Rethinking the office

One-size-fits-all attorney offices?

The mere idea might prompt a gasp of horror from a law firm partner with a spacious corner office, but real estate experts say the slumping economy is prompting firms to look closely at how they use their space and how they can be more efficient and save money.

Adopting one universal office size for both associates and partners — which cuts down on total square footage needed — is just one of many ideas law firms are exploring in order to reduce real estate expenses.

“Firms are very concerned with real estate right now,” said Bella Schiro, the vice president of occupancy analysis and planning at real estate services firm Jones Lang LaSalle, based in Chicago. Schiro’s job is to help law firms use space more efficiently. “They are really taking a hard look at their space because they don’t want to be using more of it than they need to.”

It’s no wonder law firms are turning a critical eye to their real estate needs. After payroll, real estate is typically their second-largest fixed expense. Law firms often occupy space in prime metropolitan locations that come with hefty price tags.

“As you consider the percentage of your budget that you spend [on office space], you have no alternative, really, but to look at how you can more efficiently use your space,” said Sally King, the regional chief operating officer at Clifford Chance.

Two approaches

Real estate specialists who work with law firms say they are seeing two approaches to cutting those costs. The first approach involves short-term changes that have an immediate impact on expenses, such as renegotiating leases or subletting unneeded space, said Thomas Doughty, an international director at Jones Lang LaSalle and chairman of its law firm group.

The second focuses on long-term changes in how firms utilize the space they have, such as downsizing to one office size or putting two associates in one office. Those types of changes are generally still in the discussion phase, but experts say law firms may emerge from this poor economy using their space much more efficiently.

“There has perhaps never been a better time for law firms to completely reconfigure themselves,” said Hunter Blanks, executive vice president at real estate services company Colliers International, and chairman of its law firm practice group. “They can really reduce their overall occupancy cost per attorney.”

Renegotiating a lease is perhaps the most obvious way a law firm can reduce its real estate costs, though the feasibility of renegotiating varies, depending on the individual circumstance of the firm.

For example, a firm with a lease that expires in less than three years has a better chance of convincing its landlord to renegotiate, as do firms that rent space in partially filled buildings, said Blanks. In the same vein, firms that are locked into a long lease may also find landlords to be less willing to modify the lease terms, Doughty said.

Subleasing unused space is another option for law firms, since many firms have drastically reduced their attorney and staff head counts through layoffs. But real estate experts warn that law firm offices are notoriously difficult to sublease because they are generally suitable only for other firms, and reconfiguring office space for another purpose is expensive.

Even with those challenges, subleasing excess law firm space is possible. For example, Atlanta-based Kilpatrick Stockton recently agreed to sublease 25,000 square feet of space from Clifford Chance in its New York office.

King said that Clifford Chance signed a 20-year lease for its New York space about five years ago with plans for a significant expansion over time. So when Kilpatrick Stockton — which already had an office in the building — needed more room, it made sense for Clifford Chance to sublease its unused space, King said. Clifford Chance has trimmed its staff and attorney head count through several recent rounds of layoffs.

Beyond short-term cost savings measures, firms are starting to discuss how they can use space more wisely.

Doughty said U.S. law firms have long lagged behind the corporate world and their overseas counterparts when it comes to occupancy efficiencies. For instance, it’s common for associates in U.K. firms to work in open areas known as bullpens, instead of private offices.

Law firms can make a number of modifications to save space, which include opting for one size of office, housing associates in interior offices for longer periods of time, reducing the size of libraries and opening suburban offices to cut down on the space needed in expensive downtown locations.

Some firms are already taking that step. New Jersey firm Saiber plans to relocate from its downtown Newark location to the suburb of Florham Park in November — about a half-hour drive away.

“It’s a cost savings,” said managing partner Bill Maderer. “We’re able to get more space for the same amount of money, or less.”

By modifying how they use space, law firms can realistically trim between 10% and 20% from their real estate costs as long as landlords allow them to unload their unneeded space, Doughty said.

The one-office-size idea may make the biggest splash, since office size and location are often seen as workplace status symbols.

In the past, senior partners held client meetings in their office, meaning they warranted more space, Blanks said. But most meetings now take place in conference rooms, eliminating the need for very large offices, he said.

Some of the past reluctance on the part of U.S. firms to make serious changes in office layout and size can be traced to what Doughty calls the “global war for talent.”

Because firms have needed to vigorously compete for top legal talent, offering up a large office with a nice view was one way to sweeten the deal and let attorneys know they were valued. But maintaining profits per partner has largely usurped the importance of large offices, and partners now seem more open to these types of measures, Doughty said.

Quarles & Brady seriously considered going to just one office size when it was designing its new 75,000-square-foot office space in Chicago, which the Milwaukee-based firm moved into last week. Ultimately, it decided to have one standard associate office size and one standard partner office size, said D. Scott Watson, managing partner of the Chicago office.Law firm culture played a part in the decision.

“Mostly, it came down to the comfort level,” Watson said.

Still, the new office is designed to be much more efficient than the old one, both in space usage and with utilities, and Watson said it will be more cost-efficient during the course of the lease.

Kirkland & Ellis is also in the process of moving into the same new Chicago office building as Quarles & Brady, where it will be the anchor tenant with 650,000 square feet and 24 floors.

Efficiency was a top priority in the office design process, which spanned several years, said partner Kevin Evanich, who oversees the firm’s real estate needs. Kirkland & Ellis’ move was in the works long before the economy hit the skids, but Evanich said relocating makes financial sense because costs will rise less over time in the new building than in the old office. The old office would have required building out an additional floor to accommodate growth.

“The question we asked was, ‘How will we work in the future?’ ” Evanich said. “ In the new building, we’re able to put 50 lawyers in 23,000 square feet, as compared to 33,000 square feet in the old building.”

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