August 8, 2022

Pullman-BLN

Legal With Effect

Pandemic has Twin Cities law firms stepping up efforts to downsize offices

With the lease expiring in a year, Fredrikson & Byron President John Koneck set out to find a new headquarters, but knew he’d need less office space than the current spot in U.S. Bank Plaza in Minneapolis.

Earlier this month, Koneck signed a lease for 178,000 square feet of space in the RBC Plaza on 6th Street. The nine-floors have 27,000 fewer square feet than the firm’s current offices, which now largely sits empty due to the pandemic.

Under the terms of the new 16-year lease, F & B can opt to slash its space even more — from nine floors to just six — anytime between now and when its 500 employees are set to move in June 2023.

“We are downsizing not because we are losing lawyers but because we will make more efficient use of our space and the way we use space is changing … especially because of the pandemic,” Koneck said. “What I am hearing is that the pandemic has caused all law firms to look at their space” needs as their leases expire.

The smaller footprint appears to be part of a national downsizing trend, according to anecdotal reports and a new national survey by Law360 Pulse, a publication covering the legal industry. F & B, Dorsey & Whitney, and Taft (formerly Briggs and Morgan) are among a cadre of law firms that have opted for less space due in part to the global pandemic and other considerations.

Law360 Pulse found 52% of the 45 law firms surveyed planned to downsize permanently due, in part, to remote-work habits embraced by employees during the COVID-19 crisis. The trend is emerging even though law firms insist they expect more hires.

“The pandemic has exacerbated a trend to smaller spaces, especially in bigger cities where rents are rising,” said Law360 Pulse Managing Editor Kerry Benn. Law firm partners discovered their attorneys, paralegals and assistants adapted pretty well to working remotely and set in motion changes once deemed unfathomable.

“Before the pandemic, only 15% of firms were letting their people work form home,” Benns said. “Then obviously when the pandemic hit, that number rose exponentially.” By fall, 60% were working remotely.

“When we asked how that practice would translate into 2021 and beyond, 46% said they expect to let people work form home after the pandemic wraps up, because people are doing great job,” Benn said.

Mike Salmen, the lead broker at Transwestern who negotiated F & B’s new lease, said downsizing offices “is happening around the country [and] we are seeing it with all different types of firms.”

But with law firms, the trend evolved, Salmen said. It started a few years ago with computerized documents and the need for fewer legal assistants and filing cabinets. Then came the idea to “standardize/reduce” the size of private office space for partners and associate attorneys. Then Covid hit, sending everyone into the world of remote work.

With that, “almost every law firm we have been doing business with here in the Twin Cities reimagined their spaces and in many cases [are] downsizing, Salmen said.

As executive directors of Cushman & Wakefield’s Minneapolis St. Paul Advisory Services Team, Jaclyn May and Paul Donovan regularly help a broad array of clients — including Lindquist & Vennum, Winthrop & Weinstine, Taft, Lockridge Grindal Nauen, and Waldeck Law Firm — with their real estate needs.

Law firms started embracing the idea of leasing smaller offices maybe five to 10 years ago as they shrunk the size of attorneys personal offices and mega conference rooms. May and Donovan saw law firms replace expiring leases with smaller offices sometimes bearing 20% less space.

Cushman’s national surveys of 608 lawfirms and associate participants suggest Covid is speeding up the change.

“In 2017 62% of our [survey] respondents said attorneys might work remotely in five years. That number was 78% in early 2020 and has now jumped up to 96% as of the second quarter 2020, ” May said. “Covid has pushed law firm [thinking] 10 years into the future. Lawfims have not been as quick to embrace the change in the workplace as other firms. Covid really tested their ability and brought into question the way they used to do things and to have more of an open mind.”

At Dorsey & Whitney, which has 1,200 employees in 19 offices, the lease for its Minneapolis headquarters won’t expire until 2028, so it isn’t making changes there.

But the Denver office lease was ending just as COVID-19 hit the nation, causing office vacancy rates to soar.

Dorsey’s landlord made concessions to entice its tenant to stick around. Dorsey got such a good deal, it nixed plans to move.

It is now considering subleasing one sixth of its Denver space to a third party. “Before Covid, that would have been unlikely,” said managing partner Bill Stoeri.

Internal surveys revealed that Dorsey staffers really liked working remotely. So some will continue to do so long after the pandemic is gone, he said, noting that the move could affect the firm’s future real estate needs nationwide. “We’re looking at every one of our 19 offices as these leases come up for renewal.”

With more attorneys wanting to work remotely post Covid, “If you assign everyone an office you will have a lot of empty offices,” Stoeri said. ” So using a ‘hoteling’ or shared office [model] is likely how we will handle this.”

In a hoteling arrangement, staffers who want to head downtown just twice a week, won’t get a permanent office. Instead, they will call ahead and be assigned a temporary office for the day. Their legal materials will be moved in and out of that office accordingly, Stoeri said. “We are adapting. We are looking at a combination of options with some attorneys with assigned offices and others who [do] free addressing or hoteling.”

That could save money. “One of the larger fixed expenses for a law firm is real estate and leases,” Stoeri said. “So if you have savings there, you are saving on a significant expense.”

Donovan from Cushman and Wakefield said on average, law firms spend 4% to 6% of revenue on real estate and provide each attorney with about 600 square feet of space. “If hoteling is implemented on a firm wide basis, we will likely see that number go to 400 square feet or lower. That is an impact,” he said. But lower lease costs could be offset with technology investments needed to make hotel-like office sharing work.

Dee DePass • 612-673-7725

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