law fi rms to consolidate their administrative staff . The younger attorneys are doing much of their research online. As they’ve gone digital, the need for large libraries has diminished and the attorney to support staff ratio has increased – from the traditional 1:1 to 3:1 and sometimes even 4:1. We have multiple clients who have downsized because the interior space, which was initially built out for support staff , is no longer being used. The fi rms have consolidated their design into just a few support staff ‘pods’ per fl oor.

Barry: I would say that while technology has certainly increased produc-tivity, it’s also reduced face time. And culturally, face-to-face interaction is an integral part of working in the legal industry. I have a client who re-cently moved into space with a unique fl oorplate. On every fl oor, there’s an area that juts out – three glass walls – with amazing views of the city. And ultimately they decided to convert that space to a lounge area on every fl oor – to create an opportunity for these guys to meet and have downtime – rather than turn it into a partner offi ce or a conference room. Which I think really points to strategic thinking on their part – looking at what will contribute to the overall productivity of the fi rm.

As a response to rising occupancy costs, law fi rms are altering

their views of offi ce space. Hierarchy and status are becoming less

important in space allocation and the focus now seems to be on

function – accommodating shifting teams and personnel. Tell us

about what you’ve observed in terms of space utilization that will

help mitigate the eff ects of economic/business cycles and reduce

the impact of rising real estate costs.

Will: Many fi rms like the ideal of standardization of partner/associate offi ce size but putting the strategy into practice is both diffi cult and many times not overly popular. In the economic climate of the last few years, there have been fewer relocations due to the added costs of build-ing out space. Renew-ing and then renovating existing space makes goals of effi ciency more diffi cult to obtain. Additionally, depending on the culture of a particular fi rm, a stan-dardization of offi ces might not be well received. That being said, fi rms are much more open to changing their views of acceptable ways to occupy space.

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As with most industries, law fi rms have changed the way they view their real estate portfolios. Economic fl uctuations, technological advances and the changing nature of the way fi rms off er and execute business are altering the approach to the offi ce environment. Roles within law fi rms are changing as well, and incorporating these changes into a traditional busi-ness model continues to be an evolving topic.

Ashley Lane, Director of Research, spoke with Partners Will Foley and Barry Hynes to get their thoughts on the evolution of the legal industry and its impact on space utilization.

Demand for space from the legal industry appears to be contract-

ing – requirements tracked by FHO Partners are, on average, 20%

smaller than the fi rms’ current footprints. Would you say this is a

refl ection of reduced head count, or is it a focus on a smarter, more

strategic use of space?

Will: I think it really depends when the fi rm moved into their space. We have a client who relocated in 2002, but negotiated the deal in 2000 – before the dot com bubble burst. The fi rm had a lot of built-in expansion space because they thought booming business would facilitate growth. As the economy changed, so did their space needs. Just as the economy aff ected business plans and real estate strategy at the beginning of the decade, the impact of the last few years has altered real estate objectives as well. In the wake of the downturn, fi rms are now selectively hiring and reconfi guring their space. Many fi rms have averaged more than 1,000 RSF per attorney for some time. As their businesses, the economy and technology have evolved, most are striving to become more effi cient. While 600 would be great, ending up at 800 RSF per attorney is a healthy and achievable goal.

Barry: I agree with Will, and I also think legal tenants are becoming much smarter when it comes to space confi guration. We met with a national client and asked, ‘What are you trying to accomplish for your next lease? What are your objectives besides price? Operationally, what are you look-ing at?’ And ultimately we were able to determine that the best plan was to take 4 of the top fl oors for the legal practice and house the administra-tive functions on a lower, less expensive fl oor. The top fl oor was designat-ed for reception and conference areas. So when clients come, they never have to go on a legal practice fl oor where there’s proprietary information just sitting on people’s desks. And that separation of functions is a trend we’ve been seeing for about 5 years. And it’s defi nitely accelerating.

We all know that technology is changing the way people do busi-

ness. We also know there is an inherent connection between

business and real estate. Tell us about how you’ve seen technology

impact the manner in which law fi rms use offi ce space.

Will: Technology, and really the overall generational shift, has enabled

A C L O S E R L O O K A T M A R K E T T R E N D S

What are Law Firms Looking for in Today’s Commercial Real Estate Market?

Barry Hynes Will FoleyPartner Partner

M A R K E T F O C U S

FHO Par tners

Along with decreasing library size, fi rms are now considering downsizing or even eliminating cafeterias. They’re moving associate offi ces from the perimeter to interior space and they’re outsourcing IT - all space saving measures. Any means to drive down occupancy needs and therefore costs are on the table for discussion and possible implementation.

And from a business perspective, a number of fi rms no longer want to be in gold-plated space. Simply because the next question from clients is, ‘Is this where our money is going?’ It’s a fi ne line because the space needs to give the impression that they’re the successful, top fi rm to be dealing with. But at the same time, it can’t be over-the-top because of pressure from the way they bill.

Barry: It’s a delicate balance that law fi rms are trying to maintain. They’re sensitive to client perceptions of over-spending but they’re also competing to both attract and retain top-level talent. And they’re using space as a recruiting mechanism. But overall, I’d say my clients are trying to be more constrained. One fi rm I recently represented made the transition to uniform sizes of partner offi ces. And they built out more meeting rooms so that people could collaborate. And that’s another trend I’m seeing – increasing levels of communication within the fi rm.

Now that we’ve touched on some of the ways law fi rms are reduc-

ing occupancy costs, let’s discuss how this is impacting lease

negotiations. What trends are you seeing in lease structures?

Will: We have helped a number of clients drive down their occupancy costs well in advance of their base expiration dates. While it’s impor-tant to have viable alternatives, the existing landlord has an inherent advantage in keeping a tenant with term left on its lease. The tenant and landlord can strike a deal today, while the relocation option will have the encumbrance of the remaining lease obligation. Many fi rms have been able to reduce their square footage by renewing early or by developing a more effi cient program which would overlay into less space in a reloca-tion scenario.

Barry: Specifi cally, I’m seeing law fi rms looking for ultimate lease fl ex-ibility. Growth, contraction, sublease rights, recapture rights by land-lords, no personal guarantees – it’s all letters of credit. And that’s more universal as well, just because of the way bankruptcy laws are written. Big fi rms have leverage to get these deals. But it’s a trade-off . They end up paying a bit of a premium for this fl exibility, which you can get in this marketplace. In tighter markets, it’s a bit more diffi cult, more expensive.

So what are your fi nal words of advice to law fi rms facing the

daunting task of reducing occupancy costs?

Will: Given what’s happened in the past decade with the bursting of the dot com bubble, and the current state of the economy, to focus on fl ex-ibility. Flexibility as part of the lease (i.e., expansion or contraction) but also in the confi guration and usage of space.

Barry: I would say do your homework ahead of time. And hire the right team - broker, project manager and architect. Do prep and due diligence before you go out in the marketplace. And listen to your employees –

ask them what they think will make the fi rm better. Have some vision. So, hire FHO Partners as a strategic advisor?

Barry: [laughs] Yes. Very simple.

If you have any questions about this publication or how we can help your com-pany with its real estate needs, please feel free to contact Will or Barry or any of the following real estate professionals:

Will Foley Barry Hynes

wfoley@fhopartners.com bhynes@fhopartners.com 617.279.4578 617.279.4566

Lauria Brennan Mike Brown

lbrennan@fhopartners.com mbrown@fhopartners.com 617.279.4541 617.279.4568

Rick Fahey Peter Farnum

rfahey@fhopartners.com pfarnum@fhopartners.com 617.279.4564 617.279.4567

Chuck O’Connor

coconnor@fhopartners.com617.279.4569

FHO Partners is a commercial real estate fi rm providing both corporate and asset advisory services. In the world of commercial real estate, FHO Partners’ people-powered approach stands out. The senior partners of the fi rm have worked together for more than 20 years providing customized consulting and brokerage services to a range of corporate and institutional clients locally, nation-ally and overseas. For more information, visit www.FHOpartners.com.

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