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Law firm leaders expect office footprint to shrink post-pandemic

Caroline Spiezio  

Caroline Spiezio  

(Reuters) - The coronavirus pandemic has forced lawyers across the U.S. to learn how to work from home, and left offices sitting empty for months, leading many managing partners to ask - why were we paying for all that space?

Real estate is often a law firm’s second-highest expense, after employee pay, and it’s one partners are realizing they could drastically reduce in the wake of the pandemic, through lease negotiations or by moving to a smaller space, said John Remsen Jr, president and chief executive of the Managing Partner Forum.
While some firms had already planned to shrink their footprint, he said, the pandemic will speed up that trend, because it’s now clear that many employees can easily work remotely, and many law firms are now more desperate to cut costs.
”Any [real estate] deals that were in the works, if the breaks could be put on, firms put them on hold,” said Sherry Cushman, the executive managing director and leader of the legal sector advisory group Americas for commercial real estate group Cushman & Wakefield. Some firms that could move have opted to “stay and extend their lease for a year or two,” as they decide what sized office they want to commit to long-term, she said.
Starting in March, law firms across the U.S. shuttered their offices amid the pandemic and have been slow to reopen, even as states ease their stay at home orders, as they continue to grapple with childcare and health concerns that employees may face. And, as deal and trial work dried up, dozens of large law firms announced cost cutting measures like pay reductions or furloughs.
The number of law firms signing new or renewing leases plummeted in April and May, down 75% compared to the average number during that same period in 2016 through 2019, Nancy Muscatello, managing consultant at real estate data company CoStar Portfolio Strategy, said in an interview.
Some firms that did renew their leases renewed only for a portion of the space they’d been using before the pandemic, Cushman said, including one that, at the last minute, told its landlord that it would now only need three office floors, instead of its previous four. And the shift toward seeking smaller space is far from over, she said, as many firms are locked into long term leases and can’t move right away. Those firms could still renegotiate aspects of their lease or sublease their unused space, she said.
In a survey of 222 law firm leaders, mostly from small or mid-sized firms, during a Managing Partner Forum webinar on the pandemic last week, 72% said they expect they will need less office space and 19% said expected that drop to be by more than 25%. The vast majority of respondents said they expect their firms’ needs for support staff, in or out of the office, to decrease – but that they’ll be spending more on technology.

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