Law firms flee to safer, cleaner areas to lure workers to desks

New offices of Braun Hagey & Borden in Jackson Square in San Francisco

Last spring, Skadden, Arps, Slate, Meagher & Flom LLP announced it would leave its longtime office in downtown Los Angeles for a new one in Century City.

"The migration from downtown LA to Century City is very prevalent," said Mike Catalano,who managed the Los Angeles offices of Savills USA for over 15 years and is part of Savills Law Firm Practice Group. "It's not only prevalent with respect to exodus, for example, Skadden Arps, but you also have law firms that have rebalanced their footprints.

"There are firms that used to have 100,000 feet downtown and 50,000 in Century City, and now they've adjusted that to be smaller downtown and to have a larger presence in Century City," he said.

New to market, new locations and relocations of law firms over 20,000 sf in San Francisco, Silicon Valley, Los Angeles, Orange County and San Diego in 2023 through Q3.

Luke Raimondo, executive managing director at Cushman & Wakefield, said, "Firms are rethinking everything. They're rethinking their footprint, they're rethinking the geography that best suits them for their businesses, they're rethinking how much they're going to be in their space. As a result of all of that, the preponderance of the deals that have happened have been relocations."

Matt Hart, vice chairman at Cushman & Wakefield, said a similar dynamic is playing out in San Francisco.

In November, BraunHagey & Borden LLP said it would move its San Francisco headquarters from the Financial District to a building in Jackson Square. A couple of weeks later, Gordon Rees Scully Mansukhani LLP said it was doing the same.

The move isn't far for either firm; just a half mile north, but it might as well be a world away. Jackson Square, quaint and quiet in the shadow of the Transamerica Pyramid, has not experienced the street encampments, drug use and vandalism that has plagued other areas of the city.

"Most firms are looking for office space that feels differentiated and additive to the culture. The Financial District has the views, in-building amenities, and 24/7 security, but has gotten relatively competitive for the type of space law firms are targeting. Jackson Square offers a nice alternative with its unique buildings, great restaurants, and is still convenient to transportation and parking," Hart said.

Real estate professionals throughout the state said they were busy throughout 2023 helping law firms downsize space. Most wouldn't say what their specific clients have told them are reasons for the moves, but the general vibe, they said, is law firms want space located in areas where employees enjoy coming into the office and feel safe walking outside for lunch.

"Many of the corporate tenants, including law firms, that are looking for space in downtown Los Angeles are concerned about public safety. That's something that's very much on everyone's mind and has produced some hesitancy around long-term commitments in downtown LA.," said Raimondo, who is based in Cushman's Los Angeles office.

They also want exceptional amenities. "There's a law firm here in San Francisco that I would say about at least 10% of their space is a lobby and cafe with a full-time barista. That's not uncommon," Hart said.

The Gordon Rees building at 315 Pacific Ave., in Jackson Square, will feature a private roof deck with views of the Transamerica Pyramid and San Francisco Bay, a state-of-the-art virtual trial and presentation studio, various event spaces, and a 4,000-square-foot "living room." Attorneys will "hotel" in 30 private offices booked via an app.

Marie Trimble Holvick, managing partner of the firm's San Francisco and Oakland offices, said in a statement: "As we celebrate our 50th anniversary in 2024, we sought to reaffirm our commitment to San Francisco, the city where we were founded, while also looking to the future."

It's a trend real estate professionals expect to continue in 2024 and beyond as long-term leases expire.

"There are plenty of leases that were signed in '17, '18 and '19 that aren't expiring for years. As that happens, a lot of law firms are looking at their remote [work force] and a lot of law firms are looking at downsizing when they can. I think that will remain a significant trend," said Catalano of Savills.

Out is downtown Los Angeles, with its encampments and litter, and the Financial District in San Francisco. In are places like Jackson Square, and office parks in Palo Alto, North San Diego County and Irvine.

But perhaps no place illustrates the trend better than Century City, where law firms are flocking to higher rents and eschewing deals in downtown Los Angeles.

"We've seen a number of firms relocate out of downtown Los Angeles and situate themselves in larger footprints in Century City. That's a little bit of a surprise to people that are outside this market because the rental rates are materially higher in Century City than they are in downtown Los Angeles," Raimondo said.

Jake Stickel, a senior vice president at CBRE who advises law firms on real estate in Orange County, said: "We have seen movement out to the suburban markets for a lot of the law firms, in many cases because those partners live closer to areas like Orange County anyway.

"We've not just seen anecdotal evidence of that, we've seen actual firms expanding in Orange County or looking to relocate to Orange County," Stickel said.

Sheppard, Mullin, Richter & Hampton LLP announced this month that it had signed a lease to move its downtown Los Angeles headquarters to another building, and reduce its footprint from 183,000 square feet to 119,000 square feet.

Similarly, Sidley Austin is leaving its 136,000-square-foot space in the Gas Company Tower in downtown Los Angeles and taking 56,000 square feet in the nearby Two California Plaza. Sidley is also taking 70,000 square feet in a new development scheduled to open in Century City in 2026 that will be anchored by Creative Artists Agency and Clearlake Capital Group.

All of this has the ingredients for a financial disaster for commercial real estate in some areas. Landlords are facing commercial debt coming due in the next 24 months and tenants are looking to downsize or leave, if they can. In February, Brookfield Corp., the largest landlord in downtown Los Angeles, defaulted on loans tied to two of its buildings, including the Gas Company Tower.

"It's a bloodbath," said Jeff Tabor of Jeff Tabor Group. "I'm in and out of buildings all the time because that's my job. And most of them are a ghost town."

Tabor advises law firms on real estate in Los Angeles, Orange and San Diego counties. He said he has urged some firms to hold off making decisions if they don't have to. He said a "very large law firm" in Los Angeles with another two years on its lease was offered a five-year extension by its landlord that included a list of deal sweeteners, including free rent and money for improvements.

"I said, 'The market is only getting worse. Unless you need the free rent right now for cash flow reasons, hold off,'" Tabor recalled.

Driving a lot of the relocation is law firms' desire to get people to work in the office, real estate professionals said.

"Law firms are definitely committed to the office. They're also committed to their workforce, meaning that they want to create an environment, and they want to have their offices in locations where people are motivated to come to work. That is independent of whether you downsize or whether you're expanding," said Catalano of Savills.

"I think that most firms implemented return-to-office policies in 2022 going through 2023. I would say their success with that implementation has been mixed. Most firms are putting increased pressure on their associates to be in the office. My sense is that that pressure will continue in 2024 and probably accelerate," Raimondo said.

Most law firm leaders weren't willing to discuss motivations behind their space decisions. A representative for Skadden Arps, which is leaving 103,000 square feet of space in downtown Los Angeles for 58,000 square feet at 2000 Avenue of the Stars in Century City, did not respond to a request for comment.

Luca Salvi, chair of Sheppard Mullin, said in a statement: "Our Downtown Los Angeles office is our largest office and continues to add leadership and depth across our practices of renown. A new, modern and efficient workspace will accommodate both immediate and future growth needs that are beneficial to our clients and our culture."

A representative from Sidley declined to comment beyond confirming the planned move.

Not all law firms have soured on downtown Los Angeles.

Jenner & Block LLP announced that it would open a new office in Century City, but the firm has no plans to give up its space in downtown Los Angeles, said Office Managing Partner Brandon Fox. The new office was a result of rapid expansion.

"We are at full capacity downtown and are still committed to it," Fox said. The firm decided when it needed to expand in Los Angeles that "it is best for some of our clients for us to have a West Side office," he said.

Noah Hagey, managing partner of BraunHagey, said most firms that are moving to Jackson Square are midmarket firms that "are downsizing, many of them massively." He said they "are shedding 50% or more of their former office lease footprint." He called "hoteling" a "failed experiment" copied from the tech sector.

"That's because those firms have bought (or can't escape) a bad idea, namely, that partners and associates don't have a need or desire to be together, in person. Or simply don't want to be."

"BHB is different from this trend. We are growing organically (in both SF and NY) and have been looking to upgrade and expand our space for about 18 months. In SF that means moving from a nice 8,500 sq feet to an exceptional 22,000 sq feet," he wrote in an email. "And we are doing so with an ethic reflecting who we are: an emphasis on private offices and collaboration spaces for in-person, in-office work. Same story in NY, we are close to announcing a move from 8,200 sq feet to 18,000 under the same principles. Our associates get direct mentoring and support from partners and colleagues. And clients get better outcomes, as reflected by our track record."