U.S. law firms will never be the same

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The fundamentals of law firm real estate are changing faster than ever. Plot the important trends affecting law firms on a graph, and over the past five years, 2015-2020, you will see a steady but subtle increase in their proliferation across the legal industry.

Trends such as increased adoption of technology, improved workforce and operational efficiency, and competition for high-end talent and clients, have slowly but steadily gathered pace. ‘magnitude. But the pandemic and the associated economic downturn from a tumultuous 2020 have accelerated the rapid change in many of these trends.

Ryan hops

My favorite example of this happened on May 4th in the midst of a global lockdown. For the first time, arguments were presented to the United States Supreme Court in a virtual setting. What was touted as a crown jewel for many appeal practices is now, like the majority of cases conducted over the past six months, gone.

Real estate is one of the most critical factors in how businesses will operate in the future. In Dallas-Fort Worth, law firms rent and occupy more than five million square feet of office space.

Here are the statistics, changes and real estate trends of the DFW law firm that we are projecting:

The current average square footage per lawyer in Dallas-Fort Worth of 1,093, will decline.

This ratio has been falling steadily for years. However, we expect that number to continue to decline at an accelerated rate, pushed even harder by the pandemic. The growth of remote working and hosting (a model of unassigned, reservation-based seating) has become common in today’s conditions of working from home and the staggered return to the office.

Optimizing a firm’s operating staff and reducing the number of less productive lawyers requires the right sizing and strengthening of its real estate footprint. In 2019, before the pandemic, law firms signing new leases or renewals reduced their occupied area by 10.6% on average.

“What is our target size for the future? Has become one of the most important topics for law firms.

The average gross rental rate for law firms in DFW is $ 33.84 per square foot and will remain stable.

We expect this figure to remain stable or even increase slightly. Even though we expect a continued reduction in footprints, the “flight to quality” is still a significant effect with major law firms using trophy office buildings and associated equipment to help them earn the prize. war of the best talents. Recruitment and retention is still the number one concern of almost all large law firms.

For example, the AmLaw 100 BakerHostetler company recently moved and leased space at Harwood No. 10, a newly constructed trophy office building that recently opened in the Harwood District. This follows the international law firm Reed Smith which leased 50,000 square feet in the same building in early last spring.

Additionally, “the work environment” was cited as one of the two most important issues for partners in determining which law firm to join (“compensation” is still the rule).

The average annual cost of real estate per lawyer in Dallas-Fort Worth is $ 36,472

In the near term, we expect this number to remain relatively stable, if not to increase slightly. Businesses will have to wait for applicable lease triggers, such as expiration or termination options, to adjust fingerprints. In the meantime, cancellation of summer associate programs, pay cuts / shift changes, time off and layoffs have been common reactions to the recent COVID-19-related downturn, all leading to a decrease in number of lawyers with the same short-term cost of the real. domain.

There are also indicators that the legal workforce is shrinking at a slow but concerted pace. For example, in the midst of the most recent economic expansion, the number of U.S. law students graduating each year has declined by 22%.

In the long run, given that law firms have the flexibility to strategically adjust their plans for optimal office sizes and address office leases, we expect the cost of real estate per lawyer to decrease. . Real estate, being the second most important expense in a company’s budget, will play a vital role in reducing costs, especially as competition and pricing structures exert increasing pressure on the market. profitability.

Real estate costs represent 5.4% of business revenues, on average, in Dallas-Fort Worth.

This percentage has steadily declined over the past five years, and we expect it to continue to do so. Fifty-five percent of companies carefully evaluate operations and how services rendered can be streamlined. The rapid acceleration in the implementation of technologies, such as virtual meeting technology and IT security, will begin to underplant spending in other areas of the business.

In the not-so-distant future, we expect technology costs to eventually represent a higher percentage of income than real estate. The reduction in occupied square footage, increased remote working capabilities and pressure on profitability will continue to drive down the percentage of real estate spending.

While it is too early to know the long-term effects of COVID-19, a few observations are specific. The pace of change has accelerated and new directions that were not widely seen as achievable in the past are now very likely to occur (e.g. work from anywhere, find accommodation, reduce congestion, offices).

Going forward, the firm’s strategies will incorporate a more holistic approach to what the law firm is, its areas of practice, its client relationships, its geography, its talent base, its diversity and inclusion, culture, technology, operations and real estate. This will lead to a wider range of strategies and innovations as companies better articulate who they are and who they serve, positioning themselves for future success.

Click here to learn more about trends affecting law firms.

Ryan Hoopes is Director of the Legal Industry Advisory Group at Cushman & Wakefield.

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