By: Rob Roe, JLL Managing Director
The 2008 recession resulted in significant changes to the legal business. According to our 2016 U.S. Law Firm Perspective, law firms have faced numerous challenges, such as economic uncertainty and volatile legal employment rates, as demand has stagnated.
Despite these challenges, the 2016 Altman Weil Report revealed that nearly 74% of firms with 250 lawyers or fewer have experienced revenue and profit growth since 2008. There has been a slow upward trend in revenue, however, firms must reevaluate their growth strategies to remain profitable.
So, how are they overcoming these challenges?
Industry leaders are starting to regain their footing by adopting new strategies to trim overhead costs, spark growth and maintain high levels of profitability.
Avoid High Rental Rates With Aggressive Rightsizing
With rising rental rates and a growing desire to relocate offices to the urban core, firms are struggling to compete for Class A space. This is leading them to focus on space utilization adjustments to circumvent increasing rent.
For example, office space in downtown Cincinnati is being transformed for hospitality and residential use, limiting the available space for firms. Firms are able to relocate in top-floor suites of Class A buildings within the CBD. On the other hand, many are rightsizing and effectively lowering benchmarks to optimize their office layout.
Additionally, Louisville firms are exploring new ways to control costs by shifting away from traditional large offices to reduce square feet per attorney. There is room for firms to relocate in the CBD and an opportunity to reduce their footprints with aggressive rightsizing.
Quality office space in the CBD in Columbus is on the rise, presenting an opportunity for law firms to enter the market. To counter increasing rental rates, firms must downsize square footage to optimize space utilization and lower cost per attorney.
Optimal space utilization allows firms to reduce rental costs and lower the square footage per attorney benchmark from 976 square feet to 625 square feet for significant cost savings. The typical firm that has been rightsizing aggressively can reduce its footprint by 22.2%.
Seek Out New Sources of Income to Maintain Profitability
Industry growth has been stagnant as 62% of firms reported that demand still hasn’t returned to pre-recession levels. Firms must now seek out new sources of income to remain competitive in the volatile legal market.
In downtown Cleveland, Ulmer & Berne LLP is taking a more aggressive approach to grow its firm. Under new leadership, the firm intends to add unique services, such as e-discovery, and acquire smaller firms to gain access to attractive markets in efforts to diversify income.
The firm is also taking increased risks by hiring lateral employees who come from within the company or have held a similar job position at another company. These employees are able to offer expert knowledge and established client bases. Diversity in management allows firms to gain insights from multiple vantage points and enables them to make more informed decisions. By strengthening its position in the Midwest market, Ulmer & Berne LLP will be able to recruit more culturally diverse attorneys.
Firms in Detroit are facing similar issues with competing for limited space. However, the M1 rail allows firms to locate outside of the CBD in more spacious offices with lower rental rates while remaining close to the CBD. Additionally, accelerated growth of the city’s urban core has attracted more professional, construction and tourism jobs, which present potential revenue opportunities for firms.
Aggressive rightsizing paired with exploring new sources of income have enabled firms to keep pace in the volatile legal market and maintain high profit margins.
About the Author
Rob Roe is a Managing Director of JLL, Great Lakes Region and manages the Regional Brokerage Operation. He is responsible for providing real estate transaction representation and consulting services for JLL clients around the world. Rob’s brokerage background includes strategic planning, project consultation and execution of acquisitions and dispositions for clients’ portfolios. Connect with Rob on LinkedIn or follow him on Twitter.