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A closer look at Savills Studley’s “Law Firm Employment and Space Trends” research report

L_Davidson
Lisa Davidson

In an interview with the Illinois Real Estate Journal, Lisa Davidson, executive managing director of Savills Studley’s Chicago office, discusses the research for Savills "Law Firm Employment and Space Trends", as well as key findings for Chicago.

In a recently published report, Savills Studley Chief Economist, Heidi Learner examined the latest trends in law firm space use and why headcount at domestic law firms has slowed. The research entitled “Law Firm Employment and Space Trends” suggested three main reasons as to why law firms have failed to rebound as quickly as other professional office-using sectors.

In an interview with the Illinois Real Estate Journal, Lisa Davidson, executive managing director of Savills Studley’s Chicago office, discussed this research, as well as key findings for Chicago.

According to ALM Media, through the first five months of 2014, there have been 50 mergers or acquisitions of law firms. Savills research cites that this merger and acquisition activity among law firms has led to fewer employees.

The report also noted that law firms are focused on growing internationally, rather than increasing their domestic presence. The 250 largest US law firms expanded their presence by increasing their international office count across the top 15 markets by almost 100 locations (13%), and by more than 5,000 attorneys (+25%).

“I think there are many industries that are going through consolidation where there is a demand for a global firm,” said Davidson. “People want to come to one firm and know that they can be accommodated in every city, and every country around the world. So I think the medium-sized firms are getting pressure to become larger as well, or be part of a larger network.”

Revenue growth at law firms has slowed and prevented more aggressive expansion within the US, according to the report. A Census Bureau measure of total legal services revenue shows that total revenues fell in 2013 for the first time since 2010. Davidson said it could be a reflection of the economic downturn.

“It’s not unique to the law industries that companies are putting pressure on fees across the board, with all kinds of professional services,” she said. “So in general I think companies are trying to do more with less.”

The report then analyzed attorney headcount and space occupied for each of the top five firms in New York, Chicago, Washington, D.C., and Dallas. Key findings for Chicago included:

• Seyfarth Shaw has sliced its occupied space by one-third (from 300,000 sf to 200,000 sf) for its 215 attorneys. • Blatt, Hasenmiller, Leibsker & Moore downsized from 30,000 sf to 23,000 sf with its recent move. • McDermott Will & Emery and DLA Piper each will pare office space in their respective moves once River Point, currently under construction, is completed. McDermott Will & Emery will reduce its footprint from 303,000 sf to 225,000 sf, while DLA Piper will trim its space from 260,000 sf (part of which it currently sublets) to 175,000 sf for its 210 Chicago-based lawyers. (The building’s slightly narrower windows will allow more offices per floor than is the case with most existing skyscrapers.) • Latham & Watkins modestly reduced its space from 144,000 sf to 136,000 sf when it moved with its 143 lawyers (and 245 employees) to the AMA tower. Dentons took Latham’s old space at the Willis Tower, moving within the building, but downsizing from 177,000 sf.

“I think the downsizing, as the report indicated, comes from a couple of different things,” Davidson said. “First, law firms used to be more optimistic, and worried more about growth. So when they made big offices they would take more space than they needed, with the idea of warehousing it.”

“What’s happened is that it turned out they do not need the space,” she continued. “So those sub-leases have remained on the market, and they’re in fact putting maybe even more space on the market than they thought.”

Too many firms in Chicago subletting space is one reason as to the downsizing; Davidson said another is layoffs in general.

According to Chicago Lawyer Magazine, Jenner & Block sublet two of its 14 floors after its attorney count fell from a peak of 386 in 2006 to 279 in 2014, while Mayer Brown gave back one floor and sublet another in 2013 as its Chicago attorney count fell from 509 in 2009 to 375 in 2014. Locke Lord sublet approximately 55,000 square feet last year as well. Skadden, Arps, Slate, Meagher & Flom and Kirkland & Ellis—each of which has seen their Chicago headcount decline over the past five years—each have sublet space, while Winston & Strawn, whose attorney count has fallen by -17% over the past two years, currently has 75,000 sf of sublet space on offer.

“So we see firms are downsizing due to them getting smaller, subleasing excess space, and then finally merging with other law firms. Once they merge, if they both have a presence in Chicago, they consolidate their office space, and then sublease the space that they’re letting go of.”

Even if the law firm’s headcount is the same, Davidson said they are still taking less space than they used to, which is why the square feet law firms allocate per attorney is really being driven down.

“At one time, it was over 1,000 square feet per attorney,” she said. “More recently the number is 700 square feet per attorney, and now firms are trying to drive it down—I’ll say—as low as 550 square feet per attorney.”

Allocating the number of square feet per attorney down is being done in several different ways. The first, according to Davidson, is by having just two office sizes.

“In the past, there could be three or four different sizes,” she said. “Now there are two different sizes. And some firms, the very progressive ones, are even considering universal size offices. So that’s mentioned in the article where it’s just all the same size, whether you’re a partner or an attorney.”

Davidson also noted that most law firms like to keep all of their attorneys along the window line—that’s changing as well.

“Now they’re looking at putting associates on the interior offices, and just having glass fronts,” she said. “This is also a new thing with law firms so that the light comes in. But by putting offices on the inside, as well as exterior, you take less space.”

Another thing changing is that law firms no longer need libraries because of the digital age. “In Chicago, because fire codes have changed, they’re no longer putting in big, glamorous staircases as an architectural center piece in their space. Now they’re using the building stairway, for example, or just taking the elevator.”

“Law firms are also no longer having a need for large conference rooms because of teleconferencing,” Davidson noted. “So that reduces conferencing needs. Finally, the secretarial ratio with law firms is changing. There’s no longer a 2:1 ratio. Some firms are pushing 5:1, or 7:1. So all of these things together make a law firm today take a lot of less space, even with the same headcount as they used to.”

Technology has truly changed the way people operate in today's society-- it’s showing in all sectors as everyone, including law firms, are taking advantage of it.

“At one point I think law firms cared about having nice, large offices because they spent so much time there,” said Davidson. “While they still spend a lot of time in their offices, they now realize that they can move readily, work mobility, or work from home after hours as well.”

“And what’s more important is not only the technology and mobility it provides outside of the office, but having wireless technology and mobility throughout the office as well.”

The one thing Davidson said she hasn’t seen law firms embrace is the collaborative work- style of tech firms, and other firms who embrace it.

“With those types of firms collaboration is very important,” she said. “So they’re putting in a lot of collaborative type areas in their space, where people can gather casually and informally to work. I don’t see that as much with law firms. Mostly they might have little kitchenettes or small cafes where attorneys can come.”