Should your firm downsize its office(s)?
Craig Braham is the CEO of Advocate Commercial Real Estate Advisors, a commercial real estate company providing advisory and financial services to tenants in a variety of industries. He has spent over twenty years representing major law firms throughout the country such as Clark Hill, McDonald Hopkins and Sedgwick Detert Moran & Arnold.
A little more than a year ago, law firm leaders were apprehensive about how their legal teams could possibly provide continuity of service to clients when they couldn’t come in to the office each day and gather around the same conference table. Fortunately, those fears turned out to be unfounded: Lawyers adopted tools to facilitate remote collaboration and kept right on meeting their targets. Greater demand for legal services in practices like labor and employment, insurance and financial services was one of two factors responsible for an eye-popping 13.4% growth in AmLaw 100 firm profits per partner in 2020.
The other factor? Expenses were down. Travel, entertainment and business development costs were virtually eliminated. While that has been a temporary boost to the balance sheet, firms will not be able to operate without those expenses forever. But lawyers do want to hold on to the newfound flexibility they gained through remote work. Which means firms may be able to reconsider their real estate footprint and realize substantial and enduring savings that could protect profits going forward.
Historically, real estate has always been a key aspect of law firm brand identity and culture — a symbol of status and success. With partnership came a larger office that the attorney designed with custom furnishings. The layout of a typical law firm’s space underscored the firm’s hierarchy: The corner offices were the biggest, followed by partners’ offices with windows on the perimeter of the space. Associates worked in less exciting offices, but they had something to aspire to. The typical large firm needed an average of about 1100 square feet per attorney.
Over time, as firms let go of some of these trappings and adopted a more egalitarian spirit, they moved to spaces with single-size offices and consistent furnishings across all offices. This reduced costs (the footprint shrank and the furniture got cheaper), and it was also more efficient. When someone got promoted, they didn’t necessarily have to move offices and rework the space. Firms reduced square feet per attorney to 800. Recently, firms started moving associates into workspaces in the interior of the office, which took firms to a 600-square-feet average, allowing firms to rent small overall footprints and lower their rent. At that point, the spaces were as efficient as they could get — until Covid introduced the idea that not everyone needs to be in the office every day. Through hoteling and shared-office concepts, some firms are realizing efficiencies ranging from 400 to 500 square feet per attorney.
Making a permanent change to their real estate footprint may be the right move for many firms. Here are some important factors to consider:
Your location and the specific needs of your workers. We have surveyed lawyers with the firms we serve across the country to understand their ideal scenarios for returning to work. In cities with notoriously bad commutes, like Los Angeles, a high percentage of lawyers want to continue to be fully remote or adopt a hybrid model. In smaller cities, where people tend to live closer to the office, lawyers are more likely to say they want to return to in-person work. It’s also important to consider attorneys’ obligations outside of work. Has your school district returned to in-person instruction? What are the plans for the fall? Some attorneys may want to return to the office to get away from distractions at home, but it may not be possible for them yet. So don’t assume that attorneys across all your offices will want the same things. You will need to create a plan — whether a hybrid schedule in the same space, a “hoteling” model in a smaller space in which some attorneys book offices on certain days, or a gradual return to full in-person work — that is customized for each office.
Necessary investments in infrastructure. You will save money on a smaller space, but your firm will need to invest in the technological tools that will make the new model run seamlessly in order to reap the benefits of greater efficiency. High-quality videoconference and project management software can give teams flexibility to manage projects from different locations, and ensure that partners working remotely maintain visibility on projects and stay in the loop. A well-run hoteling system depends on reservation software that allows attorneys to book office space and adjust plans as needed. The market is flush with tech products that can help with this, but they are not inexpensive. Firm leaders should be realistic about reinvesting some of their real estate savings into tools that make hybrid models work for everyone.
Long-term commitments based on short-term factors. Leases last many years. Who knows how long the post-pandemic period will last? After all, the pandemic is still very much with us today. A year from now, your attorneys may want something very different than they say they want today. So firm leaders should negotiate as much flexibility as they can possibly get into the lease. That way, if things change, the firm can expand or contract its space as needed. Fortunately for law firms, the real estate market is very favorable to tenants at the moment. Landlords are hungry to fill their vacancies and are willing to negotiate.
For most firms, rent is the second-highest obligation after salaries. The prospect of cutting that cost long term could be a gamechanger for firm finances. As long as firm leaders carefully consider the short and long-term impact of any changes they make to their office footprint, they are well positioned to reap the benefits of the post-Covid real estate market.