The legal industry is one that sticks to its old ways, from billable hours to traditional offices and cubicle designs. But even law firms are not insulated from change. In fact, faced with technological advancements, demographic shifts and new industry trends, law firms are now responding appropriately to the headwinds of the new economy, especially as it concerns real estate.
“Law firms, historically, haven’t been this challenged to look at the bottom line the way they are doing so now,” says Lenny Beaudoin, senior managing director and co-leader of CBRE’s Workplace Strategy practice.
Law firms, historically, haven’t been this challenged to look at the bottom line the way they are doing so now.
The traditional law firm was hit hard by the Great Recession, leading to stagnation in the demand for law firm services and declining profit margins, according to the 2017 Report on the State of the Legal Market by Georgetown Law’s Center for the Study of the Legal Profession and Thomson Reuters Legal Executive Institute.
“We are seeing a lot of firms trying to understand how to balance the traditional office entitlements with the realities of expense management and the changing ways in which law firms operate,” Beaudoin adds.
Today, many law firms are implementing new real estate strategies to “future proof” their real estate portfolios by creating a flexible working environment, according to Legal Sector Trends in the United States: Witnessing Change, a 2017 CBRE Research report. Many law firms still base their operations in high-cost business epicenters like New York City, Los Angeles, Chicago and Miami. In the first half of 2017, 74 percent of legal leasing activity was in downtown markets compared to suburban markets. At the same time, many law firms have already initiated space efficiency strategies with the goal of reducing their square footage by an average of 27 percent, per CBRE Research.
“Law firms today are looking at both top-line growth and the bottom line; and in doing so they are finding some opportunities to drive savings inside their real estate portfolio that can prove to be beneficial,” says Beaudoin.
One strategy to accommodate an increasingly mobile workforce is to create agile workplace strategies through configurable office design and flexible lease deals to “de-risk” the fluctuating headcount requirements, per CBRE Research.
Over 14 million square feet was leased by law firms nationwide from the first quarter of 2016 through the second quarter of 2017. According to CBRE Research, the dominant space strategy at the moment is centered around space efficiency, resulting in significant contraction activity across many legal markets—an estimated 2 million square feet of “shadow space,” or leased space that remains empty, between 2016 through 2017.
The Legal Workplace Today
The layout of the traditional law office, per Beaudoin, was characterized by giant file rooms and offices spread around the perimeter of the space with support functions on one floor or location, depending on the size of the firm.
Law firms today are looking at both top-line growth and the bottom line; and in doing so they are finding some opportunities to drive savings inside their real estate portfolio that can prove to be beneficial.
There was also a smaller support ratio of attorneys to secretaries (4 to 1), and larger offices for partners and associates. In short, the emphasis was on size.
The rise of automation and technology are already impacting traditional legal tasks. Mobile devices, virtual networks, video conferences and cloud storage have created a “virtual workplace that has changed employee expectations of where and how they work,” according to the CBRE Research report.
An estimated 43 percent of employees in the legal industry work remotely some of the time, up from 41 percent in 2012, per Gallup’s 2017 report State of the American Workplace.
This is a significant change in an industry where late hours, coupled with dinners in the board room, helped foster a stronger community in the office, says Beaudoin. But with advancements in mobile technology, lawyers can bring their work home.
“I think some of the ways that law firms operated in the past in terms of rigidity was around how lawyers managed their daily routines. Technology gave way to more flexibility and something was lost around the connectivity between people in those firms,” Beaudoin says.
The Workplace of Tomorrow
Looking ahead, CBRE Research believes the legal workplace will be focused less on size than on location. For instance, law firms may transition into glass-front, one-size offices with seniority being recognized by location, not size, and open work stations for contract attorneys. There will be a higher ration of attorneys to secretaries (at an estimated 10 to 1), less emphasis on ceremonial and grand client spaces, and more focus on practical and functional meeting spaces.
“You will see a reduction in space held vacant to better match supply and demand; and smaller floor plates due to a reduction in ‘core-appropriate’ support space,” Beaudoin says.
In all, thanks to technology and a new approach on real estate, the law office is becoming more connected, more collaborative and more accessible than in recent years.
02 November 2017 by Daniel Rosen