Baltimore law firms look to cut oversize real estate footprints

The days of the cushy corner office for top law partners may be numbered. Maybe.

On average, law firms still occupy up to three times the space per worker as companies in banking, finance, insurance and technology, according to a national study by commercial real estate broker Cushman & Wakefield. But with increasing pressure on firms to lower costs, that's expected to change, which has significant implications for office space in downtown Baltimore.

Law firms occupy about 13 percent of Baltimore's top-tier office space, with many smaller firms leasing in older buildings, according to a 2013 report by commercial real estate firm Jones Lang LaSalle.

Proximity to the courthouse and to other clients continues to make a downtown location attractive, with 17 more law firms signing leases within a one-mile radius of Pratt and Light streets between 2011 and 2013, said Kirby Fowler, president of the Downtown Partnership of Baltimore.

But a trend toward smaller space means the new leases have not had as great an impact on vacancy rates, he said.

The downtown office vacancy rate stood at 17.9 percent at the end of 2013, according to Jones Lang LaSalle.

"We've seen job increase, job growth in downtown, but it's not necessarily correlated to changes to the occupancy rate," Fowler said.

The space used per employee by law firms has been shrinking since the 1980s, when technology began to reduce the need for executive assistants, in-house libraries and storage space for legal files. In 1990, law firms occupied some 1,000 rentable square feet per attorney, a number that dropped to 600 in 2010, according to an analysis by Roomtag, a Baltimore-based company that works with clients to help them manage their office space.

Now some law firms are going further, rethinking their real estate to such an extent that moving altogether makes more and more sense. They're eliminating or reducing the different office sizes that once reflected hierarchy, installing glass walls to make better use of a building's interior, and building larger cubicle pods for staff, creating flexible spaces able to respond to future changes in how people work.

"There's definitely been a slow movement to downsizing, but the reality is we're going to see major movement, not only in Baltimore, but all around the world," said Sherry Cushman, a Washington, D.C.-based Cushman & Wakefield executive managing director, who heads the company's legal sector advisory group and spoke this week about the trend at a Baltimore symposium.

Some of that movement already has occurred locally, where the Downtown Partnership reports at least five firms switching spaces in the past three years. At least two more are thinking about moving, as leases approach expiration, according to the Jones Lang LaSalle report.

"You always try to build your space with a kind of vision for what you're going to want it to look like 10, 15 years from now," said Martin Fletcher, managing partner at Whiteford Taylor Preston, which occupies about 90,000 square feet at its longtime St. Paul Street location, where the lease expires in 2016.

Fletcher said the firm, which has about 80 lawyers in its Baltimore office, plans to remain downtown but expects efficient redesign to reduce its footprint to about 50,000 square feet, without a significant change in the number of employees.

"There's just a recognition by law firms that they need to manage their overhead smartly," he said. "They want to be able to provide services to their clients in a cost-effective way, and your physical space is one of your big expense line items."

Law firms spend on average between 4 percent and 7 percent of their revenue on real estate, according to Cushman & Wakefield.

Better-quality buildings became more affordable during the recession, providing a further incentive to switch locations, said Michael Singer, senior vice president at Jones Lang LaSalle, which documented a shift south from offices further north along Baltimore Street and on Charles Street. The vacancy rate in Class B office space downtown is about 22 percent, compared to 15 percent in Class A space, according to that firm.

"This was competitive, and we have better views," said Eric Hemmendinger, a partner at Shawe & Rosenthal, which moved to One South Street in December after 40-plus years in the Sun Life building at 20 S. Charles St.

At Miles & Stockbridge, which moved in April to 100 Light Street, the employee count has grown, while the firm's footprint shrank from 125,000 square feet to 107,500, said Bill Psillas, the firm's director of administration. The firm, which had been in its previous 10 Light Street offices since 1932, achieved the reduction with the introduction of standard-size offices and a completely digital work flow.

"It was about cost-saving in the long term, but it was more about being more efficient and effective," John Frisch, the firm's chairman and CEO, said Friday.

The new building's glass walls, standard-issue furniture and higher percentage of communal space are designed to foster a collaborative, connected work environment, Frisch said.

"I'm sitting in an office that is half to 60 percent smaller," he said, "but I can't tell you how much I prefer working in this office."

Which returns to the question of partner offices, which may be shrinking but are hardly on a slippery cubicle slope. Landlords still can expect law firms to take twice as much square footage per employee as their corporate peers, Cushman said.

"It's the distinction between a dictatorship and a democracy," said Cushman, contrasting legal partnerships with the hierarchical structure of other industries. "Law firms are still a democracy."

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