LSAG Legal Briefs - Vol 2

LEGAL BRIEFS VOL. 2 | 2019 Helping Law Firms Prepare for What’s Next

#1 in Tenant Rep 5 Years in a Row!

WHAT’S INSIDE

Introduction 03

Fall 2019 Law Firm Market in Review 04

The Resilient Legal Workplace 08

Bright Insight Snapshot 14

The Future is Now: Succession Planning in Law Firms 22

Women in Law – San Francisco 2019 26

2 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

Introduction I hope you enjoy this edition of Legal Briefs, a newsletter brought to you by Cushman & Wakefield’s Legal Sector Advisory Group. Since our group’s founding in 2012, we have grown to over 450 legal sector experts, specializing in strategizing, creating, and implementing real estate solutions that support the financial, business, and operational drivers of law firms around the world. This edition includes an overview of the law firm market in 2019, including a digest of top leases signed throughout the United States. In addition, we highlight how firms are handling succession planning and overall diversity and inclusion efforts, with a recap of our Women in Law event which took place in San Francisco June 2019. Finally, we are thrilled to feature a guest story brought to us by Gensler which delves into how law firms are adapting their workspaces to the needs of the newer generation of attorneys. We are also excited to launch our proprietary National Legal Sector Benchmark and Associate Survey in January 2020, which is currently in its seventh year. A synopsis of the 2019 report is also included in this edition and we look forward to sharing our results from the 2020 survey in our Bright Insight report, scheduled to be released mid-year 2020.

Enjoy!

Warmest Regards,

Sherry A. Cushman Executive Managing Director Leader, Legal Sector Advisory Group Cushman & Wakefield +1 202 471 3595 sherry.cushman@cushwake.com

CUSHMAN & WAKEFIELD | 3

L easing demand for the U.S. legal sector remained robust through Q3 2019. With 9.49 million square feet (msf) leased year-to-date (YTD), total activity was just above the 2018 figure of 9.48 msf. Across the United States, 5.2 msf of new transactions and 4.3 msf of renewals were recorded. This statistic of law firms relocating at a rate higher than renewing follows the 2018 trend and supports the trend of fleeing to quality and new building product in major markets throughout the country. The legal sector accounted Fall 2019 Law Firm Market in Review BY CHRISTA DILALO, DEREK DANIELS (CUSHMAN & WAKEFIELD)

for 3.4% of all U.S. leasing activity, unchanged from the same period in 2018. The most notable market share was in San Francisco and New York City, where 6.2% and 5.0% of all YTD 2019 leasing was executed by law firms, respectively. With a robust legal sector market and solid profit margins increasing in 2018 and anticipated to close out with profit increases again in 2019, the legal sector has fully recovered from the 2008 market crash as it relates to real estate.

LEGAL SECTOR ACTIVITY

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6

0% 1% 2% 3% 4% 5% 6% 7% 8%

6.2%

5.0% 4.8%

% of All Leasing

4.0% 3.7%

3.7%

2.9% 3.1%

MSF

2.4%

2.3%

Source: Altman Weil; Cushman & Wakefield Research

these major markets was 19,305 square feet, while secondary lease transactions averaged 7,795 square feet. In addition to transactions being larger in square footage, major market leases were also more heavily

The country’s top 10 premier markets accounted for 5.2 msf of the legal sector’s total activity, with New York City’s 1.4 million square feet of leasing leading the way. The average lease transaction size among

4 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

Across the United States, 5.2 msf of new transactions and 4.3 msf of renewals were recorded.

or no columns, state-of-the-art technology, as well as amenity-rich services that the legal sector of today demands. In addition, new construction offers the ability for significantly improved space efficiencies. So, while the face rent of new construction may be 20% to 30% higher, the overall space savings may be 30% to 40% to a law firm, decreasing the per-attorney seat cost.

weighted towards the urban CBD (90% of square footage vs. 56% for other markets). The vast majority of law firms have continued to opt for high-quality space regardless of market, as 87% of all YTD 2019 legal sector deals in the U.S. were signed at Class A assets and in many cases in Trophy Class new construction. Why? Because the new construction provides a law firm with the ideal floorplate size, floor-to-ceiling glass, limited

NEW LEASES VS. RENEWALS

New Leases Renewals

1,000 1,200 1,400 1,600

515

0 200 400 600 800

218

450

177

906

263 SF (Thousands) Source: Cushman & Wakefield Research.

42

269

45

93

180 115

410

389

207

227

202

195

174

58

footage an average of 29%. Current per attorney target ratios have also dropped over the past five years from under 700 square feet per attorney to currently under 600 square feet per attorney.

Per Cushman & Wakefield’s national survey, in 2018, when a law firm renewed its lease, it reduced its overall square footage an average of 19% and when a law firm relocated, it reduced its overall square

CUSHMAN & WAKEFIELD | 5

Renewals accounted for five of the top 10 lease transactions in these markets, including each of the four largest leases of the first three quarters of 2019.

markets—Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C.—as well as in Birmingham (seventh largest) and Atlanta (ninth largest). Renewals accounted for five of the top 10 deals in these markets, including each of the four largest leases of the first three quarters of 2019.

While the largest law firm leases are historically concentrated primarily in the two largest law firm markets in the U.S., New York City and Washington, D.C., the first three quarters of 2019 saw sizeable deal activity across the country, with eight different markets represented among the top 10 transactions. Large leases occurred in all six of the U.S. gateway

TOP 10 LARGEST LEGAL SECTOR LEASES (Q1-Q3 2019)

CHANGE IN LEASE SF

TRANSACTION TYPE

MARKET

LEASED SF

TENANT

QUARTER

1 New York City 218,399 SF No change Akin Gump Strauss Hauer & Feld

Renewal

Q2

2 Boston

165,000 SF -35,000 SF Foley Hoag

Renewal

Q2

3 D.C. Metro

146,994 SF -42,849 SF King & Spalding

Renewal

Q2

4 New York City 144,000 SF No change Hunton Andrews Kurth Renewal

Q1

5 San Francisco 127,672 SF +15,367 SF Cooley

New Lease

Q1

6 Chicago

119,029 SF -17,087 SF Jones Day

New Lease

Q2

7 Birmingham

118,518 SF No change Maynard Cooper & Gale Renewal

Q2

8 Los Angeles

116,366 SF -53,094 SF Manatt, Phelps, & Phillips New Lease

Q2

9 Atlanta

115,896 SF -24,000 SF Jones Day

New Lease

Q2

10 New York City 113,517 SF -58,683 SF Kelley Drye & Warren

New Lease

Q3

Source: Altman Weil; Cushman & Wakefield Research

6 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

Each of the top ten largest leases of the first three quarters of 2019 occupied more than 110,000 square feet, with the largest occupancy topping 218,000 square feet. In two of the largest U.S. transactions, Akin Gump Strauss Hauer & Feld (218,399 sf) and Hunton Andrews Kurth (144,000 sf), each renewed leases in their existing offices located in Midtown Manhattan. In Boston, Foley Hoag extended its lease for 15 years, reconfigured its footprint, and contracted from 200,000+ square feet to 165,000 square feet equal to 82.5% of its overall space leased. The lease renewal included a re-design of the office into a more collaborative space featuring more open space, glass, and light. King & Spalding also downsized its Washington, D.C. office by 22.6%, shedding nearly 43,000 square feet as part of its 146,994-square-foot renewal. The largest new lease rounds out the top five, with Cooley LLP inking a new transaction in the North Financial District of San Francisco for 127,672 square feet. More than 300 employees will move to its new location at Three Embarcadero Center in 2021, where the new space near the top of the building will allow for panoramic views of the city and bay. This is the only large 2019 lease in the U.S. where a tenant expanded its square footage. All other 100,000+ sf transactions so far this year involved either no change of total square footage leased or a decrease in the total square footage leased. In conclusion, the U.S. legal sector real estate market continues to be on fire with law firms relocating more often than renewing as well as a strong shift in the overall workplace and expansion of technology. Continued densification of square footage as well as application of new workplace strategies including expanded remote working and hoteling are being implemented. The anticipated 2025 millennial shift of over 56% of the U.S. prime work force taking over and the desires that the younger generation have today. With law firm leases spanning 10 to 20 years, a much closer evaluation of the millennial impact is being taken into consideration while still balancing the desires of the older generation attorneys.

The U.S. legal sector real estate market continues to be on fire with law firms relocating more often than renewing, as well as a strong shift in the overall workplace

and expansion of technology.

CUSHMAN & WAKEFIELD | 7

The Resilient Legal Workplace Flexibility in Practice Brought to You by Gensler

S eldom is a light shone on the workplace experience of first year and summer associates. Gaining a private office as a first year associate can feel like a milestone, but it can be challenging to connect with new colleagues if working in an enclosed environment, especially coming straight from law school. And if we’re being honest about where summer associates are seated, it isn’t always ideal. These bright, eager, enthusiastic young minds often find themselves in the least savory parts of our spaces: windowless internal offices, the odd cubicle, war room, or otherwise undesignated table. It’s understandable. First year associates are new. They won’t demand a corner office or customized workstation. And a summer associate’s time at a law firm is short-term, learning as much as they can on the job until, hopefully, receiving an offer. But we ignore the workspaces of both groups at our peril. Here’s why. Expectations for what a workplace should provide have changed dramatically in the last 20 years. And yet law is known for conservatism when it comes to office design. The legal industry is generally of a different mindset than BY JOSHUA BARTHEL CONTRIBUTORS: STEVEN J. MARTIN, KATIE MESIA, KATIE COSTA (GENSLER)

Silicon Valley tech companies with their nap pods, on-site bearded baristas, and bean bag chairs. To be clear, this isn’t a bad thing. It’s appropriate. The gravity and precedence-based work of lawyers at major firms who have argued cases before the Supreme Court calls for an entirely different set of cultural expressions than one would expect for computer coders, app designers, bankers, or even federal employees. Law will always carry a different weight than other industries, but there are important commonalities in how workplaces are getting more open, comfortable, and collaborative

that apply no matter your profession. Why Does This Matter for First Year and Summer Associates?

And, for that matter, fresh out of college paralegals considering law school? They are, for lack of a better word, impressionable. They are not yet steeped in the legal industry. They aren’t used to its norms. Their expectations—and perceived employment alternatives—are shaped by what they know about where their friends are

It’s no secret that lawyers are working differently these days. Employees everywhere are.

8 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

Photo Credit: Eric Laignel

working. They have friends in tech. In consulting. In advocacy. And whereas in-house legal work used to be reserved for attorneys with at least five years of litigation experience at a firm, this norm no longer applies for many major corporations. As CVS General Counsel Thomas Moriarty notes, “that trend I do believe is shifting. So it is now very possible to come in as a first year into a large corporate legal department.” So while summer associates have traditionally been likely hires, nothing is guaranteed, and the drain of early career associates going in-house is starting even sooner. What this means is that law firms can no longer take the workplace experiences of their young associates for granted. If the investments made in associate hires is to pay off, firms must regard the spaces in which they work with the same attention as those of partners and other permanent staff. Fried Frank, with the recent renovations to its DC office, provides a bold example of how to make this forward-thinking design happen. Facing space constraints with a large amount of incoming summer associates, Fried Frank set out to create a tight-knit team among the new class. Rather than Rather than breaking them up into whichever workstations and offices were free, they instead created an associate “Neighborhood.”

Photo Credit: © 2019 Gensler

small touchdown

meet

workspace

gaming

private

coffee / tea station

CUSHMAN & WAKEFIELD | 9

as first year associates. They’ll move to private offices after their first year, but for the time being they appreciate the soft transition that The Neighborhood provides in bridging the gap between the collegiality of law school and the more individual nature of a legal career. It’s All Part of a Vision for a Healthier Legal Workforce In August 2018, Lindberg, et. al published an article in The BMJ on the effects of workstation type on physical activity and stress. The results were striking. Workers in open plans exhibited significantly more physical activity and less perceived stress than workers in cubicles and private offices. Surprisingly, the benefits extended to outside of the office too: “Higher physical activity at the office was in turn related to lower physiological stress outside the office as measured by heart rate variability.” It is easy to fall into the habit of hunkering down in our offices all day, but this, combined with the legal industry’s chronically high rates of stress among attorneys in the first 10 years of practice, can be a hazard. Pioneering law firms have a real chance to set themselves apart on this front. Whereas The Law Society notes that “the work lends itself perfectly to flexible working and yet most firms will only make a nod to flexibility,” Fried Frank has chosen to make a courageous investment in its own talent. Contrast this with the running narrative we see regarding open plan offices in the media. The Register says that “Open plan offices flop – you talk less, IM more, if forced to flee to a cubicle: Scratch the surface and most of us are misanthropic recluses.” Back in 2013,

breaking them up into whichever workstations and offices were free, they instead created an associate “Neighborhood.” That’s right—a space designed with early career associates specifically in mind, alongside a plethora of other workplace offerings poised to bolster the firm’s ability to attract and retain talent. The experiment went so well that the space is now a permanent fixture for both summer and first year associates. Twenty individual sit-to-stand workstations form the core of the space. Each is equipped with noise-cancelling headphones, curved monitors, and Bluetooth headsets for individual focus work. And when the time comes for collaboration, the associates can switch to a new work mode seamlessly. Rolling pedestal cabinets double as cushioned impromptu guest seating for group work. The collegial design extends beyond The Neighborhood into the features of the entire office. Glass-front offices increase transparency and access to natural light. The enhanced café has monitors in its comfy booths which can display connected laptop screens for collaborative work or cable television if a team wants to unwind. Speaking of unwinding, full- body massage chairs and an Arcade Legends machine in the café leave no doubt that Fried Frank is serious about curating an enjoyable experience for every single member of its staff. The results have been exciting: the pilot group of formerly disparate summer associates became a friendly, trusting team that, upon receiving offers to return to the firm, were excited to find out that they would be staying in The Neighborhood

Photo Credit: Eric Laignel

10 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

The Guardian proclaimed that “Open-plan offices were devised by Satan in the deepest caverns of hell.” A recent Harvard study that attempted to measure collaboration levels after one company’s renovation asked some serious questions about the relationship between technology, office design, and in-person communication, leading countless media outlets to seize on the story and engage in a veritable arms race of provocative headlines. It is a topic that, because nearly everyone has personal experience with a poorly designed workplace, lends itself particularly well to clickbait. It’s unfortunate, because the “open plans” under consideration in these conversations are misrepresentative. They’re extreme examples: barren, bullpen-like spaces that make no attempt at the kind of flexibility and thoughtful design that makes an office like Fried Frank DC so impressive. These straw man “open plans” lack any form of privacy partitions, neglect to offer employees options for where and how to work, and fail to equip employees with the technological and cultural tools they need to make their space work well. A point of contrast: the welcome booklet Fried Frank provides to explain how to use the space and what cultural norms make it enjoyable and effective. In their 2016 U.S. Workplace Survey, Gensler compared the effectiveness of space types across the entire spectrum from individual offices to shared offices and high-, medium-,

and low-panel open spaces, as well as bench seating. Space type proved not to be determinant of high function for innovative companies. Gensler’s “high function” group of respondents—

Space type proved not to be determinant of high function for innovative companies.

Photo Credit: © 2019 Gensler

CUSHMAN & WAKEFIELD | 11

open-plan settings. Their conclusion? “[D] emonizing open plan is just factually incorrect.” An office that is designed well for your organization will work well for your organization. That doesn’t mean it has to be open plan—or private. Both—and anything in between—can work. For Fried Frank, finding the right balance and introducing flexibility and openness has been absolutely transformative. Remember that initial class of summer associates? All of them accepted offers to come on as full associates. It’s a tight-knit group whose camaraderie will now form a lasting part of the firm’s culture and continued growth.

those who ranked highly across the three criteria outlined below (design, noise management, and access to people and resources)—showed little variation in terms of which individual space was most effective. Open benching worked just as well as a private office for companies with spaces designed for their culture and their needs. When Leesman dug into same topic in their “The Next 250K” research report, the results were even more pointed. Of their top 10 most effective offices, only one location consisted of primarily private or shared offices. In the workplace they measured to be most effective, 92% of the employees worked at designated

The enhanced café has monitors in its comfy booths which can display connected laptop screens for collaborative work or cable television if a team wants to unwind.

coffee culture

refreshments

gaming

retreat

collaborate

12 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

Photo Credit: © 2019 Gensler

AUTHOR Joshua Barthel is a marketing writer in Gensler’s Washington, DC office. A former paralegal, journalist, and activist, he brings an interdisciplinary approach to storytelling for Gensler’s southeast region. Writing about architecture, interior design, and brand strategy, Josh investigates the impact of the lived environment on the world of work and employee happiness. Contact him at Joshua_Barthel@gensler.com . CONTRIBUTORS Steven J. Martin , AIA is a principal in Gensler’s Washington, DC office and is a firmwide leader of Gensler’s Global Law Firm Practice. Steve applies more than 30 years of experience in strategic planning and design as project director for a diverse group of global, national, and local law firms. He is also a Fellow of the College of Law Practice Management. Contact him at Steven_Martin@gensler.com . Katie Mesia is a Studio Director for Gensler’s Southeast Regional Consulting Practice Area. She has vast experience in leading teams in the successful implementation of change management services, in projects ranging from single moves to ongoing portfolio renovations. Katie is an empathetic listener who excels at using systems and tool sets to define process and implement change. Contact her at Katie_Mesia@gensler.com . Katie Costa is a Design Strategist at Gensler’s Washington, DC office. A specialist in solving complex problems, she develops new workplace strategies for a variety of client types while using design thinking to improve workplace efficiency and effectiveness. She can be contacted at katie_costa@gensler.com .

CUSHMAN & WAKEFIELD | 13

Bright Insight Snapshot

SHERRY CUSHMAN, EXECUTIVE MANAGING DIRECTOR & LEGAL SECTOR ADVISORY GROUP LEADER (CUSHMAN & WAKEFIELD) ‌O n behalf of Cushman & Wakefield’s Legal Sector Advisory Group, we are RESPONDENTS RANKING:

delighted to share with you some of the highlights of our proprietary 2019 National Legal Sector Benchmark Survey – Bright Insight. This year concludes six years of intellectual capital gathering. Since our survey’s inception, we have seen many trend shifts and new issues gaining prominence that are directly impacting the legal sector, its business drivers, and law firm decision making. Nearly 1,400 law firm decision

27% AM Law 100

15% AM Law 200

4%

Global 100

54% Other

makers and associates participated in this year’s survey – our greatest response rate to date. Legal sector change is occurring at lightning speed. Change that used to happen over a decade now transpires in two to three years, and staying ahead of this rapid rate of change is challenging for law firms of all shapes and sizes. Despite the challenges, 2018 marked another positive year for the U.S. legal sector. Gross revenue grew by $7 billion to more than $325 billion by year-end 2018. One-hundred-and-six law firm mergers including 14 global mergers occurred in 2018 with no sign of slowing in 2019. In this year’s survey results, attorney recruiting and retention was named the number one most challenging issue. Following closely behind were competitive fee structures at number two and IT security at number three. The results also provide insight on key areas related to law firm succession planning, the younger generation of attorneys and their hot buttons, technology integration and expansion, and the overall operational/workplace benchmarks and anticipated changes in the next decade.

14 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

Issues Impacting Business Competition Challenges related to recruitment and retention have been growing at a faster pace over the past five years in comparison to other issues. This shift is believed to have occurred due to the continued growth of millennial lawyers ages 23 to 38, attorneys retiring or leaving for in-house counsel positions, and attorneys being terminated due to underperformance. In addition, the younger generation of attorneys has a different set of priorities than the older generation, which is directly impacting their decision making when faced with selecting a firm to join and remain with for the long term. Fixed-Fee Structures In order to mitigate fixed-fee structures, the number one action firms across the U.S. are taking is to “closely evaluate operations and streamline services rendered” (53%). To find ways that allow firms to provide more services with less cost and time, many are expanding their use of technology, training, and overall business protocols to provide improved efficiencies that are directly improving profits and offsetting fixed-fee structure demands. This year we also saw an increase in firms that have developed or retained a “committee or fee coordinator” to assist in developing improved pricing models and fee structures.

CURRENT ISSUES RELATED TO BUSINESS COMPETITION: RESPONDENTS CHOSE MULTIPLE OPTIONS

10% 9% 8% 2%

Debt

Non-Labor Overhead too High

Globalization

For the first time, recruitment and retention took the #1 spot

Real Estate Issue

12% 11%

Internal Consensus

Other

14%

Conflicts

20%

Labor Overhead too High

26%

IT Security

54%

Competitive Fee Structures

63%

Recruitment & Retention

The top three efforts firms have taken to improve business synergies between partners are: 1 A continued focus on “social events to bring attorneys together to collaborate” (up from 59% to 63%) 2 Increasing business development monthly meetings (54%) 3 Off-site retreats to focus on business development (45%)

(15 of which were cross border), 2018 was even more active with 106 law firm mergers (14 of which were cross border). Firms continue to expand business strategies for growth by increasing lawyer number one action to maintain or increase profits. Second in ranking to increase profits is for firms to “remain stable and build business from within,” primarily by increasing business from existing clients and improving cross selling within the firm. In addition, there was an increase of firms that are downsizing headcounts through careful staff/attorney evaluations. headcounts and/or opening additional locations as their

Firm Expansion & Strategies to Increase Profits

With 2017 being the most active year for law firm mergers in more than a decade with 102 mergers

CUSHMAN & WAKEFIELD | 15

Today’s Approach for Associates – Priorities, Interviewing, & Business Development By 2025, more than 55% of the U.S. Prime work force will be millennials – those born between 1981 and 1996. This will be the largest demographic shift in American history. The legal sector is already experiencing the effect of this transition with an even greater impact on the legal sector for the years to come. One of the primary reasons being the different priorities of a young attorney today compared to two, three, and four decades ago. This is impacting the way firms are not only recruiting and retaining young attorneys, but it is also impacting areas such as succession planning, attorney mentorship, technology investments, and the re-thinking of many of the firm’s business decisions. We asked our benchmark survey respondents, what are the top three items of importance they perceive as the priorities of their young associates today? 1 Compensation 2 Work-life balance 3 Mentoring by senior attorneys Attorney Departures Associate and partner departures have many common causes. The top two reasons for an attorney’s departure are due to “in-house counsel opportunities” and “compensation.” However, what is interesting are the other reasons for an attorney’s departure, which include “retirement” which was up 6% from last year, and “termination” (primarily due to attorneys’ under perfomance) which also

FIRMS INTERVIEWING ASSOCIATE CANDIDATES DIFFERENTLY THAN IN PAST YEARS:

More Flexible to Support Work/Life Balance

We Have Not Changed

Clearly Define Billable Hours and Business Development Expectations

44% 41% 39%

More Transparent About Business and Operations

Ask Priorities and Goals in Joining a Firm

32%

Value a Well-Rounded Candidate More Than Before

24% 21%

Other

4%

ASSOCIATES INVOLVEMENT IN BUSINESS DEVELOPMENT:

20% Yes, very active

20% No, but want to be active

52% Yes, on a limited basis

8%

No, have no interest

of attorneys was a regular course of action. Today, firms are more closely evaluating underperformers and if they are not able to increase performance they are left with no choice but to terminate an attorney. These types of evaluations are supporting more and more a fundamental shift in the legal sector to a more corporate approach that closely looks at the bottom line in order to make tough decisions

had an increase from last year of 2%. This also correlates back to business development success, individual partner profitability, and overall compensation and profit distribution being realigned to incent the attorneys that are successful at business development and client growth. The above said, it has only been in the past decade that termination

16 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

SUCCESSION PLANNING – GENERATIONAL AGE BREAKDOWN: (PEW RESEARCH CENTER)

to maintain and grow profits for the shareholders of the firm. In 2018, 50% of respondents noted that their partners cooperate in their personal succession plan but need a bit of a push to do so. We saw an increase this year from 23% to 29% in firms’ “partners fully cooperating in succession planning” while indicating they are “happy to be a part of turning over their legacy.” The major reason that partners are hesitant to cooperate with succession planning remains the same as in past years – they simply do not want to retire. The second reason for hesitancy is due to financial reasons (which actually dropped from 23% to 17% this year) and the third reason is due to “lack of trust in turning their clients over to someone else.” This “lack of trust” response shows a 3% drop from 17% to 14%, confirming that attorney trust is being built from within, and therefore increasing attorneys’ comfort in turning over their business. Ego continues to play a big role in succession planning which directly impacts the willingness of attorneys and their firms to develop true succession plans. Diversity, Female Attorneys & Inclusion Initiatives With great optimism, the 2019 survey saw a 7% increase in firms noting that “now more than ever, diversity demands are impacting business opportunities and we take it very seriously.” No doubt this is impacting the way firms are looking at recruiting and retaining legal talent of all ages, genders, races, and more. However, it is also apparent that diversity is enough of a priority for legal sector clients that it factors prominently into the law firm selection process. There was a significant drop of firms noting that “client demands for

1928 (74-91)

1946 (55-73)

1965 (39-54)

1981 (22-38)

1997 (<22)

BABY BOOMERS

SILENT

GENERATION X

MILLENNIALS

GENERATION Z

SUCCESSION PLANNING – FIRMS WITH SUCCESSION PLANS IN PLACE:

Across the board we saw increased involvement in younger attorneys being integrated into succession planning from 31% to 34%.

Somewhat, we are working o it 25%

Somewhat, we are working on it 25%

No, we do not have a plan 14%

No, we do not have a plan 14%

27%

27%

Other 1%

Other 1%

Yes, w hav a formal plan th t is closely coordinated

Yes, we have a formal plan that is closely coordinated

Yes, but the plan is not formal or mandate this time 3 %

Yes, but the plan is not formal or mandated at this time 33%

HOW DIVERSE IS YOUR FIRM? (CONSIDERING RACE, GENDER, SEXUAL ORIENTATION, AND RELIGION)

5%

1

8%

5

19%

28%

4

2

3

40%

1

2

3

4

5

Not diverse at all

Somewhat diverse

Very diverse

CUSHMAN & WAKEFIELD | 17

diversity is easier said than done, our results show that the legal sector is embracing the challenge. Associate Ten-

and more, firms are placing higher consideration in today’s decision making on the younger generation. Today’s younger attorneys are the future legacy of law firms and in order to retain this talent, shifts to the way the younger generation views technology, client services, work-life balance, and overall difference of work desires and styles will be leading firms’ long-term decisions and succession plans. Firms are spending a significant amount of time and resources on improving the recruiting and retention of their attorneys. The following include the top five efforts to improve recruiting and retention implemented by firms in the past year: 1 Increased salaries 2 Expanded mentoring 3 Invested in technology 4 Offered flex time 5 Offered more business and client synergies Maintaining and growing profits while controlling overhead continues to be a constant challenge for firm leadership. Four years ago the percentage of gross revenue spent on real estate was 7%, which supports firms continuing to densify their real estate and decrease per-attorney annual lease costs. The close evaluation of an individual partner’s profit and loss, line item costs, and their pro-rata share of real estate costs is impacting real estate decisions (and pushing for cost reduction). In fact, over the past three years, a greater transparency in sharing overhead costs with the partners is now being broken down and shared on a per attorney and equity partner basis. The chart on the following page represents the percentages 57% 54%

diversity do not affect business opportunities” from 25% to 19%. The above statistics represent the biggest single-year shift and improvement on diversity in the legal sector since the survey’s inception six years ago, statistically proving that improved diversity within the legal sector and client demands for diversity cannot be understated and is thus significantly impacting how firms are addressing a more diverse attorney base. What Does the Future Hold for Diversity? In looking to the future, a solid 47% of firms noted that they “have a mandate to improve diversity in the next five years.” Another 31% noted that they “somewhat have a mandate to improve diversity in the next five years,” while just 23% indicated there is no such mandate. Some firms have shared their creative tactics for improving diversity, including the hiring of talent and diversity directors, providing law school scholarships to diverse candidates with the goal they will join their firm when they graduate, and providing billable credit hours for diversity activities. While improving

Year Career Goals & Efforts Taken to Retain Attorneys

Increasing slightly from 45% to 46% this year as it relates to the question “Where do you see yourself in 10 years,” is being a “partner at current or alternative firm.” Increasing 5%, a significant change in the number two position, is associates leaving their firm for an “in-house counsel opportunity.” Long-Term Millennial Impact No doubt the information above and pending demographic shifts will have a long-term millennial impact. Per our Benchmark Survey respondents, 81% of the firms noted that they “take into consideration the millennial impact and overall demographic shift, but that it does not drive all of their firm decisions.” Another 10% noted that “every decision they make takes this fact into consideration.” More

Creation of firm-wide diversity mission statement

Active participation in nati diversity organizations Creation of a n Creati

INITIATIVES IMPLEMENTED TO IMPROVE DIVERSITY:

23%

Other

31%

Hiring of Chief Diversity O cer or similar position

51%

53%

Creation of mentorship program

54% 53%

Creation of a nity groups within the firm

Active participation in national diversity organizations

57%

Creation of firm-wide diversity mission statement

18 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

PERCENTAGE OF GROSS REVENUE SPENT ON REAL ESTATE LAST YEAR:

of firm respondents that share on an equity partner or shareholder basis the cost of real estate. The fact that equity partners share the large financial impact of real estate over time calls for an even greater need to build internal consensus. As part of effective business and profit strategies, firms must evaluate how excess square footage, high inefficiencies, and per-attorney occupancy rates — combined with increased rental rates — will impact the firm and each equity partner financially. From fee structure evaluation to streamlined client services — as well as close partner/ revenue evaluation, staffing, technology, and recruitment/ retention considerations — firms are beginning to re-evaluate how they operate and make significant changes to their current business model. In addition, with continued technology advancements, the younger generation doing more and more of their own work, as well as partners using technology on a broader basis, future investment in technology will continue to increase while real estate costs will trend downward. Technology Costs Technology in the legal sector has been the largest single disruptor in the past decade. While providing many benefits, it also has impacted the way attorneys are servicing clients, providing the opportunity to do more in less time, work remotely,

12% 10% 32% 28% 18%

More than 9% spent

8-9% spent

6-7% spent

4-5% spent Less than 4% spent

HOW ARE CLIENT TECHNOLOGY DEMANDS AND PROTECTION OF INFORMATION IMPACTING YOUR FIRM?

Our clients are not demanding IT security

3%

Other

1%

Demands are greater than ever, but our firm is slow to make changes due to internal policies

10%

12%

Demands are greater than ever, but our firm is slow to make changes due to significant change

74% Demands are greater than ever and our firm has or will be investing significant capital in IT security in the coming years

legal staffing and recruiting firm, half of in-house counsel legal departments and law firms provide their lawyers with the option to work from home or remotely.

and streamline overall operations. It also has provided the ability for attorneys (particularly the younger generation) to do more of their own work. According the 2019 Salary Guide for Legal Professionals published by Special Counsel, a

Firms are spending a significant amount of time and resources on improving the recruiting and retention of their attorneys.

CUSHMAN & WAKEFIELD | 19

Workplace Shifts & Strategies

ARCHITECT SURVEY 2018 RATIOS:

20%

Under 400 SF/Attorney

For the second year in a row, the survey was expanded to include responses from a dozen of the top-tier architectural firms specializing in legal sector interior design. We are pleased to provide an expanded set of statistics and benchmarks from this year’s survey that continue to support the densification of square footage, single-size offices, and many additional workplace shifts that are occurring in the industry. These shifts stress the need to improve client services, operations, and technology, while creating a more collaborative and productive work environment. Hoteling continues to grow in the legal sector. Please note that hoteling at this time is not being implemented in the legal sector to discourage attorneys to come to the office, rather it identifies ATTORNEYS WORKING MORE REMOTELY IN THE NEXT FIVE YEARS:

20%

401 to 500 SF/Attorney

30%

501 to 600 SF/Attorney

30%

601 to 700 SF/Attorney

the percentage of attorneys that only come to the office one to three days a week – and the consideration of these attorneys utilizing hoteling. Let’s take for example a 100-attorney firm that has 25% of its attorneys coming to the office one to three days per week. Could the firm provide 10 offices identical in size, furnishings, and technology for these 25 attorneys rather than assigning them their own office that may sit vacant 50% to 75% of the time? Absolutely. In fact, per the associate survey, their interest in hoteling grew from 23% to 26% this year alone. While hoteling concepts require some additional investment in technology, the benefits far outweigh the carry costs of real estate and for current real estate that is sitting vacant for more than 50% of the time. Firms are also looking at long-term ways to grow and densify into space versus increasing square footage — thus hoteling provides the opportunity over time to accomplish this goal. Future Trends Cushman & Wakefield began to track future trends six years ago at the inception of the survey. Over these years, we have seen significant shifts and trends become reality in operational areas of technology, paper management, hoteling, single-size

PER-ATTORNEY RATIO AT CURRENT ATTORNEY HEADCOUNT:

13%

9%

More than 1000 sf

Less than 600 sf

20%

17%

601-700 sf

901- 1000 sf

801-900 sf

701-800 sf

15%

26%

PER-ATTORNEY RATIO AT 100% OCCUPANCY:

YES , we anticipate our attorneys will work more remotely

49%

and retain their personal o ces

9%

7%

More than 900 sf

Less than 500 sf

YES , our attorneys work remotely and plan to initiate hoteling plans in the next five years

18%

12%

27%

801- 900 sf

501-600 sf

701- 800 sf

NO , we do not anticipate our attorneys will work

23%

24%

601-700 sf

remotely in the next five years

31%

20 | Legal Sector Advisory Group | ADVISING FOR EXCELLENCE

the next 10 years?” some of the responses included: • Non-legal, corporate ownership of law firms with attorneys as salaried employees • Firms will have less face-to- face meetings with clients • Increased implementation of AI technologies • Depositions and hearings compensation structures • Fully cloud-based applications that allow employees to work from anywhere • Relaxing the standard law office expectations • Shared support of research teams • Moving attorneys into client offices • More online “cookie cutter” documents • Fewer lawyers in private practice • Elimination of secretarial support and paper files entirely • Boutique firms aligning forming to create “mission impossible” teams • Blending legal and non-legal services to lower price point become virtual to decrease carbon footprint and costs • "Eat what you kill”

downsizing — including a reduction in warehousing growth space — will take place in coming years. Six years of statistics support the idea that continued densification of legal sector real estate is not just a trend, but a reality. Single-Size & Shared Offices Eighty-two percent of the firm respondents stated that firms will implement single-size offices in the next decade. This percentage is up from 70% in just

offices, and creating a more collaborative work environment. On the business and financial side, we have also seen shifts in business development training and compensation changes to reward new business generation – both at the partner and associate level. Law firms are also adapting to the younger generation and the specific desires of the millennials, including changing the way they recruit and retain talent from the first interview

TOP AREAS OF IMPACT:

69%

Fixed-fee structures

56%

Attorneys (young and old) leaving the industry

51%

In-house counsel

34%

Global competition

32%

Boutique firm growth

15%

US Government

11%

Other

5%

Global governments

to becoming an associate. All of the above information is relevant and critical - and changing at lightning speed forcing firms to adapt quickly in order to remain competitive.

three years. When asked, “Will a firm implement shared offices by two or more associates?”, the response rate also increased dramatically from 35% to 53%. These two statistics had the most significant changes in one year of all of the future trend responses. Out-Of-The Box Future Trends When asked “What out-of-the- box trend do you think may surface in the legal sector in

BRIGHT INSIGHT The2019NationalLegalSector BenchmarkSurveyResults

THEFINEPRINT The 2019NationalLegalSectorBenchmarkSurveywas confidential,with respondents self-identifying if theirfirmheld anAmLaw 100or 200orGlobal 100 ranking,or if respondentswere anational, regional,orone-off localfirm thatwasnotononeof the ranking lists.Respondents ranged fromfirmswith under 20 attorneys toglobalmegafirms.

RESPONSECOMPOSITION: extensive experienceworkingwith local, regional,national, andglobal lawfirmshasuniquelypositionedus toguide you through complicated decisionmaking required in today’s fast-paced lawfirm environment. We are committed toprovidingour legal sector clients ithup-to- the-minute intellectual capital, thought leadership around industry challenges, and the solutions required tohelpfirms achieve attorney consensus to effect change. LocalFirm 11% Northwest LEGALSECTORADVISORYGROUP Cushman&Wakefield’sglobalLegalSectorAdvisoryGroup consistsofmore than350 advisors that specialize in strategizing, creating, and implementing real estate solutions that support thebusinessof today’s legal sector.Our and Primary regionof respondents:

BUSINESSDRIVERS

ParticipationSnapshot:

RESPONSECOMPOSITION:

24% 34% 20% 22% 50% 23% 11% 16%

LocalFirm

Inpartnershipwith

ISSUES IMPACTINGBUSINESS COMPETITION This year’s surveyhad a significant swap in thenumberone and two positions as it relates to afirm’s “greatest issue impactingbusiness competition.” In eachof theprior years’ survey results, competitive fee structures ranked as thenumberone issue and recruitment and retention ranked asnumber two.This year, and for thefirst time, recruitment and retention took thenumberone spot. Challenges related to recruitment and retentionhavebeengrowing at a fasterpaceover thepastfive years in comparison toother issues.This shift isbelieved tohaveoccurreddue to the continuedgrowthofmillennial lawyers ages 23 to38, attorneys retiringor leaving for in-house counselpositions, and attorneysbeing terminateddue 15% Southeast Midwest 22%

tounderperformance. In addition, the youngergenerationof attorneyshas a different setofpriorities than theolder generation,which isdirectly impacting theirdecisionmakingwhen facedwith selecting afirm to join and remainwith for the long term.Please referenceour AssociatesSectiononpage 16 formore detailed informationon the specific statistics fromourNationalAssociate Survey. Roundingout the topfive issues impactingbusiness competition are IT security (26%),high laboroverhead (20%), and conflicts (increasing from 10% to 14%). As it relates to real estate specifically and the impact it ishavingon afirm’s business competition, respondents “fill- in-the-blank” issues include those listed to the right. RegionalFirm NationalFirm GlobalFirm Less thanSixOffices 6-10Offices 11-15Offices More than 15Offices

Toomuch space

21% Northeast

High vacancy rates

U.S.OFFICECOMPOSITION:

24% 34% 20% 22% 50% 23% 11% 16%

Escalating rents

RegionalFirm

15% Southwest

NationalFirm ABOUTCUSHMAN&WAKEFIELD Cushman&Wakefield (NYSE:CWK) is a leadingglobal real estate servicesfirm thatdelivers exceptional value for real estateoccupiers andowners.Cushman& Wakefield is among the largest real estate services firmswith approximately51,000 employees in400 GlobalFirm U.S.OFFICECOMPOSITION:

16% Mid- Atlantic

Ine ciento ce space

High realestate maintenance costs

Less thanSixOffices

6-10Offices offices and 70 countries. In 2018, thefirmhad revenueof$8.2billion across core servicesof property, facilities andprojectmanagement, tenant advisory, leasing, capitalmarkets, valuation, andothr services.To learn more, visitwww.cushmanwakefield.com or follow@CushWakeonTwitter. 11-15Offices More than 15Offices

Poor lease terms

Real Estate Strategy and Per-Attorney Occupancy Seventy-eight percent of

Respondents ranking:

Survey respondentsweredemograpically similar to the 2018 survey with a slight increaseofparticiaion from theAmLaw 100 and 200 firms and an even response from local, regional,natonal, andglobal firms.We alsoexperienced an increaseofparticipation in theNortheast andMidwestmarketswhen requesting theprimary (headquarter) locationof thefirm.

Artificial Intelligencegrowth

Impending recession

Current issues related tobusiness competition: Respondents chosemultipleoptions

27% AMLaw 100

Right-sizing theentireportfolio and same sizeo ces

15% AMLaw200

Numberofoffices in theU.S. (perfirm):

4%

10% 9% 8% 2%

Global 100

Debt

Increased collaborative space

Non-Labor Overhead tooHigh 54% Other

LessThan 6Oces

50%

Back-loaded lease – nowhave above-market rents

6-10 Oces Cushman&Wakefield’sLegalSector AdvisoryGrouphasbeennamed #1 inTenantRepresentationby TheNationalLaw Journal for the pastfive years. 1

For thefirst time, recruitment and retention took the #1 spot 23% 11%

Globalization

The 2019NationalLegalSectorBenchmarkSurveyResults

RealEstate Issue

Breaking intonewmarkets

11-15 Oces

12% 11%

Internal Consensus

Limited rainmakers in thefirm

Other

16%

MoreThan 15Oces

14%

Conflicts

Alternative legal serviceproviders

20%

LaborOverhead tooHigh

respondents stated that more firms will “achieve a below-500-square- feet-per-attorney ratio in the next decade,” up from 70% last year. In addition, significant rightsizing and

Constantexpansion andmoving location

26%

4

LegalSectorAdvisoryGroup | ADVISINGFOREXCELLENCE

ITSecurity

54%

CompetitiveFee Structures

Out-of-pocket capital costs to improvee ciencies

63%

Recruitment &Retention

Other

5

The 2019NationalLegalSectorBenchmarkSurveyResults

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To request a copy of the full Bright Insight report, please click here.

CUSHMAN & WAKEFIELD | 21