Law Firm Metrics Update
Rethink, Evaluate and Implement
COVID-19 has created an opportunity to rethink how firms operate their businesses and are already working to implement changes for the future.
Impacts of COVID-19 to Business and Workplace Strategy
82% of law firms surveyed agree that COVID-19 has created an opportunity to rethink how firms operate their businesses and are already working to implement changes for the future. Multi-market firms are beginning to evaluate each location in their portfolio to determine how the pandemic has affected their business in a local market. For example, in more densely populated markets, what percentage of attorneys are coming to the office on a daily basis? Is this a trend that is expected to continue over the next 5 years? If so, can firms implement long term strategic initiatives now to fit the needs of a specific location, which help to maximize firm performance and control real estate costs?
How are future retirements across the real estate portfolio impacting real estate decision making going forward?
Hiring and Growth
Hiring and retaining top talent continues to be a major focus and challenge for law firms. 79% of firms indicate they are looking to fill roles through targeting and hiring legal talent from other firms. Two specific efforts firms have taken to improve recruiting and retention of attorneys are increasing salaries and increasing hybrid work options (both 70% respectively). The two primary reasons firms are indicating why attorneys are leaving are retirement and greater compensation. For your firm, how are future retirements across the real estate portfolio impacting real estate decision making going forward?
Technology
With the increased use of technology in the legal sector, survey respondents indicated that 45% of firms have spent 7% of their gross revenue on technology in 2021, up from 30% in 2020. The areas where firms anticipate a greater spend for technology in the future are overwhelmingly IT Security (75%) and Network/remote working capabilities.
Class A vacancy in urban cores has increased across the country.
Real Estate
The US office market has experienced a softening over the last two years due to the impacts of COVID-19. The combination of decreased demand for office space and the completion of new office development has caused Class A office vacancy in urban cores to increase across the country. Some densely populated markets have seen a more drastic increase in vacancy over others. Due to the exploration of hybrid workplace strategies, firms continue to look at ways to densify and reduce their square foot per attorney target ratios. 58% of firms responding to the ALM survey noted they plan to reduce their footprints by 10%. 46% of respondents indicated their current square footage per attorney ratio at 100% occupancy is 600 SF or less, with 36% between 600 SF and 800 SF. 65% of firms responded that their target ratio is 600 SF or less.
65% of attorneys today expect to work remotely, two to three times a week going forward.
Hybrid Workplace Strategy and Return to the Office
The consensus across the board? The perfect workplace strategy has yet to be created. Space utilization continues to be a hot button for firm shareholders and administrators. The collection of this data has been spotty and will generally require more time to evaluate, given most firms did not consider this metric pre-pandemic. Most firms are now looking to experiment with hybrid solutions to help determine future workplace strategies. One data point of particular interest is that 65% of attorneys today expect to work remotely, two to three times a week going forward. For those expecting this increased level of flexibility from their firm, the question must be asked of which arrangements in the workplace (hoteling, shared offices, internal offices) can be implemented, to maximize the utilization of a particular firm’s footprint. And to this point, can future real estate efficiencies create impactful savings, which can then be reallocated to areas such as recruiting and retention?
Conclusion
The data collected by ALM and LAW.com is great to help in benchmarking your firms target metrics against competitors. Between the data our law firm clients are collecting, along with discussions with non-client law firms, exists a similar struggle in developing a solution for the changing work environment. We are seeing a major focus on the use of badge scanning to monitor utilization of the space in each location, and to determine how best to forecast current and future space needs. Hybrid work is here to stay and is an ongoing research project to determine individual needs, specific to each office geographical location. The areas we recommend continuing to evaluate, are (1) driving the attorney per SF ratio down across your portfolio and (2) minimizing out-of-pocket spending for future lease transactions. Continuing efforts to implement uniformed sized offices, evaluating necessary conference rooms and seats, future attorney growth requirements, the utilization of interior spaces to capture attorney growth and the accommodation of hybrid workers are all critical narratives in the pursuit of creating the optimal workplace solution, while increasing shareholder value.
