Five Trends in Law Firm Real Estate (Plus the Mayor Plays Ball)
Did you know Mayor Vincent Gray was scouted to play for two Major League Baseball teams? What's neat is that wasn't even the most interesting tidbit we learned at Bisnow's Real Estate Strategies for Associations and Law Firms event at the Mayflower last week.
The Mayor kicked off the event and said DC is the most fiscally stable it's ever been, with $1 billion more in the bank than it had in 2011. It launched a five-year economic development strategy in 2012, aiming to generate $1 billion in additional tax revenue and add 100,000 new jobs. (In the first year, 18,000 jobs and $281 million were created.) Real estate development is growing—including City Center (where Covington is the largest tenant)—as is the population (one-third under age 35 and increasing by at least 1,000 net per month).
1) Law firms are Hot Tenants
Law firms may be the stars of DC real estate. Last year, the legal sector made up 29% of leasing activity in DC, says Cushman & Wakefield legal sector advisory group leader Sherry Cushman, above, who moderated the law firm panel. Firms are the driver of demand for high-quality office buildings in an urban environment, adds Brookfield Office Properties EVP Greg Meyer. "They're the tenant that wants the best of the best and is willing to pay for it."
2) More Demand For Flexibility
Whether it's the option to expand, shrink (or both), or make a space multi-functional, law firms are increasingly craving flexibility. There's no room for redundancy, says Nixon Peabody DC managing partner Jeff Lesk, second from left. That means one of the big changes in Nixon Peabody's new office at 799 Ninth St, where it's reducing square footage by 30%, is also building out space that has a variety of functions. The panel included Perkins & Will architect Diana Horvat, Jeff, Brookfield Office Properties EVP Greg Meyer, and Gilbane Building Company director of interiors David Doherty.
3) Risk Assessments are More Complex
Real estate's all about location, but credit is about diversification. Greg, left, tells us that in assessing risk, Brookfield sees if the firm is diversified—both in terms of clients and partners. Is there a single client or rainmaker whose departure would be catastrophic? They also spend time understanding a firm's strategy and getting to know key partners. It's a "much more complex equation" than 10 years ago, he says.
4) Strategic Planning Is Involved
Until recently, Jeff says many law firms didn't have a comprehensive strategy—most real estate decisions were made locally by office managing partners or administrators. Some firms are now looking at real estate portfolios globally as a sector that can be managed. (There's a lot to manage—it's the highest cost after personnel.) Diana did the architecture for Nixon Peabody's new office and says that firms are now looking to reflect a connection with clients and their space. Dave tells us he sees a lot of firms working with general contractors earlier on to strategize what they're doing with their leases.
5) Less Desire For a "Prestige Address"
Many large blocks of space are becoming available for the first time, Sherry says, and firms aren't flocking toward one area of the city. For Nixon Peabody, a young, vibrant, growing area that's closer to where employees live (and fit other criteria in the strategic plan like flexibility, efficiency, and sustainability), was more of a priority.
There will be (even more) priority on technology, predicts OTJ Architects partner Heather Nevin, right, during the associations panel. A former Covington lawyer, Heather says we'll transition to considering first how technology facilitates communication—and only second, how the physical space is filled to support that technology. TD Bank commercial banking team leader Patti Lenahan moderated the panel with National Association of Counties CFO David Keen, National Association of Manufacturers SVP Rick Klein, JLL managing director Joe Judge, and Heather.
During coffee hour we snapped someone who's seen all of the changes: legendary real estate developer Albert Small, catching up with Donohoe's Lou Capannelli. Albert's the co-developer of Arent Fox's building on the corner of Connecticut and K, among others. He's working toward a parking garage under the National Mall. It could help facilitate people visiting museums, he says, learning about the country's history and cultural heritage.