As the global pandemic’s overall impact on the legal industry continues to be felt, one area that’s likely to be dramatically altered — perhaps irreversibly — is how law firms consider and configure their real estate and office space commitment.
Indeed, the changing environment brought by the pandemic, which quickly escalated firms’ technology adoption and use of remote working patterns, has led many firms to re-think how much they spend on real estate and whether that money would be better redirected toward additional tech investments, especially those that support continued remote working. Yet, as we learn, it’s not solely because of technology that law firms are now embracing change.
In this final part of a three-part series on the legal industry’s changing approach to real estate, we continue our conversation with Sherry Cushman, Vice Chair and Executive Managing Director of Cushman & Wakefield; and Rebecca Rockey, Head of Economic Analysis & Forecasting in Global Research at Cushman & Wakefield. The series was spurred by data in Cushman & Wakefield’s recent annual “Global Office Impact Study” and several subsequent reports such as the firm’s “Bright Insight” legal sector benchmark survey, which showed the average law firm is expecting a 20% or more reduction in its real estate footprint over the next couple of years.
We’ve previously discussed how law firms are seeking to downsize their real estate footprint; and examined what the law firm of the future might look like. But we should also consider how a recalculation of staffing is going hand-in-hand with these real estate entrenchments, and how trends toward remote working will heavily influence real estate decisions in the legal industry going forward.
“If you take your real estate spending level down by two to three percentage points and then figure that you’re going to be spending two to three points more in technology, it’s generally a wash,” Cushman says. “So, it’s not just the need to invest more in technology that’s pushing these ideas, although that is a very real consideration for law firm leaders.”
“I think the greatest variable is staff and whether they need to take up an expensive seat in New York City or Washington, D.C. That is some very expensive real estate to be housing people who already prefer to work in their homes.”
Cushman had said that there is a “fundamental shift and market correction” happening in the legal sector around the use of office space, accelerating a downsizing shift happening in the legal sector even before the pandemic. “Some firms were already there,” she says, adding that law firm CFOs and COOs are weighing all the different options that they have right now. “In some cases, they’re financially incenting people to stay home, or giving stipends for employees to supply their own office furniture and technology.”
It’s a combination of several different strategies, Cushman explains, and most law firms are somewhere on the path toward the same realization: Remote workers are much less expensive than office workers, which gets to the heart of how remote working is going to have the greatest influence over how law firms configure their future office space.
Rockey notes that the Cushman & Wakefield study predicted that the number of permanent remote workers will approximately double, settling at around 10% of the workforce. However, the bigger piece of the puzzle is those workers who now desire to work at least some days of the week from home, what the study terms “agile workers.” It is in this group where law firms could really see dramatic changes and pressures to alter their real estate needs.
Like the permanent remote workers, the Cushman & Wakefield study predicts the agile workforce is going to increase greatly as well. Pre-pandemic, about one-third of the workforce worked from home on occasion; but now, with the lessons of the generally accepted success of remote working firmly in mind, that portion could grow to as much as half of the workforce.
“We think that around 50% for agile working will become sort of new equilibrium,” Rockey says. “And that means, on any given day, law firms would have far fewer people in the office than they did, pre-pandemic.” Of course, what that looks like in practice is still being sorted — whether agile means one or two days in the office, or more — but, interestingly, in a survey Cushman conducted as part of its study, less than 2% of workers said they wanted to come back to the office a full five days a week.
Another question of course, is what type of worker will be returning to the law firm office? “I think the greatest variable is staff,” Cushman says, adding that there are many workers within a firm that could just as well continue working from home. In a law firm’s accounting area, for example, a number of workers are sitting there, running numbers, and working on invoices and bills. “Do they need to take up an expensive seat in New York City or Washington, D.C.? That is some very expensive real estate to be housing people who already prefer to work in their homes.”
Driving this is the industry metric of employee seat cost, she explains, adding that firms have to weigh the value of housing an equity partner versus an attorney versus a staff member. “What we’re finding is that seat costs for staff, which might run $30,000 to $40,000 a year, will have a big impact on equity partner profitability if they can be eliminated,” she notes. “So, there’s a lot of moving around of the numbers.”
For example, Cushman tells of two of her clients, both Am Law 100 firms, that asked her to help them scale back their Washington, D.C. law offices by about 50%. “They came to us and asked, ‘What changes to our workplace need to happen to make this possible? How many people need to not be here? How many days a week do our attorneys need to come in?’
“For them, it’s all about making long-term, permanent real estate decisions.”