The Washington PostDemocracy Dies in Darkness

Shrinking law firms leave gap in D.C. real estate market

It’s no secret that law firms in Washington are shrinking their office space, as the legal industry continues to shed unnecessary expenses in the wake of the economic downturn. Nixon Peabody and McDermott Will & Emery are just two recent examples – Nixon Peabody is downsizing 30 percent when it moves to an office near CityCenter by next year, and McDermott scaled back 13 percent in its new Capitol Hill digs.

Now, commercial real estate firm Studley has some data to quantify that anecdotal trend. Since the recession, more than 20 law firms in Washington have shed space, and the size and frequency of those contractions have increased since 2012, according to a research report that Studley plans to release today.

Between 2005 and 2007, large law firms leasing at least 50,000 square feet expanded a combined 1 million square feet in downtown Washington. But between 2010 and 2013, large law firms contracted a collective 270,000 square feet. The report defines downtown as the three submarkets where most law firms are located – West End, Central Business District and East End.

Law firms are using more multi-purpose spaces and, in some cases, smaller and more uniform office sizes for partners and associates — a sharp contrast to the big corner offices of law firms of yore. Many law firms also have relocated some administrative operations outside of downtown, including Orrick, WilmerHale and Pillsbury Winthrop Shaw Pittman.

The shrinking law firm footprint is leaving a major gap in the local real estate market because law firms make up 24.6 percent of office space in downtown D.C. — by far the largest private industry, and rivaled only by the federal government, which makes up 20 percent of office space downtown, according to the report. And so far, other private industries have yet to take their place.

“Law firms are still the private sector driver of Class A space in Washington, and there is no group that has stepped up to take their place as law firms become more efficient in their space,” said David Lipson, executive vice president and co-regional manager in Studley’s D.C. office.

The changing demands of young workers may eventually bring other private industries downtown — but it will take a lot of tenants to fill the void law firms are leaving behind, he said.

“In the late 90s when tech first came to the metro area, it went to the suburbs because all the young tech workers wanted houses and yards,” Lipson said. “Now those young workers want urban. Long term, there are going to be other industries that look to D.C. I don’t know exactly what those industries are, but there will be some. But that’s not an overnight transformation. It’s going to take a lot of tenants and a lot of industry groups to fill the extra space.”