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Birmingham Bar Association Bulletin

Firm Efficiency Anita Turner Is An Increase In The Partner To Associate Ratio A GOOD THE SETUP Assume a law firm currently leases 125,000 square feet at $25 per square foot in a market like Birmingham and it is considering relocating so that it can build out more efficient space (think smaller more functional attorney offices). The law firm anticipates it will shrink its footprint to 100,000 square feet while still accommodating the same number of lawyers. Provided the rent in the relocation space is comparable to current rents, the payback on the initial capital investment (assumed for this hypothetical to be $50 per square foot above any allowance a landlord is willing to provide) is likely to take ~8 years. After that period of time, the firm will start realizing some operating cost savings due to the lower annual rent on the reduced square footage. If that same firm relocates that 100,000 square feet to a building that costs $35 per square foot, the annual rent will increase $375,000 and the capital costs of $5M will never be recovered. This picture changes dramatically in a city like New York where rates can be $85 per square foot even assuming a bigger capital investment ($100 per square foot above landlord allowances). If a New York firm relocates to smaller space in a comparably priced building, the payback is likely to take just under five years. If that same firm moves to a building with $95 per square foot rent, the payback moves closer to twelve years. HOW CAN A FIRM JUSTIFY RELOCATION COSTS? Given the best case slow payback and worst case increased operating expenses of the above examples, how can a law firm justify a relocation and build out of new space, especially in a lower-rent market? The answer is simple: either there needs to be an anticipated revenue increase associated with the new space or the partners have to be willing to pay a premium to be in more functional and/or desirable space. If the firm is looking for an associated revenue increase, what are the potential sources? BETTER COLLABORATION? Perhaps new space is designed to encourage collaboration so attorneys and staff interact more frequently, sharing best practices and identifying opportunities for other attorneys to work on existing client accounts. This theoretically creates more work which results in more billable hours and more revenue for the firm. 14 Birmingham Bar Association


Birmingham Bar Association Bulletin
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