2018 Bright Insights Report: Change is Occurring at a Faster Pace Each Year
By: Tom Usher, Executive Director, Cushman & Wakefield
The results of Cushman & Wakefield’s fifth-annual proprietary National Legal Sector Benchmark Survey and National Associate Survey, released in partnership with ALM and Law.com, Cushman & Wakefield’s Legal Sector Advisory Group (LSAG) have recently been released in their Bright Insight 2018 report. Since the survey’s inception in 2013, more than 4,700 law firm decision-makers and associates from across the country have participated in this exclusive survey. Bright Insight offers extensive thought leadership and insight on key business, financial, and operational drivers, including succession planning, technology, and business strategies. In addition, this year’s report includes responses from a dozen of the top tier architectural firms that specialize in designing space for the top ten U.S. law firm markets.
One keen observation of the statistics and benchmarks is that change is occurring at a faster pace each year. What used to take a decade to change is now shifting in only a few years, and this pace is not anticipated to slow down. According to the ALA 2017 Compensation and Benefits Survey, the percentage of firms that allow attorneys to work from home either full-time or part-time went up to 44.8% from 35.2% in 2016. When responding to the Cushman & Wakefield survey, 68% of firms anticipate that their attorneys will work more remotely in the next five years. Along the same line, younger attorneys are consistently requesting more flexibility to support work/life balance, as well cutting edge technology capabilities.
So how will these trends influence the physical law office, and the bottom line? With real estate being the #1 expense to law firms other than salaries, firms are continuing to drive down the percentage of gross revenue spent on real estate. A continued shift of rightsizing and downsizing real estate and incorporating new workplace strategies is enabling firms to decrease their percentage of gross revenue spent on real estate. Fifty percent of respondents spend less than 6% of gross revenue on real estate, and the current national average is 5.8%.
In Portland, the opportunity to right-size or downsize office space has been limited by tight inventory for the last several years. However, as the number of construction cranes in our skyline implies, inventory is on the rise. Three new developments (each over 150,000 square feet) came online in the central business district (CBD), contributing to an uptick in office vacancy – to 10.8% in Q2 from 10.5% in Q1. We expect another half a million square feet to be delivered in the second half of the year. As this new supply comes on the market, competition for major tenants is expected to heat up, swinging the pendulum back in their favor. The increased inventory has not yet applied downward pressure to CBD rental rates, which averaged $32.06 per square foot for the same period, a 7.0% increase over Q2 2017. We expect asking rents to soften in the next 12-18 months, as a substantial amount of space is still under construction.
The concept and implementation of office hoteling (a limited number of unassigned attorney offices that are shared by attorneys who do not come into the office full time) is growing. In fact, associate interest in hoteling grew from 23% to 26% this year. While hoteling concepts require some additional investment in technology, their benefits far outweigh the carry costs of real estate that may sit vacant for more than 50% of the time. Firms are also looking at long-term ways to grow and densify into space versus increasing square footage – thus hoteling provides the opportunity to accomplish this goal over time.
With 60% of respondents reporting a decrease in client visits, client influence is also impacting office design and encouraging densification. A greater focus is being paid to the common area collaborative space with a downsizing of the private office space. According to architects, the current per-attorney rentable square foot ratio that they are designing to for the legal sector is: 601-700 SF (40%), 501-600 SF (33%), and under 500 SF (27%).
Technology advances & document scanning: 29% of survey respondents noted they are currently scanning 100% of their documents, and another 34% noted they have future plans to scan all documents. It is anticipated that cloud-use percentages will increase over the coming years along with the scanning of all documents, slowly shifting to a model where all documents will be managed and stored digitally – thus diminishing the need for file cabinets and storage rooms over time.
By 2025, 75% of the workplace will be millennials – is your firm making decisions for the next generation? The survey measured an increase of firms’ real estate and office design supporting recruiting and retention efforts – up from 76% to 82% this year. Real estate decisions have long-term implications, and making these decisions with the next generation of associates and partners in mind is more important now than ever.
Over the next few months, Sherry Cushman, Executive Managing Director and Leader of Cushman and Wakefield’s Legal Sector Advisory Group will be travelling throughout the United States on our National Symposium Tour to share the results of our National Legal Sector Benchmark Survey. If you have an interest in having the Symposium presented to your firm, or in having us join you at a local conference or event, we would be happy to coordinate. If you would like to receive copies of the results of the survey, please contact Hannah Diehl at [email protected] or +1 202 471- 3596.
Tom Usher is an Executive Director with Cushman & Wakefield and has worked in Portland real estate for over 40 years. His team partners with law firms in Portland and beyond to complete new leases, purchases, renewals, relocations, and expansions of corporate real estate. Aiming to align your real estate needs with business strategies, financial goals and operational objectives, his team acts as advisors on your firm’s behalf. He can be reached at [email protected] or +1 503 279-1777.
