See if you can guess how law firm FMs are adjusting their real estate strategies in today’s changing business environment

by Brianna Crandall — November 24, 2017 — Law firms are adjusting their real estate strategies in response to advances in technology, shifting client demand, aging workforces and intense competition to attract and retain skilled talent, according to a new report from global commercial real estate services and investment firm CBRE Group.

Most commonly, law firms are contracting their space, resulting in a reduced footprint of 27% on average between the first quarter (Q1) of 2016 and Q2 2017. (This transaction volume includes only the top 75% of transactions by square footage in the 26 markets included in the CBRE report.)

When it comes to growth, Austin, Texas, ranked as the fastest-growing legal services employment market in the country, with 26% growth since 2010. As a subset of overall legal-services job growth, the number of lawyers in Austin has increased by 43% (1,770) since 2010 — higher than any other metro in the CBRE study. The fastest-growing legal markets are also among the strongest in the country for overall job growth, with Orlando, San Jose, Kansas City and Tampa rounding out the top five.

Jamie Georgas, global chair of CBRE’s Law Firm Practice Group, stated:

Despite being rooted in tradition and precedence, many law firms are employing new real estate strategies when lease expirations present opportunities — in particular, space contraction and workplace strategy. Law firms with leases expiring in the near term are reconsidering long-held assumptions about how their attorneys work and, when determining their space needs, the services and technology they need to be most effective.

Space contraction

Contraction activity has been dominated by Am Law 100 firms — the 100 top-grossing U.S. law firms as ranked annually by American Lawyer — with larger space requirements. A full 20% of the Am Law 100 firms have reduced their space needs in one or more markets since Q1 2016, according to CBRE data.

CBRE estimates that nearly 29 million sq. ft. of law firm leases will expire between 2018 and 2022 in the 26 markets studied. It is anticipated that more than 70% of these expirations involve requirements of more than 50,000 sq. ft., and are likely to see at least some space contraction as part of renewals and/or new leases.

More than half of these expirations are in New York; Chicago; Washington, DC; and Houston, where there are heavy concentrations of Am Law 100 firms with average leases of 125,000 sq. ft. New York and Chicago are in an extended period of rent growth and declining vacancy, making portfolio optimization critical. Washington, DC, continues to soften as concessions have steadily increased. Houston remains burdened with an oversupply of sublease space due to the energy industry downturn, and could be particularly attractive to firms looking for lease savings to invest in capital expenditures.

Law firm workplace trends

Georgas continued:

Law firms are optimizing their real estate portfolios to avoid excess expenses on antiquated workplaces that value space per attorney over client and employee expectations. To minimize risk around uncertain headcount requirements, many law firms are focused on creating agile workplace strategies through configurable office design and flexible lease structures.

Some of more common strategies being adopted or considered by law firms include:

  • Shifting from two-sized offices (typically 15’ X 15’ for partners and 10’ X 15‘ for associates) to glass-fronted, one-sized offices with seniority recognized by location, not size;
  • Putting less emphasis on grand, ceremonial client spaces and more emphasis on functional meeting spaces;
  • Orienting the reception area around hospitality, with concierge services and hosted events;
  • Transitioning cafeteria space from merely a place to eat to a place to socialize, in a prominent area along a window line;
  • Creating smaller, on-demand meeting rooms with interactive technology scattered throughout the practice area; and
  • Adopting a paperless file storage strategy.

Julie Whelan, Americas head of Occupier Research, CBRE, concluded:

By fostering a modern workplace with a collaborative, inclusive and social environment, law firms can promote knowledge sharing between generations to aid in succession planning and use their office space as a competitive differentiator when recruiting talent.

The U.S. Legal Sector Trends October 2017 report on real estate strategies is available to download from CBRE with a Global Gateway account.