Over the past three years, the legal sector has taken a much more aggressive approach to office space, with law firms working to maximize the benefits of this shift.
In 2021, AmLaw 100 firms experienced an average revenue increase of 14.8%, with 18 firms showing over 20% growth, and 63 firms achieving double-digit growth. With this impressive performance and increased pressure to hire top associates and lateral partners, many law firms opted to hold onto excess office space.
By 2022, direct expenses rose by 10.1% as more attorneys returned to the office, but revenue growth for AmLaw 100 firms slowed to 2.7%.
In 2023, although the pace of expense growth slowed to 6.8%, it remained high. However, revenue growth rebounded to 6.1%, driven by rising hourly rates despite a significant drop in high-value activities like mergers and acquisitions and IPOs, largely due to rising interest rates. M&A deal value fell from an all-time high of $5.191 trillion in 2021 to $2.577 trillion in 2023. This shift redirected legal work from AmLaw firms to mid-sized firms and more affordable counter-cyclical practices.
As a result, law firms have increasingly scrutinized their real estate expenses and felt additional pressure to rethink their workplace strategies. This has led to the adoption of hybrid work policies and, in many cases, the implementation of free addressing to reduce leasing costs. The net effect has been a more proactive shedding of excess space, while still seeking offices with great amenities and energy to attract and retain top talent.
As law firms continue to focus on optimizing office space for hybrid work models and financial efficiency, it is crucial to make well-informed real estate decisions. The expertise required spans legal industry real estate trends, innovative workplace solutions, and financial analytics to demonstrate the impact of each decision. Partnering with a true expert is essential to ensure you are making the right moves to set your firm up for success for years to come.