The commercial real estate industry already knows what others are learning: The workplace is changing and employee expectations along with it.
And while some sectors, such as tech, embrace employee' desires with funky floor plans and job perks, others resist.
Cushman & Wakefield, the largest commercial brokerage in Minnesota, has zeroed in on a service sector that is traditionally conservative about work trends — law firms. The company's legal sector advisory group, headed by Sherry Cushman, recently presented new data about the effect that changes in work habits and employee expectations are having in law firms.
Lawyers are coping with changes in their fee and revenue structure, which then spills over to their compensation and, ultimately, to the number of people a firm can employ. It also means law firms are decreasing their office space, cutting the square foot-to-lawyer ratio in order to reduce costs.
One solution is a concept called "hoteling," where some space is set aside for people who aren't in the office full-time. Those people may also work at home or on the road.
Cushman and Paul Donovan, executive director of the advisory services group in Minneapolis, outlined how their role as real estate professionals goes hand-in-hand with the overall shift in the way law firms and other companies work.
Q: What are the key findings in your study?
Cushman: The No. 1 reason for attorney departure last year was [to join a company as] in-house counsel. The No. 2 reason was termination. And termination wasn't part of law firms' vocabulary 10 years ago. Being a lawyer was like working for the government — you pretty much had a job for life.
Q: How does that affect law firm real estate?
Cushman: Now, because of lack of performance, because profitability is being questioned with fixed-fee structures and all the other challenges they have, at the end of the day, they look at what value each lawyer really brings to the company. The commoditization of the legal sector is horrible. Clients aren't willing to pay — they want you to do more for less — and law firms' No. 1 fixed expense is real estate, so controlling that and maintaining profits is harder than ever.
Q: So you're saying that rather than cutting jobs, law firms should be looking at downsizing the real estate footprint of each lawyer. How does that affect your job as a real estate professional?
Cushman: Our goal as a company with this study was to bring a wealth of information to our prospects and our clients. And to give our boots on the ground the resources to not just talk about real estate but talk about business. We are trying to transition what we are doing, not just present five buildings and tell them, "Pick one." We are transitioning into a business advisory role.
Q: What are some of the solutions that you see as working?
Donovan: It's the psychological component. Here in the Twin Cities, we are probably averaging 850 square feet per attorney. They have to be more efficient. They have to deal with it. And it's hard because of their governance structure. You are asking the 55-year-old attorney to make a decision that doesn't benefit them. We are finding those leaders who do want to do what is best for their firm and its future. And they will be the ones to make this transition first.
Cushman: Hoteling in other sectors is at a 5:1 ratio now. Basically, you can accommodate one-fifth of your total employees with the office space. We are just starting to see the hoteling concept used in the legal sector and it has a long way to go. Law firms are saying to their lawyers, if you do work from home, which is fine, but you are only coming into the office one day a week, we are not going to give you an office, so they set up these modular desks. We absolutely believe this will be the way to grow as a company without using more space.
Q: How does Minneapolis compare with the rest of the major U.S. markets?
Cushman: The law firms here are behind what this study suggests. They have opportunities going forward and they are rethinking how they remake themselves, but it is just beginning. The world is global and you don't have to be based here as a business to do business with local law firms. So if you are going to go fixed-fee, you have to drive costs out of your cost structure. And real estate is the No. 1 fixed cost.
Q: I have to ask the obvious question. Sherry, is there any relation between your family and the company's founder?
Cushman: We are not aware of one. In my final interview to take this job, I had to fly out to meet John Cushman, who is the founder's grandson. And before I flew out to Idaho to have my interview, he said, "Bring your family stuff and I'll bring mine." And I literally sat at his kitchen counter and went through my life. And what's weird is both of our families came over on sister ships to the Mayflower. Both of our families were New England-based. Both of our families started companies. But we can't figure it out. We need to find a genealogist.