The law firm balancing act

Operating expenses are under pressure from increasing base salaries. There is also an increasing urgency to invest in technology, business development and restructuring initiatives in the face of disruptive forces. In this environment law firms face a challenging task of keeping a tight rein on expenses while positioning themselves for growth. The most successful law firms are recognising that real estate is a key asset in achieving both objectives.

Managing real estate costs

A monitor of activity outlined in our Legal services sector profile shows a number of strategies in operation.  For example, there is the continuation of off-shoring/near-shoring strategies to optimise efficiencies and reduce cost. In August 2016, Freshfields Bruckhaus Deringer secured 81,300 sq ft of space at One New Bailey, Manchester to accommodate its growing global support centre. Manchester was chosen due to its skilled labour pool. They are also opening a new support hub in Canada.  

There is also evidence of the growing adoption of flexible working, offering law firms with opportunities to better utilise office space. In autumn 2016, for example, Addleshaw Goddard relocated to 3 Sovereign Square, Leeds and the adoption of new ways of working and enhancements to technology allowed the firm to reduce their overall space take by over 20%. We expect to see further adoption of smart working practices going forward.

Despite significant cost reduction actions, the latest financials indicate that the legal sector needs to make further moves towards increasing the efficiency of their real estate. Additional levers to pull on include a further analysis of current occupancy, re-gearing leases, extending north shoring beyond back-office functions and working the office space harder. Over the longer term automation, greater reliance on a contingent workforce and legal process outsourcing will all play a larger part in the resourcing of law firms. Understanding the impact of these strategies on occupational requirements will be crucial to maximising efficiency. 

Using physical premises for competitive gain

Law firms recognising the value of the workplace to staff attraction, retention, innovation and productivity are focusing more intently upon workplace transformation as well as a clear flight to quality space.  Examples include CMS, who created a modern and collaborative workspace at its Cannon Place HQ. The workspace is designed around clients and defined by sectors, with practice based teams working in an open-plan environment. The workspace includes innovative technology, allowing for total mobility. The office has 30% less space than its predecessor but capacity for around 15% more people. It was awarded “Best Fit Out of Workplace” for London and the South East at the 2016 British Council for Offices Awards. The trend is in evidence across the UK.  Blake Morgan, for example, relocated to higher quality space at One Central Square in Cardiff. The fit-out was firmly focused around the firm’s philosophy of being collaborative and non-hierarchical.  

Going forward an intensified war for talent and greater need to innovate in order to differentiate will drive increased levels of fit-out, refurbishment and continued flights to quality space solutions. 

Managers of legal services real estate face big challenges, but also great opportunities. In our opinion those that perfect the art of balancing real estate cost reduction and efficiency with growth, while being forward-looking and strategic enough to calculate future corporate requirements will reap the rewards of increased financial returns. 

Read more in our latest report: Legal Services Sector Profile: Your Future, Now