Lawyers make their case for office space

New York /
Nov.November 15, 2007 03:45 PM

Make all the lawyer jokes you want — the legal industry has given Manhattan’s office market a powerful, if quiet, boost over the past few years.

And it’s expected to prop up the commercial sector going forward, even as financial services companies, which recently have been the lifeblood of New York’s office market, take a more tentative approach to expansion because of the credit crunch, commercial brokers said.

“We continue to see that law firms want quality space to accommodate their expanding New York presence,” said Lisa Kiell, a managing director with Jones Lang LaSalle, the commercial real estate services firm.

“I guess the interesting piece will be to see if they have bitten off more than they can chew,” Kiell said.

In the last year, law firms have accounted for 11 to 15 percent of Manhattan office-leasing activity, second only to financial-services companies, which are involved in 25 to 35 percent of all deals, according to data from different brokerages.

Specifically, between October 2006 and 2007, there were 44 deals for space measuring 10,000 square feet and above, resulting in a total of 3.38 million square feet of space, according to data from Studley, the commercial brokerage.

The current level of leasing activity represents a spike over a decade ago, Kiell said. And while the current mortgage crisis has roiled hedge funds and investment banks, law firms have been relatively well-off, as their business tends to be more diversified. Going forward, landlords could see a continued rush on their buildings, she said.

Indeed, to deal with the newfound demand, Jones Lang two years ago created a “national law firm committee,” of which Kiell is a member, to better serve this client base.

Whether a renewal, relocation or expansion, the current crop of deals is significant because it may represent a boon to what is looking to be an increasingly uncertain office market.

Davis Polk & Wardwell, one of the city’s top white-shoe firms, for example, recently renewed its lease at 450 Lexington Avenue at East 45th Street for 650,000 square feet, a massive chunk of space. At One Worldwide Plaza, at Eighth Avenue and 50th Street, Cravath, Swaine & Moore also signed a big renewal, for 600,000 square feet in a 15-year deal, at around $100 a square foot, up dramatically from the $39 a square foot under its current lease.

The new New York Times building has also seen at least four law firm leases, including most recently a 216,000 square foot deal with Goodwin Procter.

Others firms are establishing a beachhead where a few years ago, none existed. This year, the Newark-based Sills Cummis & Gross, for example, took 32,000 square feet at One Rockefeller Plaza, twice the size of its old office at 30 Rockefeller Plaza, and 10 times that of its first one in 2000.

As its practices are increasingly in Manhattan, it views New York as “being a critical component of our present life and future,” said Mark Levenson, a Sills Cummis partner.

These firms aren’t deterred by Midtown’s historically steep office rents. Like Cravath, they are shelling out between $85 and $100 or more per square foot to stay there, brokers said.

Prices cause some to flee

But those prices do give some attorneys sticker shock, and a number have packed their bags for the Financial District, where they can get the 25,000-square-foot floor plates firms crave as well as ample public transportation.

Indeed, since 2005, 23 firms have taken 495,000 square feet south of Chambers Street, according to data provided by the Alliance for Downtown New York, the business-improvement district.

The largest deal in that neighborhood during that time period closed this year, as Fragomen, Del Rey, Bernsen & Loewy traded its office in Midtown, at 515 Madison Avenue, at East 53rd Street, for a 104,000-square-foot office at 7 Hanover Square.

The second-largest deal, meanwhile, was completed in 2006, as Darby and Darby leased 81,700 square feet at 7 World Trade Center after moving Downtown from 805 Third Avenue in Midtown.

In the Financial District, firms pay $50 a square foot, or $75 for newer construction, said Richard Kennedy, a senior director with Cushman & Wakefield, the commercial real-estate services firm.

“Rents go directly to the bottom line of many of the partners,” Kennedy said, “and Downtown represents an enormous savings.”

The Downtown migration has helped revitalize a once-sluggish office market, where the vacancy rate was 14 percent in 2002, and has dipped to about 5 percent today, said Kennedy, who focuses on Downtown.

Time is ripe to reconfigure

For many of these firms, a relocation or renewal is a ripe opportunity to reconfigure floor plans, according to brokers and builders, who add that firms are redesigning their offices in unprecedented fashion.

Law libraries, now mostly digital, are being reduced in size by two-thirds, from an average of 3,000 to 1,000 square feet, to make way for human resources offices, said Michael Gallin, principal of John Gallin & Son, a commercial construction company. Fifteen percent of his clients are now law firms, versus 5 percent five years ago, Gallin said.

Firms are also adding supplemental air-conditioning systems that kick in after dark, when the building’s systems turn off, since non-lease-specified off-hours air can cost an extra $100,000 a year.

Though installing supplemental units to circulate cooled air just in the firm’s office can be pricey, Gallin said, it can realize near-term savings. Indeed, the 12 supplemental units he’s now putting in for $350,000 at a firm located at West 46th Street and Sixth Avenue, in a one-and-a-half floor, 17,000-square-foot space, will pay for themselves in four years’ time, he said.

In a push to make their existing employees more comfortable, and to more easily recruit new ones, firms are also adding espresso areas, purchasing comfortable ergonomic chairs, and using paint low in volatile organic compounds, or VOCs, for better air quality.

“Lawyers are spending 12 to 14 hours a day in the space and don’t want to go home every day with pounding headaches,” Gallin said.

Some old design habits die hard, however, like office sizes based on seniority.

With one notable exception — Seyfarth Shaw recently created offices with equal dimensions, though not in New York — firms still generally assign 15- by 15-foot offices to partners and 10- by 15-foot offices to associates, brokers said.

Still, there is a push among firms to give all employees the same style of furniture
(sorry, no handmade roll-top desks) so the sense of hierarchy is minimized, which can have psychological advantages.

“It takes the ego out of things,” Kiell said.

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