Jones Lang LaSalle highlights real estate pressures for top firms

A growing number of ‘squeezed middle’ firms are looking to cut their real estate costs through sub-letting, double occupancy or mergers, the annual report from property services provider Jones Lang LaSalle has confirmed.

The firm’s report into global real estate trends, published next week, focuses on the impact on firms of the tough economic and operating conditions since the global financial crisis of 2008. It claims that margin pressures and tougher operating conditions have had an “explicit and pronounced impact” on the real estate strategies of law firms while across the market firms are increasingly focusing on how they can use their space more efficiently.

“A more proactive management of real estate as a tool to both reduce operating costs and improve productivity is being realised by many managing partners in law firms in the US, UK and beyond,” the report continues.

Richard Proctor, the law firm practice lead (Emea) at Jones Lang LaSalle, believes that while much of the recent merger activity among large UK firms is being driven by a desire to avoid the so-called squeezed middle, where a firm is neither top end nor boutique, in time merged firms should be able to deliver cost savings because they can occupy space more efficiently and effectively.

Proctor added that among firms that have not merged there was an increasing number of tactics visible for cutting costs.

“We’ve seen an awful lot of sub-letting with firms downsizing by between 10 and 20 per cent to reduce overheads,” said Proctor. “I hear it time and again that firms don’t intend to occupy any more space in London than they do now. There’s also an increasing trend for double occupancy of offices rather than single. The UK firms adopted uniformity on offices a while back but even some of the major US firms in London are taking a similar approach. They have historically had more hierarchy in their office structures but they’re moving away from that.”

Weil Gotshal & Manges is one large US firm that has moved from having a more traditional style of occupancy to one with uniformity and no hierarchy when it relocated to 110 Fetter Lane in 2011.

Jones Lang LaSalle’s findings mirror those unveiled in this year’s The Lawyer UK200 Annual Report which, for the first time, published the real estate costs of the UK’s largest firms. That report highlighted the disparity in metrics such as revenue generation and cost per square foot across the market, with commoditised legal services provider Minster generating £1,508 while Sheffield-based Wake Smith generated £197 per square foot.

Among the other findings in the Jones Lang LaSalle is the growing trend for UK firms to seek growth opportunities in the Far East, despite real estate costs in centres such as Hong Kong being the most expensive in the world.

“There’s no question, that currently the East is seen by UK firms as a better bet than looking West for growth opportunities,” confirms Proctor. “The real estate in Hong Kong, for example, is more expensive but they’re not taking big chunks of space. The ability to generate significant additional fee income and to serve clients globally in key cities is seen as more important.”

Jones Lang LaSalle’s report assesses the real estate market conditions for law firms in more than 30 mature and emerging locations around the globe. It found that there had been steady demand from firms in London for office space over the first half of 2012, resulting in 14 transactions, totalling 227,833 square feet (sq ft) of floorspace.

This is well below the long-term half-year average of 361,000 sq ft, although it is close to three times higher than the same period one year ago and already equates to 76 per cent of the total floorspace taken in the whole of 2011.