The Bipartisan Battle Against Big Tech Could Boost Washington's Office Market
The nation's largest tech companies — and their billionaire executives — have come under fire in recent years from both sides of the political aisle in Washington, with their CEOs frequently being called to testify before congressional committees.
Big tech is now set to face even more scrutiny from the Federal Trade Commission and the Department of Justice, with President Joe Biden's key appointments signaling a tougher stance on competition and the industry having to respond to a series of lawsuits over the past year from states and the federal government.
This crackdown has already proven to be a boon for the law firms that represent tech giants, many of which occupy large offices in the District. And with tech firms unlikely to escape from Washington's scrutiny anytime soon, experts say that D.C.'s office market stands to benefit from the business this creates for law firms, lobbying firms and from the tech giants themselves.
"We think that can potentially be a tailwind for Washington from two aspects," CBRE Research Director Wei Xie said. "One, the law firms are in D.C., so this should increase business activity for law firms and the need to hire lawyers. Two, tech firms that already have a presence in D.C. to access lawmakers; there may be more of them."
Since December, Google, Facebook and Amazon have been targeted in at least six separate lawsuits, all from states' attorneys general or from the Department of Justice. In at least four of those cases, the tech firms are being represented by law firm offices in D.C., a Bisnow review of public records found.
Garrison & Sisson, an attorney recruiting firm specializing in the D.C. law firm market, has seen a growing demand for antitrust lawyers over the past year, partner Matt Schwartz said. The firm is currently tracking 31 antitrust positions open at 27 different firms, compared to 18 openings at 17 firms this time last year.
"The demand for antitrust lawyers is off the charts," Schwartz said. "D.C. has the best antitrust lawyers in the country and has the most of them, given that we're so tied to the government here."
The legal and lobbying sector occupies 28.1M SF in the D.C. office market, comprising 27% of the total occupied space, according to CBRE. This comes just behind the federal government, which comprises 31% of the market, and is well ahead of the next largest sectors, nonprofits at 12% and business services at 6%.
The demand from the tech sector for antitrust work comes either during a merger review process, helping to reduce risk for large companies that are preparing to merge, or on litigation, when companies are brought to court over antitrust issues, Schwartz said. These lawsuits have become a frequent occurrence over the past several months.
The latest lawsuit came July 7 from a coalition of 37 attorneys general led by New York AG Letitia James, with the group suing Google for anticompetitive behavior. Google was also sued twice in December, both by states' attorneys general, and once in October by the Department of Justice and a coalition of states.
In its response to the October suit and one of the December suits, each filed in U.S. District Court for the District of Columbia, Google listed the same three law firms that are representing it: Williams & Connolly, Wilson Sonsini, and Ropes & Gray. Each firm listed attorneys in their D.C. offices.
Facebook was represented by the D.C. office of Kellogg Hansen in its response to a December suit from a coalition of 48 attorneys general. A federal judge ruled in Facebook's favor in that case last month.
"With all the big tech cases, litigation is hot," Schwartz said. "These cases don't seem to be going anywhere, and they can take many years, so the antitrust litigation departments are going to be busy for a long, long time. It's certainly a growth area."
Schwartz said that Biden's appointment last week of antitrust lawyer Jonathan Kanter to lead the Justice Department's antitrust division is the latest signal that the president is taking a tough stance on big tech companies, a position also previewed by his June appointment of big tech critic Lina Khan to lead the FTC.
"That's a real indicator of where the government is going, so I think there's going to be continued activity going after them," Schwartz said. "It seems like there's bipartisan support for taking a closer look at big tech."
In addition to responding to the antitrust lawsuits, the tech giants are also taking active steps to push back against growing scrutiny from the FTC and from Congress.
Amazon and Facebook have filed petitions seeking Khan's recusal in antitrust cases involving their companies, arguing that her past writing shows she has already made up her mind on the tech firms. Amazon and Google last month came out in opposition to a series of bills moving through Congress that could force structural changes at big tech companies, including potentially breaking them up.
"We've been hearing for years that tech companies are getting too big and too powerful, and there's a lot of legislation and pressure on that, and it's accelerating," Xie said. "This isn't good news for tech companies, but it could be good news for Washington office demand."
Schwartz said the antitrust sector growth is part of an overall hiring spree among D.C. law firms. He said the industry is on track to have one of its most profitable years ever, and his firm is currently tracking 688 job openings at D.C. law firms, compared to less than 200 at this time last year.
"I have never seen more than that in my 19-year career," he said of the 688 job openings.
CBRE Vice Chairman Lou Christopher, a D.C.-based broker who has represented over a dozen law firms, said the law firms he speaks with are all having a strong year.
"Across the board I hear stories that 'I've never been busier,' or 'We're super busy' or 'We're having one of our best years,'" Christopher said. "When you combine one of the best revenue years with the savings from no travel and less office expense, on a profitability basis they're all having close to, if not their best, years. Law firms are doing quite well."
Christopher said he sees the wave of antitrust lawsuits against large tech companies, as well as an increase in mergers and acquisition activity and overall business transactions, as among the many reasons why law firms are having a strong year.
With more business and increased hiring among law firms and lobbying shops, two of the largest occupiers in the D.C. office market could be in position to add space. Not only do local law firms make up the biggest chunk of the private sector leasing market, they also tend to pay the highest rents, Christopher said, often signing large pre-leases years ahead of their expirations that can help new trophy office developments break ground.
Examples of these market-driving deals over the past several years include the 300K SF pre-lease that Williams & Connolly's signed in 2018 for Phase 2 of The Wharf, the 288K SF pre-lease WilmerHale signed in 2017 at Boston Properties' 2100 Pennsylvania Ave. NW development and the 185K SF lease Akin Gump signed in 2017 at the Alexander Court redevelopment between K and L streets. Even more recently, Wiley Rein signed a 166K SF lease in June 2020 at Tishman Speyer's new 2050 M St. NW building.
"In Washington, [law firms] are the reasons that buildings get built," said Savills Vice Chairman Tom Fulcher, who leads the mid-Atlantic region for the tenant rep firm. "If you look at the law firm expirations, those are the things that are going to drive new construction ... It's really the driver for the Class-A market."
Forty-three law firms have D.C. office leases expiring between this year and 2026, with their current leases totaling more than 5M SF, according to Savills' research. Of those 43 firms, 17 have already signed leases and nine are on the market for space.
There is plenty of availability: The District ended the second quarter of the year with a record-high vacancy rate of 17.8%, according to CBRE. Nearly 500K SF of office space was added to the market; Savills pegged the availability rate at over 21.1%, also a record.
Since the Great Recession, D.C. law firms have trended toward smaller offices, reducing their square footage by creating more dense and efficient footprints. CBRE's research found that 92% of the 100 largest law firms have already completed this densification strategy, meaning they may be in a position to grow with their next leases.
Christopher said he has three current law firms clients on the market that are looking to grow their footprints by about 10%, and he has seen other examples of firms looking to grow after completing their densification strategy.
"There is evidence that in the near term there's an end of this law firm densification," Christopher said. "We've got a number of examples of firms that originally shrunk and almost immediately grew because they didn't take enough space."
Fulcher said law firms also stand to benefit from the increased spending that Congress has approved over the past year.
"If you have government spending, that means you have government contracts, and that means you have potential issues or you have people trying to work through the system," Fulcher said. "All of those things require lawyers, and, for the most part, Washington lawyers."
This also benefits lobbying firms, Fulcher said, and he has seen examples of lobbying clients that are considering expanding their office footprints as a result of the government's spending.
While law and lobbying firms are becoming more profitable and are in a position to grow after densifying their footprints during the last cycle, their decision to expand their office footprint could be complicated by the coronavirus pandemic and the shift to remote work.
Fulcher said the past 18 months have given law firms the confidence that they can effectively serve clients while working remotely, and he thinks many will have more flexible schedules going forward that allow employees to work from home. But when firms offer flexibility, Fulcher said it seems that many employees pick the same days, such as Fridays, to work from home, and many come into the office on the same days during the middle of the week, meaning the firms still need their full office footprint on those days.
"If you have everybody coming in on the same days of the week, that's going to make it more difficult to reduce space," Fulcher said.
Additionally, he has seen signs that law firms are backing away from plans to shrink their footprints. Fulcher said multiple law firms have removed space from the sublease market that they had listed after the start of the pandemic.
"They need more office than they thought they did," Fulcher said. "The level of space reduction as a result of remote work isn't going to be as great as we thought it was."