WASHINGTON, DC-Law firms, generally among the last of professional services tenant classes to change their ways of doing things, are now making their real estate decisions far differently than in the past, a benchmark survey from Cushman & Wakefield reveals. However, C&W’s Sherry Cushman tells GlobeSt.com, this sea change is not the result of attorneys waking up one morning and deciding it would a good idea to use less office space.
“On a per-employee basis, law firms are occupying two to three times as much space as other industries,” says Cushman, executive managing director and leader of the Americas legal sector advisory group at C&W. That longstanding status quo is shifting, “not because of the workplace, but because maintaining profitability has become very challenging” for many firms. Hence, a focus on controlling expenses—and after employee compensation, real estate is the number one expense law firms incur.
Accordingly, the survey found that the real estate spend for law firms is down from 10 years ago: an average of 6.2% of gross revenue, or two to four percentage points less than in 2003. However, Cushman notes a “delta” in the actual expenditures by individual law firms. Some survey respondents reported putting as little as 4% of gross revenue toward their real estate, while for others the figure was as high as 12%. That compares with the major accounting firms, whose real estate spend doesn’t vary by much more than a percentage point from firm to firm.
Cushman attributes the expense gap between the legal sector and other industries to what she calls “democracy vs. dictatorship.” Most office-using industries follow the dictatorship model. “When a CFO or CEO decides it’s in the company’s best interests to pull out of a downtown market and relocate to a suburban market, and pull everybody out of offices and put them into cubicles, if you want to work for that company, you follow them,” she says. “A law firm is a democracy, a partnership. Traditionally, the real estate decisions are made by lawyers, not business leaders.”
That’s changing, though, as firms are turning to other disciplines to hire key managers. Forty-six percent of senior-level leaderships positions have been filled by candidates from the accounting industry, for example, and another 20.9% came from the corporate world.
“They’re coming in and infusing their wisdom from corporate America into the legal sector,” says Cushman. That means that for these firms, the real estate decisions are getting made under the dictatorship model. The idea, she says, is “separating the business/lawyer side from the operational side. They’re saying, ‘let’s let the lawyers be lawyers, and let the experts in facilities and operations handle that for us.’ ”
Over the past four months, she says, “we have pitched two Am Law 25 firms in the Northeast. There was not one lawyer on the other side of the table.” While that doesn’t mean that the partners have no input, it does mean that the non-lawyer real estate directors are “driving the bus. And it’s all being based upon what type of real estate solution is going to support their business.”
One driver of those decisions is the changing ratio of support staff to “timekeepers,” i.e. partners and associates. More than 72% of respondents said that support staff is shared by at least three attorneys, while 21.2% said the ratio is four or more. As more attorneys do more of their own work, that ratio will continue going up in the next few years, says Cushman.