2019 Law Firm Themes

2019 Law firm themes

Law firms are being presented with both broadening opportunities as well as rising uncertainty. Check out these top four themes for law firms in 2019 to gain more perspective.

1. Managing changing firm demographics

Challenge

An increasing share of lawyers is approaching retirement, while legal services employment is still below its pre recession high. With annual job growth of only 0.4%, firms face challenges in terms of long term talent strategy. Additionally, law school enrollment 27% below its prerecession levels, further complicating succession planning.

Strategy

The growth of alternative service providers has helped law firms to mitigate the complications of a smaller talent pool of junior associates. This is enabling firms to focus on managing workplace preferences among a variety of generations with strategies such as taking on more unique space and proactively relocating to new construction in alternative and emerging locations.

2. Coworking proliferation

Challenge

In recent years, coworking has gone from a relatively niche office offering to one of the highest-profile and most intense demand drivers across the country and even globally. With an annual growth rate exceeding 23 percent and now more than 82 m.s.f. of space nationally, flexible space is rivaling leasing leaders such as finance, tech and professional services.

Strategy

Coworking’s proliferation, particularly for large blocks of space, is reducing many firms’ ability to find value options if priced out of new supply. At the same time, concerns about privacy, data security and other aspects of shared services make it difficult for legal services tenants to operate out of coworking spaces. Firms may find value in landlord-operated flexible suites to meet ad-hoc needs.

3.  Cost vs. culture

Challenge

Rightsizing and densification are helping firms achieve cost savings along with upgrades to enhance employees’ experience with the adoption of collaborative spaces. Although the major rightsizing wave that took place after the recession has calmed down, firms continue to eye ways to reduce costs. Some are now utilizing hoteling for younger associates and administrative staff or even open plan designs to achieve desired levels of efficiencies, while others are concerned about the effects of densification on productivity and firm culture.

Strategy

Given the heightened importance of talent recruitment particularly for younger employees balancing real estate costs and worker preferences is an exceedingly thin line. Maximizing potential concessions and taking advantage of flattening or even slightly declining effective rents will help to mitigate cost pressure without sacrificing firm culture.

4. Prolonged new supply wave

Challenge

A resilient expansion and robust demand from a wide variety of tenants is extending the pipeline for new development out to 2022 and even 2023 in many legal services hubs. More than 58.7 million square feet is under construction in urban cores in addition to the 119.8 million square feet already delivered this cycle, which will further shift market dynamics into more neutral and at times tenant favorable territory.

Strategy

Firms with upcoming expirations are going to be entering a market with significantly greater options, not only for new supply but also for second generation space as relocating tenants move to newly delivered buildings. Additionally, slowing occupancy growth will incrementally drive rising vacancy, placing further pressure on effective rents already under strain, as build out costs show no sign of deceleration.