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(image courtesy CBRE)

Law Firms Adjusting Real Estate Strategies in Face of Changing Business Environment

San Diego CA— 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 CBRE. Most commonly, law firms are contracting their space, resulting in a reduced footprint of 27 percent on average between Q1 2016 and Q2 2017.*

This change in workplace strategy in the legal space is particularly important in downtown San Diego. “Downtown San Diego’s office market was the ‘golden child of 2016’ experiencing the strongest absorption and office rental rate growth of any submarket countywide in 2016,” said Mike Hoeck, senior vice president of CBRE in San Diego.

“Law firms in San Diego are being much more thoughtful and strategic about their real estate,” said Mike Hoeck. “While law firms are rarely first adopters, they are beginning to pivot like other industries as a result of generational changes, reductions in staff and innovation in technology. We are seeing space design revolve more around long-term flexibility, creating a better sense of community and with a focus on efficiency.  The changes we are seeing in the industry locally are on trend with what is happening nationally.”

Law firms are aggressively responding to the challenges that technology advancement, client demand and a shifting workforce pose for their future. San Diego currently has 12,500 professionals in legal services and 7,350 lawyers. The region has seen a positive 24.6 percent growth of lawyers since 2010. In San Diego, many firms continue to want trophy properties and desire more efficient floor plans in buildings that offer amenities to employees.

“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,” said Jamie Georgas, global chair of CBRE’s Law Firm Practice Group. “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. Twenty percent 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 percent 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, D.C. 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, D.C. 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

“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,” said Ms. Georgas. “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
  • Adopting a paperless file storage strategy

“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,” said Julie Whelan, Americas head of occupier research, CBRE.