Law Firms: The Downsizing Revolution
As law firm offices shrink, firms place increasing emphasis on flexibility, modernization, communal spaces and amenities. Bisnow's fifth annual Real Estate Strategies for Associations and Law Firms summit at the downtown Renaissance this week brought together lawyers and real estate pros to explain.
JLL VP Scott Homa gave a quick overview of market economics:
- Though US law firms' average annual revenue growth is around 3% (compared to double-digit growth in the past), profits per partner shows 5% to 6% growth.
- 86% of law firms have already reset their space needs. Whether they renew or relocate, firms give back about 25% of their space. (Scott's seen cases of over-correction.)
- The legal sector is down 7,200 attorney and paralegal jobs since 2008 peaks. (On the plus side, DC is in a three-year high for job growth.)
- 88% of new DC households don't have a vehicle. The District has been the second-fastest-growing jurisdiction nationally over the past four years, without any net increase in automobile registrations.
For insights about what law firm offices will look like in 10 years, we turned to a panel with a broker, landlord, architect and engineer: Cushman & Wakefield's Malcolm Marshall was joined by Perkins+Will principal Diana Horvat, Boston Properties SVP Peter Johnston, and WFT Engineering owner Reardon "Sully" Sullivan. Two drivers Diana sees are flexible office spaces that can be configured to accommodate staff or business changes, and methods to compress over time as law firm practice becomes more efficient and services provided by the firm are complemented by external services.
For how law firm offices will look, you may want to look to clients' offices. In some recent programming exercises for law firms, Diana says they've asked to speak with firms' clients, as many practice areas are being driven by clients' expectations of service delivery. From a landlord's perspective, Peter says there's somewhat of an "amenity war." Aside from the daycares, roof terraces and fitness centers, law firms are setting up casual spaces and breakout areas where people can get out of their own office without leaving the building. (Firms want to keep employees in the building, he says, and make a good environment where they want to stay.) At 2200 Penn Ave, Boston Properties also included a Whole Foods, a number of restaurants and two financial institutions. Outside of the law firm space, landlords are looking at what retail they can put on the ground floor that will be attractive to the firm's employees.
A panel gave the inside scoop on Hogan Lovells' extensive search for a new building—the firm considered 30 sites and ultimately voted to stay in Columbia Square—and fully renovate its 400k SF space. Cushman & Wakefield's Malcolm Marshall moderated, joined by Hogan Lovells partner Bill Flanagan (who's co-chairing the renovation and was at the firm when it first moved into Columbia Square in '87), Gensler's Kim Sullivan, and DAVIS Construction's Meghan Callahan. Bill says that starting early was important—the firm began internal discussions in 2011, five years before the lease was up, and engaged a strategic consulting firm. The partnership voted overwhelmingly to stay at 555 Thirteenth St, in part because of a convenient location atop Metro Center. Hogan is one-third of the way through the project, which should be completed in 2017.
Input from staff and attorneys has been critical to buy-in and change management, Bill said. A 50-person team called the revision committee advises on the renovation, with a core group of 10 meeting once or twice a week. There have also been focus groups and surveys throughout the process. Since it's a phased renovation, feedback can be incorporated into the next project, Kim says, and insights from living in the space have been helpful. Bill says the building's floor plate "helped further one of the firm's key strategic objectives: the 'one team worldwide' approach." Hogan is integrating all its support staff and professionals onto the six and a half practice floors with attorneys. Flexible zones around the interior can use removable partitions to make 165 SF associate offices, secretarial spaces or huddle rooms. Since this space is for the next 20-plus years, Kim says, they want to ensure it has the infrastructure to evolve with changes in the business model or leverage ratio.
Gensler examined three key factors: Hogan's business strategy, culture, and change management. The latter was important because for people to be shifted through the space for years, there had to be communication, excitement, and a vision that everyone can get behind. One effective change management technique was transforming the 37k SF into a "pilot floor" fully outfitted with one-size offices, new furniture, tools and technology, and the "Hogan Hive" (a central meeting place for each floor where people can gather for coffee or a chat). The pilot floor let attorneys see how the new office would feel; if a concept didn't work, it could be changed for the practice floors. Three months ahead of the pilot floor build, Meghan says that DAVIS made an even smaller mock-up of four offices to select furniture and finishes, and start vetting tweaks early in the process.
Reed Smith new markets tax credit practice leader Olivia Shay-Byrne moderated a final panel about associations and nonprofits, with Hickok Cole Architects director of interior design Sean Wayne, Vornado/Charles E. Smith EVP James Creedon, Doug Meyer, who led the American Diabetes Association HQ's move to Crystal City, CBRE EVP Manny Fitgerald, Cardinal Bank SVP Penny Bladich, and Youth for Understanding USA CEO Michael Hill. Olivia pointed out that Reed Smith just renovated its existing space, going with more glass, smaller offices and more communal space.