Real estate has always been an essential element in any full-service firm, even if in the past lawyers working in the area have had to battle the perception of being poor cousins of the more glamorous, and usually more profitable, corporate and finance sectors. However, over the last few years it has cemented its position as an integral, standalone practice area.

While M&A levels have dwindled, real estate has remained largely buoyant. The increasing complexity of real estate deals is making the practice area all the more valuable. The recent poor returns seen on equities have also assisted the boom in work, as investment funds have looked to increase their weighting in ‘safer’ real estate investments.

As such, real estate last year contributed a sizeable amount to most firms’ bottom lines. For many firms it has become just as significant, if not more valuable in terms of maintaining turnover, than corporate. For example, real estate contributes £23.6m of Wragge & Co’s total revenue compared with around £10m in corporate.

But despite the increased activity and growing significance of real estate in terms of many law firms’ profitability, most practice groups still failed to boost revenues beyond the successful figures of the previous year. In fact, the most striking fact about the list of top real estate practices was the small number of significant changes in the rankings or sizes of the firms’ practices.

Instead, the turnover of most of the top 10 firms remained relatively flat over 2003-04 when compared with 2002-03, with the exception of marginal increases for Eversheds, Linklaters and Nabarro Nathanson. Eversheds, for example, which retained its position as the second-largest real estate practice based on turnover, increased its revenue by 7 per cent last year to £64m. This was largely because of the continuing benefit of the firm’s regional offices, which were able to complete large volumes of lower-end work. Real estate partner Tim Webb attributes the upswing to the firm’s developing reputation within the structured real estate funds market, especially in the recent lead-up to Royal Assent of the 2004 Finance Bill.

By comparison, Clifford Chance, which also retained its position at the top of the league table, barely managed to increase its revenue compared with 2002-03, lifting turnover by just £500,000. This is despite the firm increasing the number of partners in the practice group by nine and also continuing to benefit from some of the biggest deals in recent history. These include such highlights as the Millennium Dome and Greenwich Peninsula regeneration and the sale of Citigroup Tower and 5 Canada Square by Canary Wharf Group for a combined £1.1bn.

The most notable change within the league table was the dramatic entrance of Addleshaw Goddard at number eight, with a turnover of £31.3m. Last year’s merger appears to have been a great success if the combined value of the real estate department is any indication, with this year’s real estate ranking being the first appearance in the league table for either of the combined firm’s predecessors, Theodore Goddard or Addleshaw Booth & Co. In fact, the newly combined real estate practice’s 38 partners contributed a quarter of the firm’s overall turnover and managed to secure such notable transactions as the sale of supermarket giant Sainsbury’s property development arm, J Sainsbury Developments.

Elsewhere in the table there was the usual tussle within the ranks, with many of the firms’ real estate practices jumping or sliding one or two rankings. Hammonds, for example, fell two spots, while Lawrence Graham and Lovells dropped one spot each.

Meanwhile, Denton Wilde Sapte (DWS) dropped the most places after suffering a mammoth 23 per cent dip in the practice group’s turnover. However, DWS claims that the discrepancy is due to an internal reshuffling of its expertise, which has seen many of the firm’s property finance and property tax partners incorporated into other practice areas. DWS’s exceptionally high revenue per partner is partly a function of its strong leverage in the department.

The disappearance of magic circle giants Allen & Overy (A&O) and Slaughter and May from the top 20 was also striking, though considering both firms are corporate and finance-dominated, causing their real estate practices to be somewhat peripheral and used largely as traditional corporate support rather than standalone practices, it may not be all that unexpected. The A&O team has dropped in size by four partners, although this is largely because the firm follows the rather unusual practice of including only ‘pure property’ partners within its real estate group. This compares with the majority of firms ranked in the table, which include a variety of construction, planning, and property finance in their calculations.

A&O, however, is loudly broadcasting its desire to correct this discrepancy during the current financial year by refocusing and actively marketing the group as a full-service practice targeted specifically at the real estate industry. As such, it may be one to watch, especially after the group hired Clifford Chance’s head of real estate funds and investment banking Robert Porter earlier this year. However, despite real estate last year representing only £13m of the firm’s total turnover of £652m, the practice group continues to secure instructions from blue-chip clients such as Royal Bank of Scotland, Morgan Stanley, Schroders and GE.

Meanwhile, despite Slaughters’ real estate practice only creating a marginal percentage of the firm’s overall turnover (5 per cent), it remains one of the most profitable in regards to revenue per partner. This figure was a staggering £2.07m per partner last year, second only to £2.17m for A&O’s real estate partners.

Another firm to lose its ranking in the top 20 was Olswang, which was pushed out of the table by the narrowest of margins. Turnover for the firm’s real estate practice was only £400,000 less than Macfarlanes’, which managed to slip into the final spot in the table. This is a disappointing result for Olswang, which had been hoping for a 20-25 per cent increase in total revenue following the acquisition of five property partners and eight assistants from the now defunct DJ Freeman’s real estate team last year. But this may just be a glitch as the new additions settle in. The team has secured a number of notable new clients, including Heron Property, Prestbury and Capital & Provident.

Simmons & Simmons also fell far short of the top 20 last year, recording a disappointing turnover of £12.5m. Along with Addleshaws, the four firms were replaced by Macfarlanes, Pinsents and Shoosmiths, which all made their first appearance in the rankings.

The most perplexing real estate practice is probably Linklaters’. Historically a leading light in the sector, the practice appears to have suffered from its earlier internal review of its real estate practice and the firm’s drive to reinforce its position as a leading corporate practice. One industry commentator noted that the industry felt the firm’s real estate practice lacked direction, especially following the loss of a number of lawyers in the last 12 months, such as managing associate Nick Bartlett and partners Stella Mitchell and Marshall Levine.

But despite such concerns, the firm is adamant that real estate remains a key practice area and focus, and such claims are backed up by the group recording a very healthy turnover of £46m last year. This result may be partially due to the fact that many of the firm’s large mixed corporate/real estate deals are led out of the real estate practice; however, the group has also been working on such outstanding deals as Deutsche Bank’s e1bn sale-and-leaseback to Blackstone Group.

Other firms involved in some of the year’s more complex property matters include the consistently strong performer CMS Cameron McKenna. The firm was ranked number 12 after it undertook one of the most complex single-sale transaction real estate deals of 2003, when acting for Taylor Woodrow on the sale of St Katherine’s Estate.

The spotlight also shone on Lawrence Graham’s real estate group last year when the firm advised on the property aspects of Scottish & Newcastle’s £2.5bn disposal of its pub chain to St Amber. Unfortunately, this was not enough to keep the firm from dropping one spot to 17, despite the group actually increasing its revenue by £1.3m to £20.5m.

Berwin Leighton Paisner (BLP) also has a lot to think about after recording a sizeable increase in its overall firm turnover last year, leaping 12 per cent to £102m, which, despite having a strong real estate practice, failed to have much of an impact on the real estate group’s own results. Turnover for the practice group increased by just £1.6m last year, while revenue per partner actually dropped to £928,000. But the firm did continue to work on some of the industry’s more complex transactions, including convincing an inquiry to allow the development of Teighmore’s mixed-use office, hotel and apartment building, the London Bridge Tower.

Wragge & Co is another practice to watch as it continues in its quest to become the UK’s number one full-service law firm for the real estate industry by 2006. Unfortunately, if the group’s turnover figures are any sign, it made little ground towards this goal last year, while its revenue per partner figure actually dropped by £207,000 to £843,000 per partner.

But the firm remains adamant it is on track to reach its goal, especially after completing £3.58bn worth of property-related matters last year and retaining its spot on the now-reduced BT panel. Such milestones have enabled the firm to acquire even more real estate expertise – it hired partner Sally Pinkerton from SJ Berwin earlier this year.

Pinkerton’s move could be a sign of unease within SJ Berwin’s real estate practice, as her departure came just three months into a full-scale internal review of the department. However, although further departures were rumoured at the time, none have come to pass so far, despite concerns that the review would have a negative impact on morale. Such fears may yet prove to be justified as the changes pinpointed by the review are implemented. The review was aimed at identifying areas where the practice should be scaled back, such as portfolio management, and those that should be developed, such as complex financial and corporate support.

Another surprise move was high-profile consultant David Taylor’s shock departure from Herbert Smith to become head of DLA’s real estate practice. A coup for DLA, the appointment was part of a strategic plan to increase the profile of the firm’s large but low-profile real estate department. Taylor has joined a solid real estate practice; turnover for the practice group was up from £44m to £46.8m.

In contrast, Taylor’s move does not appear to have dented Herbert Smith’s revenues, as the firm easily maintained its position in the tenth spot after another fine year. The practice increased its turnover by almost 7 per cent last year, with notable transactions that included notching up several deals worth £500m for client Standard Life within six months.