With COVID-19 disrupting the legal market, firms are focused on maintaining liquidity, cash flow and stability during what will likely be "a rocky couple of quarters," Cushman & Wakefield's Legal Sector Advisory Group found in a new survey.

For now, growth doesn't appear to be a prominent part of many firms' plans, according to "Bright Insight," the real estate advisory firm's benchmark survey of the national legal sector.

There have been only 24 law firm mergers over the first half of 2020—the lowest number since 2010—compared with a total of 115 in 2019. Two-thirds of survey respondents said their focus over the next year is to remain stable and build business from within, with only 23% planning to grow through expansion. Meanwhile, 11% plan to downsize.

The seventh annual survey, conducted by Cushman & Wakefield with assistance from ALM Legal Intelligence, includes responses from 608 lawyers at firms ranging in size from smaller than 20 attorneys to large global firms. The report was written by Sherry Cushman, founder of the Legal Sector Advisory Group, and Margaret Poster, executive managing director.

Cushman said the annual survey was conducted as usual in January and February, but because of the impact of COVID-19, the group did a second survey in May, which revealed a "dramatic shift" in conditions.

"A lot of it was about the comfort level for remote working," she said.

Sherry Cushman Sherry Cushman

According to the survey, 55% of lawyers expect firms to maintain profitability and mitigate fixed-fee structure demands by evaluating operations and streamlining services over the next year, while 43% expect firms to leverage associates and other timekeepers. Forty-two percent said their firms would evaluate fees.

Recruiting and retaining lawyers is the largest competitive concern for firms of all sizes, followed by fee structures, survey respondents said. Information technology security took the third spot, a change from recent years.

"This concern was growing prior to COVID-19 hitting the U.S. and pushing most workers into a mandatory work-from-home experiment," the authors wrote. "In the wake of COVID, nearly a third of law firms indicate technology spend will need to increase by 10% or more over the next two years to address the needs of a more distributed workforce."

The authors described technology as a "game changer."

The coronavirus has put remote work in play in a big way: 90% of respondents expect more than 10% of attorneys to work remotely on a regular basis. The consensus, though, is that most lawyers will continue to go to the office regularly.

The increase in remote work is leading firms to evaluate their real estate space and technology over the long haul. The authors anticipate that by 2021, firms will have a better understanding of how lawyers and staff will work in the future, and they anticipate a large number of early-lease restructures and "space givebacks" over the next two years.

While firms that signed new leases or renewals in 2019 reduced their occupied square footage by an average off 10.6%, according to the survey, those reductions will need to be balanced with new protocols for social distancing related to the coronavirus.

Most firms aren't yet ready to made big decisions about office space. Only 13% have an "aggressive" plan to change up operations, the report said. However, a bit more than half of the survey respondents expect their firms will need less space in the future.

Cushman said an an interview that changes due to COVID-19 will permanently change how firms operate, noting that the legal sector was "drastically in need of a market correction" to keep up with what clients are doing. COVID-19 has encouraged change at "uberspeed," she said.

"This is going to reinvent the way law firms are working. It's going to reinvent the way they collaborate," she said.

When asked what areas will most impact the future of the legal industry, 78% of survey respondents identified fixed fees and fee compression as the most significant issue, but in a change from prior years, 74% said the shift in client demands will have a large impact and 61% said young and old attorneys leaving the industry is also a factor.

With the millennial generation moving into leadership roles in firms, 59% of respondents said that is leading to a modest adaptation of the their firm's business plan. Generation Z entering the workforce will add new considerations, in part because it is the first generation to have grown up with the Internet.

Over time, the authors wrote, those factors will lead to a virtual workforce, a move toward fewer support staff per timekeeper, and changes to real estate strategy, such as single-size offices.

"More progressive firms are looking at this as a welcome opportunity to change, pushing the envelope," Cushman said.

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