I have spent 25 years of my life in the commercial real estate world, first as an attorney, then as a broker. Consequently, I am not messing around when I say that I think real estate strategy is important. BUT, it should not precede or trump business strategy. If you don’t know what’s important to your business and where it’s going, how can you possibly find the right office space in the right location and build it out to support your business goals?
An Example
Case in point, law firms typically sign 10+ year leases when they build out new offices. Many firms do not think about real estate strategy (save potentially taking additional space or giving back a little space) until they are about two to three years from their lease expiration dates. At that time, brokers begin barraging them with phone calls, visits and emails touting how the brokers can save them money negotiating their next lease deal, whether it be a renewal or a relocation.
Because most law firms don’t have enough real estate to justify a full time real estate director position, the law firm then gins up a real estate committee to study the issue and select a broker. Usually, this committee considers how much space the firm currently occupies, its projected headcount growth and the firm’s square footage per attorney as compared to its peers. The committee then decides how much space the firm needs and whether they want to spend the money to move.
The broker, armed with this information, identifies valid options and works with the firm to get a renewal or relocation deal done. Somewhere along the way, the firm engages an architect to help them design their new or refurbished space. If they’re smart and/or lucky, they engage a firm that challenges them to think about HOW they work in their space. In these instances, the design can be a powerful tool for facilitating a more productive work force or encouraging new behaviors (if you know what behaviors you want to encourage).
The Problem
So, you ask, what’s the problem? Well, what if you don’t know where your firm is going in the next 10+ years? What if your firm is encouraging innovation that might spawn a new business that uses space differently in three years? What if your C suite and business staff is growing? What if you don’t know what your leverage model (partners to associates) should look like in five years?
The answers to all of these questions can have a tremendous impact on a firm’s space needs. For instance, if your firm develops an eDiscovery platform, the programmers and developers working for you are going to want a much different office environment than is typical of a law firm.
If you expand your project management capability, begin outsourcing some functions to legal process providers and reduce the number of associates you employ, your office space needs are going to change dramatically.
Maybe your firm’s industry focus means that growth will shift to another city completely.
The Moral
I realize that there is some uncertainty to any business’ future plans, especially in an industry undergoing as much change as is the legal industry. The moral of this story is: Think about your firm strategy (and what effect it might have on your real estate strategy) now; not just when you are faced with a lease expiration.
OK, How Do We Do This?
Moving forward, my professional focus is shifting to helping law and other professional services firms build real estate strategies that are based on their business strategies. It includes a deep dive into the challenges and opportunities facing service firms right now and the development of potential strategies to address those challenges and opportunities.
My approach is NOT “eliminate your law library” or “move your support staff to cities with lower rents and cheaper salaries”. These are tired and overly simplified solutions proposed by people who do not truly understand service firms. While it’s true that law libraries have been shrinking for years, they are frequently being replaced with knowledge centers and collaboration spaces; uses are changing, not going away. And the remote support staff model may be great if (a) your staff is currently based in a city with high rents and/or salaries; and (b) is significant enough in size that a relocation would generate savings that would outweigh the costs; and (c) your operating model does not benefit from the proximity of that staff. This, clearly, is not true of most AmLaw200 or smaller firms.
Rather, my approach is to consider such things as the way law firms are evolving as businesses, how they are structured, diversity recruiting and retention concerns, and millennial recruiting and retention concerns.
My approach includes defining occupancy, economic and workplace behavior goals. Where appropriate, it includes partnering with appropriate design firms equipped to address workspace optimization.
After building a business-based real estate strategy, I help firms understand the strengths and weaknesses of their current real estate portfolios relative to that strategy. Among the many benefits of this approach for service firms is that together we may discover they have opportunities within their current real estate portfolios to make changes that will more quickly enable them to reach their business goals.
This means looking at real estate independent of expiration date ticklers. It also means stepping away from a commission-based operating system for me. I want you to consider me as a partner navigating your firm into the future. Sound intriguing? Let’s talk.
