October 19, 2016
By Julia Wilhelm, Executive Vice President, JLL
The legal services industry is fighting rising office costs during this economic cycle by aggressively pursuing efficiency in space utilization, via “rightsizing” the law office.
The typical U.S. law firm has cut its physical footprint by more than 22 percent in recent years and this trend continues. According to the just released JLL 2016 U.S. Law Firm Perspective, law firms are looking to reduce target occupancy by an additional 17.7 percent as they seek to become even more efficient in their utilization of workspace.
A primary driver of this rightsizing trend is cost. Gross revenue, profit per partner and revenue per lawyer — all key metrics for law firm profitability – saw the slowest rate of growth last year since the recession. Amid slow economic growth and ongoing global uncertainty, law firms are looking to reduce costs whenever and wherever they can, but they are sometimes fighting a losing battle due to the rising cost of office space, especially in major cities.
Nowhere is this trend more evident than in law offices throughout the Bay Area and Silicon Valley. Current annual rents per attorney in San Francisco are among the highest in the nation at an average of $62,000 and Silicon Valley isn’t far behind at $50,000. (Washington DC is the highest priced market outside of Manhattan at $65,000.)
“In a bid to use space more efficiently and reduce costs, the typical Bay Area attorney’s office has shrunk from an average of approximately 900 square feet a few years ago to as little as 700 square feet today in Silicon Valley and 750 s.f. in San Francisco,” says Jason Volpe, Executive Vice President, JLL. Volpe adds, however, that because of the pace of increases in the cost of that real estate, average annual occupancy costs per attorney have risen more than $10,000 during the same period. “Law firms are going to continue to pursue strategies to rightsize space for the foreseeable future, likely until we see a return of the average cost of space to more normalized levels,” he says.
The good news is that throughout the Bay Area, as firms are becoming more efficient in their space use and renewing or relocating to smaller footprints, an influx of existing law firm space is coming on the market. Also, new development of Class A office is creating opportunities for firms to design forward thinking spaces with elements like single size offices and more flexible support areas and reap efficiency gains from 15 to 40 percent.
“While the Class A market in Silicon Valley is currently very tight as tech competes for the limited amount of space currently available here, new projects coming online over the next two years will provide Class A space that firms can configure from the ground up,” says Derek Johnson, Managing Director, JLL.
This may be critical for some firms, because thanks to the growth of the tech economy, the Bay Area –- specifically Silicon Valley — is one of the few major markets in the country where hiring among law firms is headed up.