growth seen in 2021. Large firm optimism toward growth is high as surveyed Am Law 100 firms are forecasting double-digit revenue growth in 2023. • Demand for top legal talent is always competitive— 87% of firms surveyed are expecting attorney headcount to grow in 2023 . It’s not just attorneys in demand—two-thirds of firms are looking to increase professional staff headcounts as well. This would contradict the broader economy’s likely path of job losses in the second half of 2023, but certain portions of the legal sector are recession resilient or even counter-cyclical in nature. • Business competition hasn’t changed much; firms are still focused on fee structures and retaining their top talent. Labor costs, however, have declined in importance in 2023 due to strong fee growth seen in 2021. Tightness in legal sector employment is expected to persist despite a potential slowdown in general labor markets and the overall economy.

• While the overall office real estate market has been weak, demand from legal services occupiers has been incredibly strong with legal sector leasing at its highest recorded level in 2022 . On average, firms have been opting for floorplans that favor efficiency, driving down attorney per square foot averages across their portfolios. • Pre-pandemic law firms were likely to look around for precedent on how to structure their office space, but since 2020, everyone has been trying to figure out what works best for their firm. Workplace strategies in many law firms have been shifting; flexibility, balance, pandemic are gaining relative normalcy . Space reduction and cost management remain important factors to many firms but aren’t the end-all-be-all strategy. Firms are improving efficiency as evidence shows that more work can be done with less space than in the past, but workplace layouts and technology must support productivity, collaboration, connectivity, and mentorship. space efficiency, and attorneys/staff that work remotely more than pre

• Technology has been important to most firms for some time but the related tech investment costs have been and are expected to continue increasing. The three technology areas that firms are most interested in are IT security, artificial intelligence, and knowledge management . • Diversity, equity and inclusion (DEI) in the legal sector, which has improved, still has ample opportunity to increase its efforts. Global 100 and Am Law 200 firms appear to be more DEI conscious than smaller firms and 78% of firms surveyed this year have mandates in place to further improve diversity within the next five years. • Overall, the legal industry’s continued evolution is going to be varied but commonly driven by business model shifts, the expectations of attorney talent, developments in technology, and client demands. One thing that isn’t expected to change much is partnership structure with 90% of respondents indicating no significant change in that area.

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 5

Firms Outside of Am Law 200 Expect Positive Revenue Growth (5.7%), But at Rate Below 2022

Although the legal sector experienced a significant demand boom in 2021, the trajectory, while remaining positive, has downshifted over the past five quarters. To this end, revenue has moderated, increasing a “modest” 4.1% in the first nine months of 2022. 1 Among Am Law 100 firms, gross revenue for 2022 was up 2.7%, but average revenue per lawyer (-1.9%) and average profits per equity partner (-3.7%) were both down year-over-year (YoY). 2 Revenue at nearly 60% of the Am Law 100 firms declined YoY in 2022. 3 Declining demand for legal services in the second half of 2022 was largely due to a fall off in transactional work. 4 In addition, rising interest rates and expectations of a slowing economy reduced mergers and acquisitions, as well as corporate finance and real estate legal sector activity. Compared to the legal sector average, respondents to the 2023 Bright Insight Benchmark Survey reported better revenue

growth for full-year 2022, which may be due to the fact that survey respondents are more likely to be larger and more prestigious firms. While the average revenue change in 2022 was +8.7%, Am Law 100 firms fared significantly better at +11.6% . The rich have been getting richer as larger firms have been better equipped to grow revenue both organically and through acquisition. Mergers and acquisitions were elevated in Q1 2023 compared to a year ago and skew towards larger firms, 5 and this will continue to drive revenue growth for them. Firms with over 500 attorneys are forecasting that revenue growth in 2023 will be higher than it was in 2022. And smaller firms still expect to see positive revenue growth in 2023, but at a slower rate than last year. Similarly, Global 100 and Am Law 200 firms are expecting stronger results in 2023 than 2022, while the opposite is true for firms outside of the Am Law 200. Concerns related to the economy have impacted employment and there have been several firms that have made public

2022 YoY 2023 YoY

13.0%

11.4%

11.7%

11.6%

8.8%

7.9%

8.7%

6.4%

7.6%

7.2%

5.9%

5.7%

Global 100

Am Law 1 - 50

Am Law 51 - 100

Am Law 200

None of the above

All Firms

Source: Cushman & Wakefield Research

1 2023 Client Advisory law firm report by Citi Private Bank and Hildebrandt Consulting 2 Law.com (via https://abovethelaw.com/2023/04/the-am-law-100-biglaw-gets-bucked-off-at-rough-revenue-rodeo/) 3 According to analysis by Above the Law 4 2023 Report on the State of the Legal Market by Thomson Reuters 5 Fairfax Associates and Thomson Reuters

Revenue has moderated, increasing a “modest” 4.1% in the first nine months of 2022.

6 | BRIGHT INSIGHT

Employment Status of 2022 Law Graduates in the United States as of April 2023

(down 3.0% in 2020) while professional and business services firms more broadly declined by 3.3% in 2020 and total nonfarm employment was down 6.1%. The recovery, while strong by legal sector standards, has also been more muted than other sectors. Even so, total employment is up 18,000 in the past year, most of which is due to attorney headcount growth. Competition for top lawyer talent will not only be fierce among law firms, but will continue to come from corporate legal departments and government agencies; nearly half of 2022 law graduates ended up in jobs outside of law firms.

layoff announcements. Industry-wide law firm employment continued to grow in the first quarter of 2023 but the growth rate was down a third from 2021 peaks. Law office job growth was up 2.6% YoY in 2021 but then receded to 1.8% in 2022, and was 1.7% annualized in Q1 2023. This current growth rate is down but remains three times higher than the historical average dating back to 1990 (0.6% per year). 6 Legal sector employment is typically more stable than other parts of the U.S. economy. Accordingly, losses were lower among law firms during the height of the pandemic

Other (e.g., Solo practitioners, education, etc.) 11%

Public interest 8%

Business & industry 9%

Law firm positions 52%

Clerkships 9%

Government 10%

Source: American Bar Association

Employment Growth, Annualized

Nonfarm Payroll Office of Lawyers

Prof. & Business Srvcs.

• Law firm growth—legal activity, attorney headcount, revenue—exploded in 2021, but growth rates are moderating. That said, the current trajectory remains above long term historical averages. • Larger firms are more optimistic about revenue growth in 2023 than firms outside of the Am Law 200 or with fewer than 100 attorneys. Am Law 100 firms are forecasted to have double-digit revenue growth this year. • Similar to other sectors, job cuts and reduced compensation packages may occur in 2023 until activity—particularly transactional legal services—begins to pick up again. • Cost pressures will be top of mind for law firms, which may impact office real estate decisions. TAKEAWAYS

0% 2% 4% 6% 8%

1.7%

-8% -6% -4% -2%

2017 2018 2019 2020 2021 2022 2023 Q1

Source: U.S. Bureau of Labor Statistics

6 U.S. Bureau of Labor Statistics

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 7

Staff growth rates are expected to be more tepid (3.6% vs. 5.6% for attorneys). A fourth of firms are actually expecting to shrink their staff headcount.

How much do you expect your attorney headcount to change in 2023? Attorney Headcount, Expected Change in 2023 (%)

Looking ahead, law firms involved in the 2023 Bright Insight Benchmark Survey are expecting to increase in size this year. Two thirds of firms are planning on increasing their staff headcount while 87% of firms are expecting attorney headcount to grow in 2023 . The average forecasted increase is larger for attorneys (+5.6%) than staff (+3.6%), which is in line with the ongoing trend of firms becoming more efficient with staffing ratios. A fourth of respondent firms are planning on reducing staff headcounts in 2023; only 10% expect to reduce their total attorney numbers. The largest firms will get even bigger this year. The expected attorney growth rate for firms with over 1,000 attorneys is 6.7%, while smaller firms (those with under 50 attorneys) are forecasting 3.6% increases (on average) in attorney headcount.

6.7%

5.6%

3.6%

How much do you expect your staff headcount to change in 2023? Staff Headcount, Expected Change in 2023 (%)

5.4%

4.2%

3.7%

All firms, 3.6%

Under 50 attorneys

All firms

1,001+ attorneys

Source: Cushman & Wakefield Research

1.8%

1.1%

87% of firms are expecting to increase their attorney headcount, looking to expand, regardless of current size. Growth rates are larger, however, among bigger firms and Global 100 firms.

0.7%

51 to 100

101 to 250

251 to 500

501 to 1,000

1,001+ attorneys

Under 50 attorneys

Source: Cushman & Wakefield Research

8 | BRIGHT INSIGHT

Where are all these new attorneys going to come from? The answer is a variety of places, but still primarily from other firms and straight out of law school. Nine out of ten firms are hiring legal talent from other firms and nearly 80% are hiring right out of law school . The government and corporate legal departments are a source for approximately 20% of firms. The prioritization of these various sources is in line with previous years, although the share of firms looking at in-house counsel has dropped from 30% in 2022 to 21% this year.

Demand for law firm graduates remains strong. In fact, the unemployment share among the nearly 36,000 of 2022 law school graduates is just 5.3%. This is the same unemployment share as the 2021 class had but is down from the 6.4% seen pre pandemic among 2019 law firm graduates. 7 At the same time, the number of law school graduates remains well below the levels seen a decade ago.

• Demand for top legal talent remains high even as the economic climate is expected to be softer in 2023. Some firms may freeze hiring, reduce incoming classes and/or lay off attorneys, but most firms expect to grow—and larger firms are the most bullish on their employment growth trajectory. • Competition for top graduates out of law school is as stiff as ever, with the 2022 graduate unemployment rate (5.3%)—half of its 2013 level. • Ninety percent of firms indicate they will also continue to look to poach individual talent and entire legal practices from other firms. • Hiring may remain more tepid but attracting and retaining the best attorneys will continue to be top priorities for law firms.

TAKEAWAYS

Number of U.S. Law Graduates & Share Unemployed

Law Graduates

Share Unemployed (rhs)

If your firm is currently in a growth mode, where are you hiring the legal talent from?

50,000

12%

89%

78%

40,000

8%

30,000

4%

22% 21%

5%

20,000

0%

Other

From other law firms

Right out of law schools

From the government

In-house counsel from corporate positions

2017

2021

2015

2013

2018

2016

2019

2014

2022

2020

Source: American Bar Association

7 American Bar Association; Statista

Source: Cushman & Wakefield Research

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 9

The last three years have been ones of significant upheaval in the legal sector, as they have been for most industries. However, in some ways, the more things change, the more they stay the same. The stated business competition challenges for law firms have remained consistent for years. There are nuances, of course, but it comes back to two main issues: pressure on the business model (i.e., fee structures) and retention of top talent. In 2019, the most commonly cited issues related to business competition were recruitment and retention of talent, competitive fee structures, IT security, and the high costs of labor overhead. The top two drivers were identical in 2022 and IT security was in the top five. Labor costs, however, declined in importance, likely due to the fact that fee growth had been so strong in 2021 and labor challenges were less about immediate cost and more about finding enough good talent and managing it in an increasingly remote or hybrid environment. Accordingly, the impact of COVID-19 was the number three most commonly cited business

competition challenge and succession planning jumped up to number four. The latter was likely driven by the increase in retirements that occurred in the wake of the pandemic. The legal sector is also an older than typical industry, with a significantly larger share of workers nearing retirement. In the U.S., 24% of workers overall are 55+ years old, but within the legal sector, nearly one-third (31%) of employees are 55 or older.

Succession planning and attorney retirement remains near the top of the list in 2023, only falling behind the historical business challenge mainstays of talent recruitment and retention, competitive fee structures, and IT security . The competition for talent, as previously noted, has grown intense as nearly 90% of firms indicated they are looking to poach lawyers from other firms. Even if the economy and labor market slow down in 2023, legal sector employment will remain tight both because of the competition for talent and the fact there is a large number of partners nearing retirement.

What are the greatest issues related to business competition that your firm is currently experiencing?

Competitive fee structures Recruitment and retention

44%

42%

Attorney retirement Succession planning IT security

39%

32%

21%

Other Cash flow Non-labor overhead too high Conflicts Real estate issue Gaining internal consensus Capital costs Globalization Labor overhead too high

20%

15%

13%

12%

10%

8% 8% 8%

3%

Source: Cushman & Wakefield Research

10 | BRIGHT INSIGHT

Nearly 90% of firms indicated they are looking to poach lawyers from other firms.

Overall, the strategies for firm growth in the current economic environment are similar to previous years, with most firms focused on more organic growth through building their business from within (56%) and recruiting laterals to strengthen existing practice areas (55%). Headcount and geographic expansion is also a common strategy cited by nearly half of all firms. Larger firms are more focused on expanding into new legal practice areas —the fourth most common cited strategy across all firms, but #1 among Global 100 and Am Law 100 firms. In fact, half of all larger firms are looking at this type of practice area growth as a way to increase profitability. Large firms are also more likely to see attorney or staff downsizing as a strategy for increasing profits, but it is still only in sight for one fourth of them. Regardless of size, downsizing is more commonly cited in 2023 than it was last year, which points to the economic challenges firms are facing as fee revenue growth has slowed since mid-2022.

Over the next 12 months, which of the following strategies is your firm considering in order to maintain or increase profits?

All Firms Global 100 / Am Law 100

60%

56%

55%

49%

47%

47%

45%

41%

40%

33%

23%

20%

17%

5%

2%

0%

Remain stable and build business from within (increase business from existing clients)

Recruit more laterals to strengthen existing practice areas

Facilitate growth through expansion (by increasing headcount and/or adding locations)

Add new legal practices

Downsize through careful attorney/staff evaluation

Other

Source: Cushman & Wakefield Research

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 11

The greatest source of business competition continues to be large firms with national or international coverage. Similar to last year, approximately half of all respondents see these large firms as their greatest competition. Of course, Global 100 and Am Law 100 firms compete more regularly with other large firms. Boutique firms continue to be a competitor on the margins, with 9% of all firms and 6% of Global 100/Am Law 100 firms citing them as business competitors. Boutique firms are often able to carve out niches and gain market share with specific areas of expertise, but larger firms’ ability to be a one-stop shop with broad practice area and geographic coverage have allowed them to grow more quickly and will be a continued competitive advantage. 04 TA L E N T, F E E S T R U C T U R E S & I T S E C U R I T Y R E MA I N TO P B U S I N E S S P R E S S U R E S • The most prevalent business challenges for the legal sector continue to be related to talent, fee structures, and IT security. • Attracting and retaining talent is a top priority even if the second half of 2023 is a slightly softer employment environment. The legal sector continues to have a large retirement and succession challenge given that nearly a third of legal sector employees are 55+ years old. 8 • Most firms are looking to organic growth to increase profitability in 2023. This includes strategies to increase business with existing clients and to bulk up existing practice areas through recruitment of laterals. • Large firms plan to be more aggressive with service line expansion, however. Nearly half of all Global 100 and Am Law 100 firms are expecting to improve profitability by adding new legal practices. TAKEAWAYS

Approximately half of all respondents see these large firms as their greatest competition.

8 Bureau of Labor Statistics

12 | BRIGHT INSIGHT

The overall office space market has been weak since the middle of 2022. Across the 90 U.S. markets tracked by Cushman & Wakefield Research, overall absorption was -59 million square feet (msf) for the three quarters ending in Q1 2023. Overall leasing is also down 16% YoY on a four-quarter rolling basis. That said, legal sector leasing activity has been quite strong. As noted in the recent Cushman & Wakefield 2023 Legal Sector Trends report , 2022 law firm leasing hit nearly 15 msf and was higher than the pre-pandemic high in 2019. Activity remained strong in Q1 2023 with over 3.6 msf of total law firm leasing. This data is supported by commentary directly from law firm leaders, of whom 69% indicate they have lease transactions—either renewing, extending an existing lease or moving intra market—in 2022. Leasing activity was even more common among larger firms, with 84% of Global 100/Am Law 100 firms having completed an office lease transaction last year .

Many law firms have taken advantage of the current environment and flurry of legal sector leasing activity to upgrade their space—often moving into brand new buildings—and downsizing the amount of space per attorney. The increase in remote work has certainly accelerated this trend, but downsizing had been going on well before the pandemic initiated the increase in attorneys and staff working from home. For example, 2019 Bright Insight Benchmark Survey respondents had indicated a 9% YoY decrease in average square-footage-per attorney ratios. Over the past year and a half, law firms have reduced those ratios to a greater degree, decreasing overall square footage by 13% on average. The declines in space-per-attorney have been even larger in high-cost gateway markets and for the largest firms . 9 Am Law 50 firms have recently reduced their average square footage by 20% nationally and by 25% in the six U.S. gateway markets. 10 Still, larger firms do spend a larger portion of revenue on real estate spend due to the size of their portfolios,

their presence in high-cost markets around the U.S. and the globe, and the relatively high quality of office space even by legal sector standards. The average law firm spent 10.5% of 2022 gross annual revenue on real estate. Firms with fewer than 100 attorneys spent considerably less than that while firms with 251+ attorneys averaged 11.5% of gross revenue. What percentage of your firm’s gross annual revenue was spent on real estate last year?

11.4% 11.7% 11.8%

All Firms, 10.5%

10.5%

8.2%

6.1%

Under 50 attorneys

51 to 100

101 to 250

251 to 500

501 to 1,000

1,001+ attorneys

Source: Cushman & Wakefield Research

9 Some of the strategies law firms are exploring to accommodate more efficient space allocations are explored in the Workplace Changes section of the report. 10 Gateway markets include Boston, Chicago, Los Angeles, New York, San Francisco and Washington, DC.

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 13

05 L E G A L S E C TO R O F F I C E R E A L E S TAT E T R E N D S

Recently, Cushman & Wakefield has typically seen law firm clients looking to be in the 500-600 sf per attorney range, but each situation is unique. It is impossible to pin down an exact benchmark as there are a variety of factors that determine an appropriate ratio. A firm, law practice or specific office may have different needs that impact attorney-to-staff ratios, client centric space needs, and square footage per attorney. Individual buildings’ floorplate depths may limit how much efficiency a firm can enact and market fundamentals (e.g., rents, availabilities of desirable space, etc.) will influence workplace strategy. Law firms responding to the 2023 Bright Insight Benchmark Survey are currently allocating an average of 500 sf per attorney. A fifth of law firms indicate they have a ratio below 400 sf and 13% are above 700 sf per attorney in 2023. These numbers are not representative of the broader legal sector as 2023 Bright Insight Benchmark Survey respondents tend to be larger firms that have become more efficient with space allocation at a faster pace than the industry as a whole. That said, the trend towards

more efficient space is occurring across firms of all sizes and geographies. The target square-footage-per-attorney ratio for 2028 (i.e., five years from now) is 472 sf, which would represent a 5.7% decrease . Only 6% of firms expect to have over 700 sf of office space allocated per attorney in five years. The larger firms— those in the Global 100 or Am Law 100— have slightly more dense layouts, currently averaging 474 sf per attorney, and the five year target is an average of 461 sf. Interestingly, law firms are indicating they are likely to be in slight growth mode with their office portfolios in 2023 and 2024. About a third of respondents indicated their firm will decrease the size of their office real estate portfolio, 28% are planning on no change, and the remaining 42% are forecasting some sort of increase over the next two years. Of those expecting to increase portfolio size, the majority are planning on a moderate increase of 10% or less. On the other end of the spectrum, nearly one in ten firms is expecting to reduce their office footprint by 21% or more.

Firms expecting to increase overall portfolio size are not moving to less efficient layouts but are likely shifting space requirements and jobs to faster-growing, secondary markets and increasing footprints to accommodate attorney and staff growth. Even in those cases, the square footage per attorney ratio is going to be shrinking as firms grow more efficient with space and lean into hybrid work models for staff and attorneys. Over the next two years, do you expect your firm to increase or reduce the size of its office real estate portfolio?

28%

28%

13%

13%

8%

6%

3%

1% 0%

No change

31%+ increase

31%+ decrease

0-10% increase

11-20% increase

0-10% decrease

11-20% decrease

21-30%+ increase

21-30%+ decrease

Source: Cushman & Wakefield Research

Recently, Cushman & Wakefield has typically seen law firm clients looking to be in the 500-600 sf per attorney range, but each situation is unique.

14 | BRIGHT INSIGHT

Nearly 90% of Global 100 firms extended leases with a new term shorter than five years in 2022.

Law firm leases were considerably shorter early in the pandemic, dropping from roughly six and a half years in 2018 and 2019 down to five years in the four quarters ending in Q1 2021. In 2022, lease lengths returned to the pre-pandemic range, hitting seven years in the middle of 2022. New leases tend to be longer than renewals, typically averaging six more months in length. In 2022, new leases were nine

months longer on average. 2023 Bright Insight Benchmark Survey respondents indicate that larger firms are leaning into flexibility right now to a greater degree. Nearly 90% of Global 100 firms extended leases with a new term shorter than five years in 2022 as compared to 56% of all law firms. A fourth of all firms extended leases for over 10 years in term length.

What was the lease term your firm committed to when you extended your lease?

Two years or shorter

Three to five years

Six to nine years

10+ years

100%

11%

25%

25%

25%

38%

38%

80%

17%

19%

19%

60%

21%

84%

31%

40%

44%

52%

58%

38%

20%

31%

13%

0%

5%

4%

4%

0%

Global 100 Am Law 1 - 50 Am Law 51 - 100

Am Law 200 None of the above

All Firms

Source: Cushman & Wakefield Research

15

05 L E G A L S E C TO R O F F I C E R E A L E S TAT E T R E N D S

• Optimized floor plans that favor efficiency are of particular interest to law firms with the 500-600 sf per attorney average expected to decrease going forward . There are a number of factors that go into the decision-making process around how much space individual law firms end up taking in any given office. A particular law practice’s needs may dictate different attorney-to-staff ratios, client-centric space needs, technology implementations, and storage needs. Individual buildings’ floorplate depths will impact how space should be laid out and potentially put caps on efficiencies to be gained. Space availabilities in a given market—and the relative costs of space—can impact target densities. Firms looking to expand their real estate portfolio are broadly exploring secondary markets to do so.

• Despite widespread weakness in the office market, legal sector leasing activity in 2022 reached its highest level since 2016 which has carried forward to a very strong first quarter in 2023. Eight-four percent of Global 100/Am Law 200 firms transacted in 2022, opting to renew their lease, extend existing terms, or move within the market. • Given their presence in many high cost markets and the size of their real estate portfolios, larger firms show a tendency to spend a larger percentage of their revenue on real estate. The average spend on real estate as a portion of revenue across all firms is 10.5% ; firms larger than 1,000 attorneys had the highest average spend at 11.8%.

• Firm strategy and policy will greatly impact space layouts, so it is important for companies to answer critical questions before beginning the space search process : • What type of work culture is the office attempting to create? • What are the expectations for in-office attendance for partners, associates and staff? • Will staff be pooled within individual offices or even officed separately in lower-cost submarkets or markets? • Relative normalcy regarding lease terms in the legal sector has returned after a short-lived shock from the pandemic. Prior to pandemic onset, term lengths averaged about six and a half years and dropped to five years during the first year of the pandemic before returning to seven years in 2022. • Should there be space built to regularly host (and ostensibly impress) clients?

TAKEAWAYS

16 | BRIGHT INSIGHT

Many of the trends that are at the forefront of firms’ minds were already gaining steam in the years prior to the pandemic— movement towards digital document management, use of virtual meetings internally and with clients, the need for heightened IT security, increased focus on attorney and staff health and wellness, and even flexible work arrangements— but the speed of legal sector workplace transformation related to these shifts has accelerated since the beginning of 2020.

The work-from-home “experiment” of 2020 has created an opportunity for occupiers across all industries to rethink the nature of work and to make changes to office layouts, footprints, and portfolios. Law firms, in particular, are overwhelmingly anticipating making changes to their office workplace . Only 10% plan to keep their pre-COVID workplace while 16% expect to make drastic changes. The remaining 75% believe their firm will make incremental changes to their workplace in the coming years.

Due to COVID-19 and legal sector shifts, does your firm anticipate your office workplace to change in the coming years?

Yes, and we plan to make drastic changes No, we plan to keep our pre-COVID-19 workplace

Yes, but we plan to make incremental changes

100%

4%

3%

9%

10%

12%

Most firms (74%) are making incremental changes to their workplace. Only 10% plan to keep their pre-COVID workplace while 16% expect to make drastic changes.

24%

80%

58%

60%

68%

87%

74%

83%

68%

40%

20%

38%

21%

16%

10%

9%

8%

0%

Global 100 Am Law 1 - 50 Am Law 51 - 100 Am Law 200 None of the above

Grand Total

Source: Cushman & Wakefield Research

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 17

06 WO R K P L AC E C H A N G E S

The size of the firm does impact these expectations. A fourth of firms outside of the Am Law 200 believe that the workplace will end up consistent with their pre pandemic model. These firms are twice as likely as Am Law 100 firms and six times more likely than Global 100 firms to anticipate that changes won’t occur to the workplace. Among Global 100 firms, 38% are planning to make drastic changes— more than twice the rate of other law firms . This willingness to explore more dramatic changes in workplace strategy is in line with larger firms being more flexible with

new associates right now. While first year associates are currently able to work remotely three days or more each week at 23% of law firms, nearly half of Global 100 firms (46%) are allowing that level of flexibility for first years. For most firms, the most common arrangement is for first years to be in the office three days a week and working remotely two days per week, and very few firms are offering either extreme: only 8% don’t allow any remote work currently for first years and less than 6% of firms are allowing first years to work remotely four or five days per week.

How many days a week (on average) are your firm’s first year attorneys working remotely?

All Firms

Global 100 / Am Law 100

58%

60%

52%

40%

23%

17%

20%

18%

8%

3%

2%

8%

8%

0%

1%

4%

0 days remotely 1 day / week remotely

2 days / week remotely

3 days / week remotely

4 days / week remotely

5 days / week remotely

Source: Cushman & Wakefield Research

18 | BRIGHT INSIGHT

In-office work expectations do vary across different roles and seniority levels within a law firm. For example, 17% of firms expect partners to choose to work remotely 4+ days per week and another third see partners working remotely three days per week. Only 4% of firms expect any other

positions (including associates, as well as legal, support and executive staff) to work remotely 4+ days per week. Not surprisingly, younger associates (i.e., first and second years) are expected to be in the office more frequently than partners or more experienced associates.

Due to COVID-19 and legal sector shifts, does your firm anticipate your office workplace to change in the coming years?

0 days remotely 1 day / week remotely 2 days / week remotely 3 days / week remotely

100%

8%

13%

13%

29%

35%

75%

31%

A fourth of firms outside of the Am Law 200 believe that the workplace will end up consistent with their pre-pandemic model.

33%

40%

55%

50%

39%

42%

40%

33%

35%

25%

20%

22%

12%

16%

16%

8%

8%

6%

6%

3%

0%

Partners

Associates – 1st & 2nd years

Associates – 3rd + years

Other legal staff Executive and management level staff

Other support staff

Source: Cushman & Wakefield Research

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 19

06 WO R K P L AC E C H A N G E S

• It is also noteworthy that mentoring has dropped down the importance list for associates , which may be due to the reduction in mentoring and information training that younger associates have experienced with the increase of remote work. Partners, however, still widely champion the importance of mentoring and believe associates hired in the past three years may not know what they are missing. Associates that do come into the office stand to benefit from an additional 40 minutes of mentoring and another 40 minutes of additional training, learning, and professional development, as recent research shows. 12 • Given that most lawyers spend half or more of their time doing focus work, private, dedicated offices are still the norm , but with tweaks in structure. The legal sector continues to leverage private offices to a greater degree than most industries. Attorneys’ offices are still most commonly on the perimeter with

What does this all mean for law firm space and workplace design? We have already discussed how firms are shrinking their square footage per attorney. However, space reduction and cost management are not the only factors in workplace strategy. To gain a deeper understanding of legal occupier workplace strategies we’ve consulted with our internal project & development services team and four third-party design firms serving the legal sector. 11 • Flexibility and balance are extremely important to associates. When asked frequently followed by work/life balance, flexible work schedules, and remote work flexibility. Flexibility and autonomy over when and where to work have grown in importance during the pandemic. Having a private office, a traditional status symbol for attorneys, came in last of the ten importance factors measured in the Bright Insight Associate Survey . to rate the most important factors, associates cite compensation most

17% of firms expect partners to work remotely 4+ days per week and another third see partners working remotely three days per week.

11 Cushman & Wakefield is grateful for insights provided by Gensler, Interior Architects, Perkins + Will, and TPG Architecture. 12 WFH Research as reported by Bloomberg.

20 | BRIGHT INSIGHT

glass walls to provide natural light to the interior of the office. An extension of pre pandemic trends, the democratization of offices has been continuing with more and more firms choosing to utilize single-sized offices. Even those with different sized offices tend now to only have two—one for partners and one for associates. In recent years, single-sized office layouts have been shrinking from the 200-250 sf range to 125-150 sf. This tightening is partially possible because expectations for storage have lessened meaning effective offices just need ample space for an attorney and comfortable work seating for two visitors. • The law firm office of the future will be a flexible mix of space that allows attorneys to complete focus tasks while also providing options for small team meetings, one-on-one mentoring, and socialization. Hoteling is being explored by a growing number of firms, but dedicated offices remain the norm, especially for firms that want attorneys in

the office three or more days per week. When hoteling is being utilized, it is more frequently for support staff, for attorneys in their first three years or for attorneys who are in the office very infrequently due to remote work and work-related travel. • Non-dedicated administrative staff space is growing more common as firms look to manage costs and maximize efficiency. In some cases, workstations have been replanned as resource centers, which offer flexible space for administrative assistants, paralegals and other project specialists to work closely together. The number of attorneys supported by each support staff member has continued to increase, so these workstations are now moving from specific practice offices to being centrally located in the office. Given the effectiveness of remote work, and the fact that staff may support attorneys in different cities, some firms are moving administrative and support office space to entirely different, lower-cost submarkets.

In recent years, single-sized office layouts have been shrinking from the 200-250 sf range to 125-150 sf.

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 21

06 WO R K P L AC E C H A N G E S

The number of attorneys supported by each support staff member has continued to increase, so these workstations are now often moving from specific practice offices to being centrally located in the office.

• Law firm offices have always included non-workspace usages (e.g., law library) but those are shifting to meet modern needs and in-space amenities are highly sought after . Examples of spaces being considered and implemented include: • Client-centric areas that don’t have any attorney offices and offer hospitality and meeting amenities. Some of these floors are more similar to offerings of a high-end hotel than what you would expect to see in an office building. Elegant lounges, tasteful bars, and large ballrooms are all examples that we’ve seen incorporated in these spaces. • Rooftop outdoor space for occasional client events and for regular use by attorneys and staff to connect during the day or relax after work. In some instances, firms have opted for accordion-style folding doors that turn a rooftop terrace into an extension of the office space while allowing fresh air to circulate on the floor.

• Cafés that resemble a high-end restaurant, placed on the windowline, have become a common desire for firms. They are often stocked with healthy food and snacks, have a well-trained barista, and offer a more casual atmosphere for connecting or meeting with colleagues. • State of the art workplace technology is being integrated into many facets of the office. Examples of workplace technology that’s being installed include: • Upgrades to the video, sound, and lighting of each office to better facilitate virtual meetings. • Sound masking technology that helps maintain confidentiality in universal sized offices. • Media rooms that cater to live network interviews or audiovisual recording and editing. • Digital libraries, file, and exhibit storage. • Virtual mock trial rooms.

22 | BRIGHT INSIGHT

• The pandemic expedited legal sector workplace changes that many law firms were either considering or beginning to implement. Out of all firms surveyed this year, only 10% plan to keep their pre-COVID workplace unchanged with resistance to any change more prevalent among firms outside the Global 100/Am Law 200. • Remote work is a hot topic in workplaces across all industries including the legal sector but in office expectations vary across different roles and seniority levels within law firms. Half of attorneys that have made partner expect to work remotely at least three days a week but think associates and legal staff should be in the office three or more days per week. • Mentorship is important in all business, but it is paramount in the legal sector’s apprenticeship model. There are concerns among some firms that this learning and development model has not worked as well since

the beginning of the pandemic and that too little in-office interaction could lead to young associates falling behind. They may be capable of the job they are doing today, but not be getting the level of mentorship and informal training needed to do what is expected of them as senior associates or junior partners. Workplace strategy and in-office policies will have a large impact on the future of associates and law firms. • Aside from space reduction and cost management, law firms are adapting their workplace strategies to meet the wants of the new generation of associates. Associates surveyed placed immense value on flexibility and balance and are not as concerned about a private office as generations past. Additionally, it is growing common in modern law firm layouts to not place offices in corner locations but rather to utilize that as communal space (i.e., meeting rooms, informal seating, café / lunch areas, etc.).

TAKEAWAYS

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 23

Technology has had a growing presence in how law firms operate, how they compete, and how they think about their office real estate. Even prior to the pandemic, increased technology costs were a top five real estate design decision for law firms 13 and this priority has only grown in importance. Since 2020, there has been an emphasis on communication and IT security technology that has allowed attorneys to work remotely at a much higher degree than in the past. Prior to that, law firms

were implementing practice management software, document management systems and electronic discovery technology. Artificial intelligence is the latest in this ongoing trend. Firms indicate they spent an average of 5.3% of 2022 gross annual revenue on technology. The expectation is for this to grow to 6.8% next year.

Investment in technology is a commonality amongst firms of all sizes with varying degrees of investment as a percentage of gross annual revenue across groups. Firms listed on either the Global 100 or Am Law 200 were more likely to invest a higher percentage of their revenue in technology than firms that aren’t present on those lists. Interestingly, firms lower on the Am Law 200 list in 2022 were more likely to invest a higher percentage of their revenue than firms that ranked higher on the list. Am Law 50 firms saw technology spend average 5.5% of gross annual revenue in 2022; firms ranked 51-100 were slightly more aggressive in their technology investment at 5.9%. However, the Am Law 200 firm average was 6.0%, meaning firms ranked 101-200 invested a higher percentage of revenue than Am Law 100 firms. Firms lower on the Am Law 200 list in 2022 were more likely to invest a higher percentage of their revenue than firms that ranked higher on the list.

Technology Spend as a Percentage of Gross Annual Revenue (2022 vs. 2024)

2022 Technology Spend as % of Revenue

2024 Technology Spend as % of Revenue

10%

8.0%

7.7%

8%

7.3%

6.8%

6.6%

6.0%

5.9%

5.5%

6%

5.3%

5.3%

5.2%

4.2%

4%

2%

0%

All Firms

Global 100 Am Law 1 - 50

Am Law 51 - 100

Am Law 200 None of the above

Source: Cushman & Wakefield Research

13 Cushman & Wakefield 2019 Legal Sector Bright Insight report

24 | BRIGHT INSIGHT

Investment in technology is projected to increase 150 basis points (bps) in 2024 on average. Am Law 50 firms stand to increase their investment in technology the most, increasing technology spend as a percentage of gross annual revenue by 250 bps to 8.0% in 2024.

Segmenting firms by attorney headcount reveals that firms with headcounts from 101-500 are the most aggressive in their investment in technology at 6.1% and 6.9% of gross annual revenue in 2022, respectively. In 2024, firms with 101 250 attorneys expect to increase their investment to 8.3% of gross annual revenue while firms with 251-500 attorneys expect to invest 8.4%. Smaller firms, with 100 or fewer attorneys, spent the smallest percentage of their gross annual revenue on technology in 2022 and expect to do the same in 2024 .

Law firms overwhelmingly value investment in IT security the most with 82% of respondents planning to invest in the area which is up from 75% in 2022. Interest in AI investment has grown considerably with 53% of firms anticipating greater spend on the technology in the future; in 2021, only 23% were planning on upping investments in the space. In fact, desire to invest in major technology areas increased YoY for every category listed except communication/ collaboration tools and network/remote working capabilities. 14

Technology Spend as Share of Revenue Expected to Increase Regardless of Firm Size

2022 2024

8.3% 8.4%

Anticipated Areas of Greater Technology Spend in Future Years

IT security

82%

6.7%

6.5%

6.5%

6.9%

Artificial intelligence

53%

5.6%

6.1%

Knowledge management

50%

5.3%

Network/remote working capabilities

47%

5.0%

4.8%

IT staffing

38%

4.0%

Communication/collaboration tools

33%

Robotic work process automation

19%

Under 50 attorneys

51 to 100

101 to 250

251 to 500

501 to 1,000

1,001+ attorneys

Other

2%

Source: Cushman & Wakefield Research

Source: Cushman & Wakefield Research

14 Cushman & Wakefield 2022 Legal Sector Bright Insight report

THE 2023 NATIONAL LEGAL SECTOR BENCHMARK SURVEY RESULTS | 25