Currently, real estate is the second largest expense of law firms behind employees. On average in Dallas, real estate is about 5.4% of a firm’s revenue, according to proprietary research of Dallas-Fort Worth law firms. However, we are anticipating this figure will continue to decrease.
While some lawyers and their staff aren’t going in the office, business is still happening and cases are going forward, which is driving an increased need for technology, as is detailed in Cushman & Wakefield’s Bright Insights report. This trend has been gaining momentum over the last five years, but now it’s a necessity. As such, some real estate funds could be reallocated into technology spending.
Due to the nature of work today, law firms should look to offer a combination of work from home and in-office work time. The office offers collaboration which can be key to drive business, but also recognize that lawyers and staff can work just as effectively on process-oriented tasks from home and virtually.
Law firms aren’t going to be doing a lot of real estate deals between now and the start of next year where they’re going out to lease new space or to try and decrease their footprint. However, beginning in 2021, we anticipate having a tremendously high amount of real estate deals related to law firms and traditional office tenants rightsizing or downsizing their office footprint or closing office in certain markets. The real estate market, from a landlord’s perspective, lags about 18 to 24 months behind traditional financial markets when it comes to any kind of downturn, lowering of rental rates, or increasing concessions to entice a tenant to move into your building.
So what questions should law firms be asking when considering real estate costs?
- Are we looking at short-term extensions as a strategy for a short-term bridge into next year when the market conditions will be more tenant favorable?
- Have we evaluated our cost of real estate compared to our number of attorneys and our revenues?
- Have we looked at our technology costs and other areas where we can utilize technology to streamline certain processes and needs?
By taking these items into account and partnering with a tenant representation broker, law firms can best determine what the real estate strategy and solution will be going forward.
This blog is based on a recent interview Ryan Hoopes conducted with Texas Lawyer, a weekly newsletter from Law.com. Ryan is a Director in the Legal Sector Advisory Group at Cushman & Wakefield.