Legal Ease

Law firms reduce real estate needs as industry evolves

By Amos Maki

Earlier this year, Baker, Donelson, Bearman, Caldwell & Berkowitz PC renewed its lease at the First Tennessee Building Downtown.

The legal industry is going through a change when it comes to real estate, as technology affects space needs. Baker Donelson went through a real estate assessment before expanding its lease Downtown. 

(Daily News/Andrew J. Breig)

The city’s largest law firm decided to expand its lease, taking over a quarter of the space at the 415,658-square-foot Madison Avenue office tower.

Before the law firm inked the lease, it went through a comprehensive real estate needs assessment with its real estate partner, Cushman & Wakefield/Commercial Advisors.

The legal industry in Memphis and across the country is going through something of a sea change when it comes to real estate, with factors like a more technology savvy, mobile workforce and a dwindling reliance on paper records playing a role in how law firms make their real estate decisions.

“The industry itself is just going through a pretty significant change,” said Jim Hughes, executive director of Baker Donelson. “There’s a real emphasis on product delivery and reducing overhead to be more cost competitive. You have to put more of an emphasis on that now. It’s a very important part of our strategy.”

The stakes for law firms, which are seeking to be more cost competitive while maintaining profits, are high. For most law firms, real estate is their second or third highest operational costs behind salaries.

But according to a national survey from Cushman & Wakefield, the legal industry occupies on average two to three times the square footage per employee than the banking, finance, insurance and technology industries.

How individual law firms implement policies and make decisions to address this imbalance is expected to have a dramatic effect on competition within the industry over the next few years, said Larry Jensen president and CEO of Cushman & Wakefield/ Commercial Advisors.

“It’s a big deal now,” Jensen said. “I think there is a recognition that the legal sector is changing and you can’t keep doing business as you used to.”

The Cushman & Wakefield report paints a picture of an industry grappling with a great stress on space efficiencies, reduced square footage per attorney ratios and space flexibility in an ever-changing marketplace.

This stress is not due to a firm’s desire to simply downsize, but the financial pressures to maintain profits, decrease occupancy and operational costs, as well as to be more in line with other industries.

Like most industries, legal firms are changing their real estate decision-making process to reflect the technology-driven business world of the 21st century.

“You’re recruiting a new generation of the best and brightest who don’t understand the need for a big office,” Jensen said. “There are lawyers I deal with who rarely go to the office, and they don’t have to. They can be anywhere and work and not be fixed to one place.”

Law firms, which once used large amounts of space to store papers records and house legal libraries, are now operating in the cloud.

“The need for storing paper is going away,” Hughes said. “It’s mostly electronic and, of course, the library is becoming electronic.”

And in a world where employees can now access all the work-related information they need from their laptops, tablets or cell phones, the office is becoming less and less vital.

“A lot of people can be mobile, so they don’t need that big office to sit in,” Hughes said. “Things are just changing.”

In an environment where clients increasingly expect their legal representatives to visit them on their home turf and meetings can be held via conference over the Web, legal firms are now moving away from large, gilded office spaces.

“What’s happened is the day of the fancy, big office, that’s gone and now it’s more of a standard size office with the emphasis now being placed on information technology and conference rooms,” Jensen said.

Law firms are also increasingly looking for flexibility in their lease agreements. For years, many legal firms would carry extra space – some of it empty – in anticipation of growth.

“If you’ve got 100 lawyers and you’re sitting there with 20 vacant offices you can do the math on the impact of the cost on that,” Jensen said.

Firms are seeking to maximize the amount of usable space, trying to move the amount of usable square feet as close as possible to rented square feet. That means reducing office sizes and making more use of interior space.

Hughes sees a time in the not-too-distant future where multiple attorneys working as a team would share space in what may have previously been an office for a lone attorney.

“I can envision a room where you can go in there and there are flat-screen televisions and computers and they can go in there and collaborate,” Hughes said.