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Big Law and the Real Estate Question

Updated: Mar 1, 2022

Manhattan (viewed from Hudson Commons)

At the end of December 2021, Cooley LLP confirmed that its lawyers would not need to return to any of its North American offices until at least April 2022. After a year of uneven “return-to-office” plans, the legal industry remains exceptionally hesitant to fully return to its old real estate in the still-recovering downtowns.

Legal services historically have thrived from agglomerative economies in large cities, depending heavily on knowledge spillovers and a proximate customer base. Prestige in an already gilded profession depends on the location and size of these firms across metropolitan areas. To that end, law firms have paid a price premium for this real estate – around $85 a square foot annually for high-end gids in Washington D.C. and West Los Angles, and up to $100 a square foot in New York City (CBRE). These exorbitant prices could be mitigated by the benefits from a vertical economy which theoretically decrease firm costs and increase productivity. But now, even that fundamental premise has been put to the test after two years of the pandemic.

Most law firms, including the traditional White-shoe law firms, still expect no more than 60% of their lawyer workforce to return by the end of 2022. This is in spite of the veiled threats by some of the law firms’ largest corporate clients who have demanded a return to normalcy more akin to the finance and banking sectors. The internal memorandum by Morgan Stanley Chief Legal Officer, Eric Grossman, demanding that law firms return to the office, back in July 2021, garnered mixed responses. Some law firms, particularly those who have Morgan Stanley as a client, praised his courage to focus on the “apprentice model of the legal profession,” while other law firms distanced themselves from the spirit of the memo, fearing a mass exodus of its lawyers should return-to-office come sooner than expected. Regardless, law firms continue in this Catch-22 situation. Law firms can force lawyers to go back, as they already have done with administrative and custodial employees, and risk losing its legal labor force to competitors who have not caved to the financial and social pressures, thereby paying full rent for a space that is not being used to its full built capacity. Alternatively, law firms can continue this very gradual return-to-office process, which still forces them to pay their full rents with a reduced occupancy.

The question that law firms are facing is not a unique one, companies and industries across metropolitan areas are re-evaluating their investments in real estate after the social and managerial changes that emerged during the pandemic. Even more so, law firms have had record breaking profits during the pandemic, which further interrogates the economic logic of paying expensive real estate when they can exist lucratively without them. Nevertheless, law firms seem to be facing a higher stakes decision because of the expensive nature of the real estate they own and the reticent attitude they have regarding their return to the downtown. For a profession that thrives off exact dates and clarity, this is one deadline that has remained, and will remain, ambiguous.  

By Daniel Montoya (MUP/JD '24), Associate Editor

Edited by Jialei Tang (MUP '23), Associate Editor



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