Law firm leasing activity has ground to a near halt while law firms wait out relocation decisions and redesign their current spaces to prevent the spread of the coronavirus.

Overall, the pandemic will likely result in long-term changes for law firm offices, said Jeffrey Peck, a real estate adviser to law firms and a vice chairman at Savills. While law firm leasing activity will eventually pick up, firms may decrease their overall footprints, taking up 10% to 15% less square footage because some people will continue working from home.

"There's very much a wait-and-see attitude as to what percentage of the workforce is coming back to the office," Peck said.

The drop in leasing activity has been remarkable. Looking at all large law firm lease deals over 30,000 square feet in New York, five leases were signed in the first four months of 2019 compared with one  sublease in 2020, said Nancy Muscatello, a managing consultant at CoStar Group, which tracks real estate activity. Overall, office leasing activity in expansion or relocation mode is down 50% nationally in the first four months of the year, she said.

"We have an absolute slowdown on real estate transactions," said Sherry Cushman, a vice chairwoman at Cushman & Wakefield who advises law firm clients. Law firms "are either putting them on hold, if they can buy time," or renewing leases by one to three years to determine the long-term pandemic impact, Cushman said, noting that's a reversal from last year, when more than half of law firm leasing transactions were relocations.

Some big firms have already put off leasing decisions. Allen & Overy, which was reportedly close to signing a lease at Tishman Speyer's 630 Fifth Ave. building, instead agreed to a five-year lease extension on its New York base at 1221 Avenue of the Americas.

Peck said he's aware of at least five or six other firms that are considering or have already executed one- or two-year extensions since the pandemic started.

While they are holding off on moves, some firms are negotiating with landlords for rent relief for several months to preserve cash flow, Cushman said. In some cases, firms are offering to pay landlords at year-end when they traditionally have higher collections. The situation varies by firm and market, she added.

And many law firms are contemplating subleasing some of their space to shed extra square footage.

Cushman anticipates law firms in the next few years will execute more renewals and many firms will shed space because the "new workplace model" will be less office-centered with a select group of employees home permanently or on a flex-time schedule.

"We are anticipating that come 2021 and 2022 when law firms have a better sense of what their people will do, we will see more renewals, restructuring and giveback of space," Cushman said. Some firms also are considering suburban satellite offices beyond their inner city offices.

Phased Office Return

While they have held off on leasing decisions, tenant law firms are now focused on the safety of their existing space, Peck said. Savills is advising more than 50 law firms in Manhattan on changes to their office space, speaking with law firm leaders about "what it's going to look like … so that your staff and partners feel comfortable."

Firms formed committees to handle back-to-office procedures and hired consultants, including real estate advisers such as Savills and Cushman. Many firms are considering staggering their reopening, with only a portion of people coming back at first.

Based on local and state laws and market conditions, Cushman said she anticipates law firms will begin with about 20% to 25% of the workforce returning to the office and phasing in the remainder through the end of the year.

"Each firm is evaluating who those 25% will be," she said, noting that even if they make a decision that "it will be XYZ people, that doesn't mean that all those people will willfully return."

Because the legal sector occupies so much space, it will have an easier transition, Cushman said. Law firms have traditionally operated with 300 to 400 square feet per employee, while most other sectors have adapted to under 150 square feet per employee, she said.

"Law firms that were resilient to the densification trends are now in a better place" than others because many kept private perimeter offices, Peck said.

While Big Law offices can transition faster, Cushman said law firms will still be one of the slowest sectors to fully return to the office. Many law firms are located in so-called vertical markets — in high rises and a reliance on public transportation — raising particular health concerns.

Redesigning the Office

With perimeter offices, some areas of law firm offices will have to be completely redesigned, real estate advisers said. In many cases, the adaptions will mean new furnishings and protocols,

"It's less about moving walls," Peck said, noting the changes may entail new cleaning procedures, UV lighting, air filtration, changes in entrance protocols and behavior changes such as preventing surface touching.

Many firms that created more open, collaborative areas "will have to rethink" what to do with open space, Peck said.

Some firms are also considering hiring their own cleaning staff and reopening offices without any food or drink — not even coffee — to prevent crowding or surface touching, Cushman said.

Real estate advisers have designed diagrams that tenants could use to implement the 6-foot separation rule in conference rooms and open plan workstations. Some groups, such as the New York State Bar Association, have already outlined guidance on how firms can safely rearrange offices.

"We've seen clients physically take away chairs," said Katrina Kostic Samen, who is head of workplace strategy and design at KKS Savills, adding there's also renewed interest in installing doors that automatically open and close, and wearable sensors to warn if someone comes too close.

Meanwhile, firms will need to work with landlords to address safety in elevators, restrooms and staircases, Kostic Samen noted. "The whole property management aspect of a building is going to be pushed front and center. Your property manager, your building manager is going to be your best friend … who reassures you the space is clean, it's sanitized, 6 feet apart," she said.

With all the social distancing changes, it's natural to ask: What's the point of going to the office if close collaboration is out and everyone works in their own private space?

"The concern is that the longer people are away and if more people don't fully return, then their firm culture could be diminished," Cushman said. "Part of the evaluation of the return to the workplace will be the impact on firm culture."

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