2023 Legal Sector Leasing Trends (May 2023)

2 0 2 3 L E G A L S E C TO R L E A S I N G T R E N D S

MAY 2023

LEGAL TENANT DEMAND RECOVERED

KEY TAKEAWAYS

› Law firm leasing activity slowed down in 2020 and 2021. However, legal sector employment has grown over the past three years, and firms have been increasing their office utilization. Accordingly, legal sector leasing activity rebounded and reached its highest level in 2022. › Non-major markets comprised 49% of legal sector leasing activity in 2022, their first year pacing the top 10 major markets. Firms are not moving out of major markets but have been aggressively expanding in secondary and tertiary markets. › Law firm leasing in 2023 Q1 was particularly strong with leasing volume higher than any previously recorded 1 st quarter.

Non-major markets a key driver as firms expand operations in smaller, lower-cost cities

Legal Leasing: All Markets

Legal Leasing: 10 Major Markets

16,000

16,000

14,692

14,249

13,064

12,000

12,000

12,360

10,908

10,892

8,000

8,000

8,756

8,558

7,587

7,072

6,967

6,625

2,226

4,000 Square Feet (Thousands)

4,000 Square Feet (Thousands)

3,630

0

0

2017 2018 2019 2020 2021 2022 2023 Q1

2017 2018 2019 2020 2021 2022 2023 Q1

*Major law firm markets include Atlanta, Boston, Chicago, Dallas/Ft. Worth, Houston, Los Angeles, New York, Philadelphia, San Francisco, Washington, D.C. Non-major markets encompass all other markets tracked by Cushman & Wakefield Research **2023 Q1 Figures are preliminary

Cushman & Wakefield | Legal Sector Advisory Group

2

NEW LEASES OUTPACE RENEWALS After bump in renewal activity in 2020 and 2021, law firms return to long-term norms— majority establish a new office or relocate in the same market

KEY TAKEAWAYS

› In the immediate aftermath of the pandemic, law firms were more likely to renew leases—55% of 2020 law firm leasing activity was renewals. › Since then, leasing activity has returned to long-term norms. In 2022, 63% of square footage leased in major markets was part of new leases. In non-major markets the figure was 58%. › New leases dominated in New York City (90%), Chicago (71%) and Boston (69%), while renewals were more common in Philadelphia (56%), Atlanta (53%) and Houston (56%).

New leases account for 63% of 2022 major-market legal leasing

1600

New Lease

Renewal

10%

1200

56%

42%

800

90%

46%

36% 29%

400 Square Feet (Thousands)

53% 34%

44% 58%

31%

54% 64% 71%

44% 56%

47% 66% 69%

0

Source: Cushman & Wakefield Research

Cushman & Wakefield | Legal Sector Advisory Group

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Legal sector leasing activity – Since Q1 2022 TOP 10 LARGEST LEASES

Leased SF

Transaction Type

Rank Market

Change in Lease SF Tenant

Quarter

1.

-

Chicago

247,000

-

Unk. Katten Muchin Rosenman LLP

Renewal

Q1 2023

2.

New York City

225,301 Decrease

-115,807 -34% Cadwalader, Wickersham & Taft LLP Renewal

Q1 2023

3.

Nashville

195,000 No Change

0

0% Bass, Berry, & Sims

New Lease

Q2 2022

4.

New York City

179,724 Increase

72,724 68% Freshfields Bruckhaus Deringer LLP New Lease

Q3 2022

5.

Houston

172,301 Decrease

-16,587 -9% Baker Botts

Renewal

Q2 2022

6.

Denver

167,632 No Change

0

0% Holland & Hart

Renewal

Q3 2022

7.

New York City

144,903 Decrease

-239,979 -62% Clifford Chance

New Lease

Q2 2022

8.

New York City

144,221 Decrease

-41,545 -22% O'Melveny & Myers

New Lease

Q3 2022

9.

New York City

130,296 Increase

15,908 14% Holland & Knight

New Lease

Q2 2022

10.

Austin

129,987 Increase

129,987 100% Kirkland & Ellis

New Lease

Q4 2022

Cushman & Wakefield | Legal Sector Advisory Group

4

Tenants looked away from most Gateway markets following Sun Belt population growth SUN BELT MARKETS I NCREAS I NG SHARE OF LEAS I NG ACT I V I TY

KEY TAKEAWAYS

› The share of leasing occurring in Sun Belt markets increased in 2022. Houston saw its share of leasing rise from 4% to 9%, while Dallas/Ft. Worth rose from a 2% share to 5%. › With 7.4 msf of leasing activity in 2022, the share of leasing occurring outside of the top 10 legal markets increased from 39% to 49%. › However, Gateway markets still make up a significant portion of leasing activity, with nearly a fourth of legal leasing occurring in just three cities: New York, Washington, D.C. and Los Angeles.

Q1-Q4 2022: 14.7 MSF

Q1-Q4 2021: 10.9 MSF

4% 0%

4% 2%

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

39%

49%

4%

13%

7%

5%

5.7 MSF OF NEW LEASES 5.2 MSF OF RENEWALS

8.9 MSF OF NEW LEASES 5.8 MSF OF RENEWALS

10%

9%

2% 4%

5%

7%

3%

10%

2%

16%

3% 2%

*Due to rounding, new leases plus renewals may not equal total square footage number.

Source: Cushman & Wakefield Research

Cushman & Wakefield | Legal Sector Advisory Group

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Larger Am Law Top 50 firms more aggressive in space reduction strategies in 2022 F I RMS LOOK TO REDUCE SQUARE FOOTAGE AND OPT IMI ZE SPACE

KEY TAKEAWAYS

› On average, legal tenants who renewed or moved locations within the same market opted for 13% less space than they previously had. More than one-fifth of legal tenants renewed their leases without increasing or decreasing their space. › Firms with bigger starting footprints were able to reduce their square footage to a greater degree. › Larger firms (i.e., Am Law Top 50) have been more aggressive with their space reduction plans. › Contractions have also been more severe in high-cost Gateway markets.

Change in Lease Size by Geography & Firm Size

Change in Lease Size – All Law Firm Leases Over 10,000 SF

0%

600%

500%

-5%

400%

-10%

300%

-15%

200%

-20%

100%

0%

-25%

U.S. U.S. Am Law Top 50 Gateway Markets Gateway Am Law Top 50

-100%

0 50,000 100,000 150,000 200,000

*Gateway markets include Boston, Chicago, Los Angeles, New York, San Francisco, Washington, D.C.

Cushman & Wakefield | Legal Sector Advisory Group

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ASSOCI ATES VALUE BALANCE & FLEX I BI L I TY

KEY TAKEAWAYS

› Not surprisingly, associates place high value on their compensation. This is consistently number 1 year after year. › Work-life balance has also regularly been near the top. In 2020—just prior to the work-from-home boom—associates rated it third. › Flexibility, however, has grown in importance, moving from sixth to third place over the past three years. › Mentoring has dropped down the list, which may be due to the reduction in mentoring and information training that younger associates have experienced with the increase of remote work.

The importance of flexibility and autonomy over both where and when associates work has grown since the onset of the pandemic

Associates: How important are the following to you personally?

Collegial work environment Remote working flexibility Flexible work schedule Work/life balance Compensation

A private office Business development opportunities Mentoring by a senior attorney Exposure to clients Making partner

1 = Most Important

2 = 2nd Most Important

3 = 3rd Most Important

*This data comes from surveys of hundreds of law firm associates. Analysis of these responses will be included—alongside law firm leadership survey responses—in the 2023 Bright Insight report, to be published in June 2023.

Cushman & Wakefield | Legal Sector Advisory Group

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Insights from Cushman & Wakefield’s Total Workplace Consultants HOW THE LEGAL WORKPLACE I S CHANGI NG

Shifting Space Allocations

Staffing Efficiency/ Shifts and Career Growth Models › Administrative staff workstations have been replaced by resource centers, which offer flexible space for administrative assistants, paralegals and other project specialists. › Secretarial support, as measured by the number of attorneys each supports, has grown from 4-6 to more than eight attorneys per secretary. Roles are being staffed centrally, not necessarily within practice offices. › Decision makers are incorporating employee commute-time analyses in location strategies and offering flexibility with when and where employees work. However, law firms continue to be clustered in the highest rent districts, generally in CBD submarkets.

The Office Dilemma

Digital Transformation › Digital transformation of transactional legal work is a major opportunity. As legal tech is adopted, staffing and mentorship models for associates fresh out of law school may need to shift. › Attorneys are becoming more self-sufficient and their work more digital, reducing the need for administrative staff. › Libraries and file storage rooms have become obsolete and are being replaced by spaces for attorney collaboration.

› Attorney office sizes have reduced to 180 sf or less, with most in the 120-140-sf range. Universal office sizes and desk sharing are on the rise, and firms are targeting lease sizes that average 500-700 sf per attorney. › Smaller and shallower floor plates—20,000-25,000 sf—have become desirable, as support space needs have greatly diminished. › Law firms are taking a holistic approach to health and wellness with sunlit space, sit/stand desks, movement-inducing floor plans and healthier snacks.

› In center-core buildings, linear footage required for attorney offices often dictates a larger floor plate than what firms need for interior space. As a result, interior offices are often used to maximize the use of all square footage. › In line with maximizing space, firms are increasingly adopting hoteling to optimize space usage. Hoteling promotes flexibility by allowing attorneys and staff to

reserve offices, conference rooms, and desks on an as needed basis.

› Firms with too much space and long lease terms face a saturated sublease market should they decide to offload excess square footage.

Cushman & Wakefield | Legal Sector Advisory Group

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2 0 2 3 L E G A L S E C T O R L E A S I N G T R E N D S

C R E AT E D B Y

John McWilliams Senior Research Analyst Global Think Tank john.mcwilliams@cushwake.com David Smith Head of Americas Insights Global Think Tank david.smith4@cushwake.com

Eva Garza Senior Managing Director Total Workplace eva.garza@cushwake.com

Rachel Casanova Senior Managing Director Total Workplace rachel.casanova@cushwake.com