Space reduction continues to guide the office strategy for the U.S. legal sector, with firms giving up an average of 17 percent of their space upon relocating in 2014. Office leasing transactions for the sector have seen a consistent trim this year as 15 of the top 17 U.S. law firm leasing transactions were rightsizing moves, according to JLL’s newly released Law Firm Perspective.
But the influence of rightsizing has started to slow, with a new challenge on the horizon – supply shortage. It’s an obstacle that may offer a great opportunity for the industry. Law firms battling supply constraints and the war for talent may finally start to mimic workplace strategies of their corporate peers.
“Lawyers have always needed their own space, and the industry, as a result, has held on to very traditional workplace needs and strategy,” said Elizabeth Cooper, co-lead of JLL’s Law Firm Practice Group. “However, you have to be creative with your office strategy when the model changes. The industry is dealing with fee compression, a rapidly changing workforce and changing work styles. The workplace has to evolve, and it is changing to meet these challenges.”
According to a story in the BBJ based on our report, the health of law firms speaks volumes for the health of commercial real estate. Boston firms currently occupy about 10 percent of office space in the city, and they are continuing to rightsize in step with the nation.
“Here firms are facing the same forces that are driving other professional service firms to be leaner and meaner,” said New England Research Manager Lisa Strope. “As Boston area law firms are reconfiguring offices to be more in line with trends in the industries they serve, they are looking for flexible, more efficient spaces. Many are considering moves from more traditional and suburban locations.
“Across Massachusetts legal employment is still down nearly 2,600 jobs from prerecession peaks,” Lisa continued. “In Boston, we have seen a modest decline in legal employment over the past year. However, the intellectual property and corporate law sectors are growing, spurred on by the area’s rise in the high-tech and life sciences fields.”
Revenue for law firms is up by 4.4 percent, according to The American Lawyer, but that growth must now contend with rising rents. A JLL study predicts 77 percent of North American cities will see a rise in rents due to scarcity of available office product. This means law firms will no longer look solely at trophy or Class A office space in central business districts when they move or expand. Secondary locations are the next option.
Law firms, as per our findings, are beginning to reach the limits of what efficiency can offer. A review of the top 35 U.S. law firm markets indicated that market-by-market 55 to 90 percent of law firms have already devised substantial efficiency measures in new or restructured leases.
Rightsizing will reach a plateau in the next couple of years, so the industry will be forced to try different approaches to location strategy.
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