As we see another round of layoffs in the US & UK this little piece is quite timely…
www.globest.com reports
Law Sector Slowdown May Be New Normal
A smaller per-attorney footprint is “likely permanent,” says Learner.
NEW YORK CITY—Even as office-using employment has rebounded nationally, law firms on the whole have failed to keep pace, according to Savills Studley. The slowdown in the legal sector’s growth could be the new normal, says Heidi Learner, the firm’s chief economist.
“Persistent weak employment at law firms could have a notable impact on major office markets, particularly in those locales where law firm employment has typically comprised a sizable fraction of professional and business services employment,” Learner writes in a new report. Compounding the problem are many law firms’ plans to decrease the space per employee, particularly in light of the fact that law firms have typically allocated one of the highest levels of square footage per employee1 among major users of office space.”
At the same time, domestic headcount at law firms has lagged behind other professional sectors. Savills Studley sees three key factors, including stepped-up M&A activity among law firms, which has led to fewer employees. Citing data from ALM Media, parent organization of GlobeSt.com, Savills Studley says that law firm M&A activity for the first five months of 2014 was more than half the total number of combinations in all of 2013.
Second, law firms have focused on growing internationally, rather than increasing their domestic presence. Over a 12-month period, according to data from the National Law Journal, the number of attorneys in overseas offices of US-based law firms grew by more than 5,000, or about 25%.
Third, revenue growth at law firms has slowed, preventing more aggressive expansion within the US, according to Savills Studley. Citing ALM Legal Intellgence data, the report shows that although gross revenues for the top 200 US law firms increased from $65.2 billion in 2005 to $96.4 billion last year—the equivalent of a 5% compounded annual growth rate—the growth in average profits per equity partner has been “substantially weaker.”
In the report, Lisa Davidson, executive managing director at Savills Studley, notes that while law firms have always been mindful of costs, but “what we’re seeing now is a true paradigm shift. Law firms as a group are, for the first time, really starting to question traditional assumptions about how they use space, who sits where, and how to maximize flexibility to prepare for what the future may bring for their business.”
Across the legal sector, Learner predicts, “the shift toward reduced space allocation is likely permanent. While we don’t foresee law offices being configured in the ‘workbenching’ model that has become so popular with technology firms any time soon, we would expect further compression of space on a per-attorney basis.”
Learner says the lack of growth in the number of practicing attorneys is “puzzling,” and adds that the “anemic” increase in headcount this far into the recovery suggests that “the contraction observed to date is more than just a cyclical phenomenon, and that we are unlikely to see a rebound in the amount of space occupied overall stemming from an increase in the number of attorneys (even if each attorney is given a smaller desk.)”
Looking ahead, Learner writes, “we suspect that firms will continue to shed unneeded space through further sublet activity—particularly to other law firms looking to expand their footprint geographically. Firms nearing lease expiry will continue to look for more open floor plans achieved either through re-design or new construction.” As a result, more open space across the firm means a smaller space for each employee.
