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COVID-19’s Impact on The Law Firm Office of the Future - Jon Milonas & Kyle Kamin [4/30/20]

Wednesday, April 29, 2020  
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Office Space Philosophy & Progress Since The Last Recession

 

The last ten years have resulted in major shifts to the legal office space environmentMany legal professionals have read about the changes or seen it at other firms, and an increasing number have physically moved into new spaces themselves.  The strategy has been clear:  Reducing operating expenses by decreasing law firm footprints through more efficient space utilization, while increasing productivity and opportunities for recruiting and retaining the best possible talent.  These strategies shifted the design of many new spaces towards more natural light and glass, one-sized offices, smaller file rooms, the elimination of libraries, and changing attorney-to-support staff ratios, to name a few.  

 

These trends were largely only applicable for law firms who designed and built new space, which is a very expensive endeavor requiring significant capex. A decision to move to one-sized offices often served to offset the financial impact of such a move.  Many law firms, however, decided to renew their leases over the last ten years instead of moving to a new space or a new building.  For most firms in this situation, the focus was refreshing and retrofitting their office space as much as reasonably possible, while maintaining many of the primary elements of the space. This focus resulted in limited changes to the size or the number of exterior offices. The emphasis was on increasing glass to bring light to the interior, and minimal to moderate retrofitting of interior spaces to re-purpose inefficient files rooms, libraries, or staff areas.    

 

In the midst of these changes, law firms have still largely maintained the foundational belief that (1) every attorney needs an office and (2) every individual needs a dedicated space in the office Questions and analysis around utilization and the percentage of time that an attorney or staff member was physically in the office were typically used to inform whether a law firm would transition towards one-sized exterior offices.  In some instances, law firms pushed the limits to have attorneys in interior offices, or even in work stations. These more progressive design philosophies were often driven by large firms who could implement them with scale across a national portfolio, with specific implementation varying on a city-by-city basis.  High-cost real estate markets have led the charge in this regard. 

 

Then, COVID-19 happened.

 

We now find ourselves in the midst of the largest work-from-home experiment in history. As we all know, it wasn’t planned for, so some law firms transitioned better than others.  Regardless of how well the transition occurred, everyone was forced to adjust.   Looking ahead, our clients are now asking us:

 

 Do you think COVID-19 and working from home will have a long-term impact on the law firm office of the future? 

 

Well, you’re in luck.  Please don’t tell anyone outside of ALA, but we have a Crystal Ball that gives us daily updates on the future of the economy and office space.  It’s brought some much-needed excitement and relief to the quarantine.  Here’s what the Crystal Ball is telling us right now (note: that was a joke, and neither we nor CBRE will be liable for any recommendations made by the Crystal Ball)! 

 

Expense Cutting Will Remain a High Priority 

 

As we enter a new season of economic uncertainty, law firms will continue to consider new and innovative ways to align revenues and expenses, similar to the last recession: 

  • Billing rates and structures may be further stretched as law firms respond to clients who are looking to manage legal costs 

  • Law firms will continue to be creative in how they can cut costs through outsourcing, with a continued focus on technology and AI 

  • Law firms will continue evaluating internal processes to cut costs and ensure alignment between people and processes 

 

In everything, law firm leaders will ask the question “how do we reduce our costs for x’?.  As it relates to office space, all eyes are on opportunities to re-imagine the workplace through more sophisticated work-from-home policies.  Working from home is not a new idea.  Most firms have been slowly implementing work-from-home policies for many years.  But no one ever imagined it would be 100% working from home.  

 

New Research & Data Will be Available for Building Consensus for Changes in the Workplace 

 

One positive result from the current COVID-19 crisis is the incredible amount of data that is being gathered around the pros and cons of working from home, giving law firms first-hand experience to answer questions that have been discussed for many years, such as: 

  • What is the purpose of the office, and what activities are uniquely required in the office that cannot be done from home? 

  • How can we use our office space to recruit and retain the best talent in the legal industry, and enhance our brand in the marketplace?   

  • Do we have the right tools and processes in place to mentor younger attorneys, other firm professionals, and staff?   

  • What functions were being done in the office that can be performed by employees at home, or outsourced completely to a third party?  

  • How is company culture created and maintained if everyone is not in the physical office? 

  • Do we have the right technology to access everything needed for each role, whether remotely or in the office 

  • Do we have the right technology to communicate internally and externally with clients, whether remotely or in the office? 

  • Do we have the right tools and processes in place to quickly onboard new employees and make them productive in a work-from-home environment? 

  • How do department heads and other managers feel about their capabilities to lead remote teams, while having confidence that everyone is working to their optimal abilities?  

  • Even if provided the opportunity to work from home, will some attorneys and staff prefer to come into the office, for a variety of different personal or professional reasons? 

 

The duration of the current pandemic will play a large part in answering the aforementioned questions.  If it is “v-shaped” and life as we knew it returns quickly, the ongoing fear of a reoccurring pandemic may be forgotten sooner than later.  If this is a prolonged crisis and the new normal requires months, or even years, of partial or complete social distancing, the new normal could include mandatory work-from-home policies for a certain percentage or number of employees and a phased transition back into the office.    

 

Additionally, work-from-home policies only reduce office leasing costs if they result in a smaller office footprint, which is made possible through a desk-sharing (i.e. hoteling) strategy.  Our law firm clients are asking themselves, “will we be willing to implement those types of desk sharing strategies in light of the future focus on the spreading of germs and sharing of personal spaces?”  

 

The Practical Impact on Office Leasing Projects & Strategies 

 

While these questions are being considered, we are seeing the following steps being taken by law firms to manage short-term and long-term leasing strategies: 

  • Reviewing leases to confirm relevant lease clauses including force majeure, interruption of services, casualty, condemnation/eminent domain, quiet enjoyment, etc. (please consult an attorney at your firm, or outside real estate counsel)  

  • Applying for stimulus funds to be applied towards rent, if available (please consult your accounting and banking partners) 

  • Reviewing business interruption insurance, if applicable (please consult your insurance providers)  

  • Opening a discussion with landlords if immediate rent relief is required due to cash flow challenges, and confirming the landlord’s initiatives to reduce operating costs while properties are not fully occupied 

  • Analyzing lease rights that may provide flexibility to existing lease agreements (rights to terminate, contract, expand, sublease, etc.)   

  • Considering strategic scenarios to reduce office leasing costs through renegotiating leases, in exchange for concessions from landlords (giving back space, lowering the rental rate, getting free rent or allowances for construction, etc.) 

  • Relocating to new space in a smaller footprint or into previously occupied space, with a focus on limiting initial capex and negotiating lower annual rent obligations 

  • Closing smaller satellite offices or coworking offices that can transition to being 100% with working-from-home 

  • Reviewing office cleaning policies and supplementing the cleaning provided by landlords with additional treatments, if required  

 

As history has taught us, these challenging times will eventually end.  In the meantime, our law firm clients remain highly focused on creating practical solutions to align their business model with an office space strategy and cost structure.  We’re excited to be a part of those solutions, whether they are somewhat similar to the trends we’ve seen the last ten years, or more radical never-before-seen solutions that no one could ever have imagined for the legal workplace. Only time will tell. Time, and the Crystal Ball! 

 

By: Jon Milonas, Senior Vice President, CBRE and Kyle Kamin, Executive Vice President, CBRE 

Jon Milonas and Kyle Kamin are executives in Chicago for CBRE, Inc., the world’s largest commercial real estate services firm. CBRE’s Law Firm Practice Group serves law firm clients, large and small, seeking to make informed real estate decisions.  91% of the AM 100 have been represented by CBRE since 2000 – 2019 in the U.S.