CHICAGO – The war for top legal talent – specifically, millennial talent – is raging within the American legal sector as law firms adapt their cultures, policies and workplaces to better suit this increasingly important generation of lawyers, according to a new report from Cushman & Wakefield’s Legal Sector Advisory Group.
At the same time, the report found, firms continue to face pressures to grow profits and control costs, even as younger lawyers demand better pay and oftentimes costly fringe benefits. Notably, the average percentage of gross revenue spent on real estate has fallen to under six percent in the past four years, even as rental rates for office space have gone up in most major markets during the same time frame. Firms are offsetting increased rental rates through densifying their real estate through give-back of excess space and decreasing per attorney space ratios to under 600 square feet per attorney (today’s target ratio). In fact, in 2018, the national average of space reduction when a firm relocated was 29.7%.
“Legal sector change is occurring at lightning speed,” said Sherry Cushman, Executive Managing Director and Leader of Cushman & Wakefield’s Legal Sector Advisory Group. “One of the key drivers of this change is the growing prevalence and influence of the millennial generation, which has a different set of priorities, expectations and way of working. This, combined with technology expansion, has led to a fundamental shift in the way law firms think about real estate and working in general.” For example, 20 percent of firms are now calculating and tracking the per-equity-partner costs for bricks and mortar, up 11 percent from the previous year.
In the next decade, architects surveyed expect the most significant anticipated changes in law firm workplace design to be: more single-size, smaller attorney offices; expansion of hoteling strategies; greater focus on wellness; increased collaborative spaces; hospitality integration; continued space densification; interior attorney offices and open plan for attorneys; increased building and neighborhood amenities; and increased technology costs. Fourteen percent of the law firm respondents noted that they had already shifted to single-size offices for all attorneys. Eight percent are also sharing offices with two associates or plan to in the future.
“The fact that equity partners share the large financial impact of real estate over time calls for an even greater need to build internal consensus,” Cushman said. “As part of effective business and profit strategies, firms must evaluate how excess square footage, high inefficiencies and per-attorney occupancy rates — combined with increased rental rates — will impact the firm and each equity partner financially.”
“In addition, with continued technology advancements, the younger generation doing more and more of their own work, as well as partners using technology on a broader basis, future investment in technology will continue to increase, while real estate costs will trend downward,” Cushman continued.
Additionally, according to a survey of architects included in the report, 78 percent of respondents stated that more firms will “achieve a below-500-square-feet-per-attorney ratio in the next decade,” up from 70 percent last year. In addition, significant real estate rightsizing and downsizing — including a reduction in warehousing growth space — will take place in coming years. Six years of statistics support the idea that continued densification of legal sector real estate is not just a trend, but a reality.
Addressing the Future: Diversity and Associates
With great optimism, the 2019 survey saw a 7% increase in firms noting that “now more than ever, diversity demands are impacting business opportunities and we take it very seriously.” No doubt this impacts how firms look at recruiting and retaining legal talent of all ages, genders, races and more. However, it is also apparent that diversity is enough of a priority that it factors prominently into the law firm selection process.
In looking to the future, a solid 47% of firms noted that they “have a mandate to improve diversity in the next five years.” Another 31% noted that they “somewhat have a mandate to improve diversity in the next five years,” while 23% indicated there is no such mandate. Some firms shared creative tactics for improving diversity, including hiring talent and diversity directors, providing law school scholarships to diverse candidates with the goal they will join their firm when they graduate and providing billable credit hours for diversity activities. While improving diversity is easier said than done, our results show that the legal sector is embracing the challenge.
For associates, the Bright Insight survey indicates that compensation is now the most important issue, followed by collegial work environment, work-life balance and mentorship by senior attorneys. Over the past three years, compensation has risen from the third most prominent issue to the top.
“While the top four issues have been the same for the past three years, the shift to compensation being number one makes it more and more challenging for a firm to increase associates’ pay while also providing flexible work schedules and work-life balance,” Cushman said. “Businesses can no longer ignore the staggering millennial influence and are taking the changing desires and priorities of the younger generation into serious consideration. It will be interesting in the years ahead to see how firms balance these shifts successfully and retain top talent.”
In conjunction with ALM and Law.com, the 2019 National Legal Sector Benchmark Survey confidentially queries more than 1,400 law firm decision makers and associate respondents self-identifying if their firm held an Am Law 100 or 200 or Global 100 ranking or if respondents were a national, regional, or one-off local firm that was not on one of the ranking lists. Respondents ranged from firms with under 20 attorneys to global mega firms.
About Cushman & Wakefield’s Legal Sector Advisory Group
Cushman & Wakefield’s global Legal Sector Advisory Group consists of more than 350 advisors that specialize in strategizing, creating, and implementing real estate solutions that support the business of today’s legal sector. Our extensive experience working with local, regional, national, and global law firms has uniquely positioned us to guide you through complicated decision making required in today’s fast-paced law firm environment. We are committed to providing our legal sector clients with up-to the-minute intellectual capital, thought leadership around industry challenges, and the solutions required to help firms achieve attorney consensus to effect change.
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.