law in the regions 2016
TRANSCRIPT
Law in the RegionsMore for less: dual focus on cost reduction and selective investment to support business expansion leading to wave of office moves and expansion in key regional cities.
2016 | Global Research
Improving efficiencies
Cover images are provided by Burgess Salmon, Baker & McKenzie and Wragge Lawrence Graham & Co.
Image courtesy of Burges Salmon
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Executive Summary More law firms are moving to or expanding in the UK regional cities, seduced by skilled labour pools and clear opportunity to take high quality office space, operating at a substantial discount to London. Conditions are ripe for regional office moves.
Brighter, more positive footing for legal sector since the global financial crisis. Law firms in expansion mode.
The past few years have witnessed a considerable uptick in activity from law firms taking office space in UK regional cities. This report combines quantitative and qualitative analysis to provide a comprehensive representation of legal sector real estate activity in the UK regions and identifies underlying drivers.
The most recent ‘hot spot’ regional locations are revealed as well as results of sector benchmarking analysis, including a ranking of the Top 30 most popular law firm regional locations by number of offices and volume of space occupied.
The report also delves behind headline numbers, to reveal insight into location strategies, gained from in-depth interviews with some of the country’s largest law firms.
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5 Law firms increasingly sophisticated about using real estate strategy to support business objectives.
New dual focus on cost saving combined with selective investment where appropriate in pursuit of future growth strategy.
Cost effective allure of UK regional locations without compromising on quality. Average rent per fee earner 58% lower than London.
New competitive environment – business models under review with implications for real estate.
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Image courtesy of Burges Salmon
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Image courtesy of Wragge Lawrence Graham & Co.
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IntroductionThe future looks brighter for the legal sectorFollowing some very difficult recession and post-recession years, the UK legal sector can be said to have turned a corner and now seems firmly set on an upwards trajectory. Solid financial results have been recorded over the past year and many firms are stating that they are in expansion mode. According to the PwC 2015 Annual Law Firm Survey, the number of UK firms increasing their fee income is higher than at any time since 2008: 82% of all firms (2014: 70%). Confidence is also clearly running high, evidenced both by increased real estate activity and by the record sums British law firms are borrowing to fund expansion, invest in new technology, retain talent etc. According to research from finance provider, LDF, bank lending to law firms has increased to £7.35bn in 2015, a 28% increase from 2010.
Evolution of law firms and renewed focus on real estateAlthough law firms are generally doing better and are in expansion mode, there is no room for complacency. Domestic firms are undergoing a period of rapid evolution and transformation, fuelled by economic growth, rising demand for legal services and increased pressure from more savvy and innovative competitors. Established UK firms are not just in competition with each other: they are up against expanding foreign law firms (into the UK); new entrants to the sector following de-regulation and freshly merged businesses that have achieved greater economies of scale in the UK.
To remain competitive against this backdrop many firms are reviewing existing business models. There is increased emphasis on more aspirational future-proofing and growth enabling strategies. Business conditions are now
supportive of a selective investment agenda. This is leading to a new wave of real estate activity as firms seek to maximise the use of their property assets and rationalise their estates to account for new ways of working and modern technology practices. Although the key driver is to reduce operating costs, there is also a focus on adding value to the core business through strategic, selective investment. Those laggards that are slow to respond to the changing dynamics in the sector - to innovate their business and real estate strategy run the risk of losing ground to competitors. The message is clear: evolve or risk being left behind!
The pull of UK regional citiesKey regional cities are proving a powerful pole of attraction to the big UK corporate law firms (commonly termed ‘magic circle ‘and ‘silver circle’) as well as some non-UK originating law firms. In early 2015, for example, Latham & Watkins and Freshfields Bruckhaus Deringer stated plans to open support offices in Manchester, whilst in late 2014 Hogan Lovells announced the opening of a legal services centre in Birmingham. Belfast has gained a reputation as a significant legal sector destination in recent years, having attracted several big players. Allen & Overy and Herbert Smith Freehills opened offices (albeit for different purposes: back office support or legal services) in 2011. Baker & McKenzie has recently moved to the city and is in the process of creating a global services centre at its new City Quays 1 office whilst Eversheds announced in the summer of 2015 the opening of a new office to service business and public sector clients in Northern Ireland. Legal services firm Axiom has also announced plans to double its Belfast workforce with the creation of almost 100 new jobs.
Over the past three years CBRE has produced a market defining report on the status of the legal sector in London. However, for the first time we now cast our eyes over the rest of the country. For those also interested in the latest dynamics within Central London, CBRE is also publishing an update of the Law in London report, to accompany this publication.
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The CBRE 30 Legal CitiesOur ApproachAll of the data used in this report has been sourced with the highest standards of integrity and validity in mind. We began with a definitive list of the Top 100 UK law firms, based on revenue, as produced by the trade magazine Legal Business. To this we collated information on the location of all the offices of each firm, outside Central London, and the properties occupied by each firm. This involved the careful combining of data from firms’ own websites alongside deals data from CBRE’s in-house leasing database, supplemented by information from CoStar and EGi. The final element of our analysis was to source figures for the number of fee earners at each office, and these were obtained from directories of The Law Society and The Law Society of Scotland.
The Regional Top 30The map on page 9 shows the Top 30 cities for law firm occupation across the UK. This is a simple ranking based on the total office floorspace in each city occupied by firms in the UK Top 100. Three cities stand out as the primary legal centres outside London, each dominating their wider region: Bristol (within the South West), Birmingham (within the Midlands) and Manchester (within the North of England).
This second tier comprises four cities.
Each of these three cities has legal occupation of over 750,000 sq ft, well ahead of a second tier of cities with 300-500,000 sq ft of legal floorspace.
Bristol
Leeds
Birmingham
Edinburgh
Manchester
Liverpool Glasgow
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29
28
27
Offices:
Manchester
Edinburgh
Birmingham
Bristol
So the distribution of law firms across the UK largely follows the relative size of the regional cities. Across the North of England, the Midlands, the South West and Scotland, these major cities dominate legal occupation. This is in sharp contrast to the wider South East corner of England where legal occupation is scattered across a larger number of town and cities, none of which individually make our Top 10. Indeed within this wider mix, there are a number of cathedral cities and larger market towns represented such as York, Colchester, Taunton and Exeter.
Whilst Bristol tops the table in terms of total legal office space, Manchester is the largest city when it comes to the widest representation of firms in the Top 100.
This pattern is also reflected with the number of fee earners represented by the Top 100, with Manchester being home to the largest number of lawyers, some 2,038.
Image courtesy of Wragge Lawrence Graham & Co.
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Top 10 Legal Cities by number of offices
Top 10 cities, by number of fee earners
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29 28 27 2624
12 11 11 11
Manch
ester
Num
ber o
f offi
ces
Edinb
urgh
Birming
ham
Bristo
l
Glasgo
wLe
eds
Newca
stle
Cardiff
Aberd
een
South
ampto
m
Manch
ester
Num
ber o
f fee
ear
ners
Edinb
urgh
Birming
ham
Bristo
l
Glasgo
wLe
eds
Newca
stle
Cardiff
Liverp
ool
Notting
ham
2,038
1,831 1,546 1,449 1,3231,219
731 509 468 435
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Volume of legal floorspace per citySize Rank City Total
Size
1 Bristol 874,321
2 Birmingham 781,893
3 Manchester 774,922
4 Edinburgh 486,467
5 Leeds 476,023
6 Liverpool 350,217
7 Glasgow 322,205
8 Cardiff 226,062
9 Nottingham 220,221
10 Newcastle 202,802
11 Sheffield 188,050
12 Southampton 174,560
13 Belfast 120,429
14 Exeter 118,473
15 Guildford 117,095
16 Cambridge 106,027
17 Oxford 76,318
18 Reading 69,042
19 Aberdeen 67,519
20 Milton Keynes 53,629
21 Northampton 50,701
22 Plymouth 50,005
23 Basingstoke 49,744
24 Colchester 45,000
25 Wimbledon 45,000
26 York 37,587
27 Croydon 37,125
28 Chelmsford 36,927
29 Leicester 35,921
30 Taunton 35,389
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7
8
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10
19
13
11
2021
22
23
29
26
12
14
30 15
16
25
27
2428
1718
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Law firm take-up volumes of office space in the regions have been particularly strong in the past four years. Take-up activity in the four year block 2012-2015 has in most cases outperformed the previous four years (see associated chart) – where the impacts of the global financial crisis (GFC) on law firm take-up activity are clearly visible.
Manchester and Leeds have seen particularly strong activity. In Manchester, for example recent activity was led by a 100,000 sq ft deal to Slater and Gordon and 44,800 sq ft for DLA Piper at the speculative One St Peter’s Square. Larger law firm deals in Leeds have included51,531 sq ft taken by Addleshaw Goddard at 3 Sovereign Square, 33,000 sq ft acquired by Squire Patton Boggs at 6 Wellington Place and 24,800 sq ft taken by DAC Beachcroft at St Paul’s House, 23 Park Square South.
Bristol saw a flurry of law firm activity at the end of 2015. Veale Wasbrough Vizards took occupation of 39,000 sq ft at Narrow Quay House and TLT signed for an additional 27,000 sq ft at One Redcliff Street and re-geared its existing 60,000 sq ft lease, bringing its total occupation in Bristol to 90,000 sq ft.
Legal services annual take-up
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
Edinb
urghSE
Bristo
l
Glasgo
wLe
eds
Birming
ham
Manch
ester
2008-20112004-2007 2012-2015
Sq ft
Over the past two years, legal services across the large regional CBDs have accounted for around of overall office space take-up.
in 2012, but pre-GFC had hit a high of
10%
6%16%
Legal services share of take-up reached a low of
Source: CBRE
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Image courtesy of Wragge Lawrence Graham & Co.
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Interview insights from the legal sector
CLIENT PRESSURE DRIVING CHANGE
‘What used to be a lawyer calling a lawyer and saying ‘get to work’ is now a request for a proposal and an option’
Many interviewees cited increased pressure from clients on how legal work is managed, where it is conducted and how it is priced as key determinants upon their real estate strategies.Post-GFC law firms find themselves in a new competitive operating environment. During the recession, squeezed corporate clients became highly sensitized to attaining lower cost, higher value and increased efficiency from their legal advisors. This has led to a permanent cultural shift whereby clients are clearly more active, assertive and vocal about their requirements. This change in expectations is challenging law firms to review business models, to become ever more client-centric, to improve project and process management and to adopt new methods of pricing such as fixed fees and alternative
KEY TREND:
Law firms have or are adjusting business models to satisfy higher levels of client expectations.
CBRE interviewed a number of top law firms that have recently opened or expanded offices in the UK regions for a variety of rationales. Here are the key insights.
Increased Law Firm Real Estate Activity
Higher client expecations post global
financial crisis
Dual focus on cost control
and selective investment
Improved economic
conditions and increased
confidence
fee arrangements instead of traditional hourly rates. For those law firms able to adjust and produce a ‘step change’ in their operations to meet these higher expectations, there is huge opportunity to be had in terms of increased market share. Laggards, those that are show to change, risk being left behind.
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‘You remain top tier if you are offering cost effective, efficient, quality service. To do this we need the right people for the right parts of the project in the right location, with the right skills.’
‘We deal with global clients and they want to know that firms are increasingly taking a global approach.’
REAL ESTATE UNDER REVIEW
In today’s more competitive operating environment, real estate is one way law firms can provide improved efficiency and reduced costs, both to themselves and to clients. Strategies will vary according to the size and international reach of the firm.
KEY TREND:
Global approach
A more sophisticated client sector with a global footprint has necessitated a greater need for corporate law firms to evolve and adapt in response. Success is clearly bound up with clients, many of whom have been actively asking the question ‘what’s next?’ and seeking innovative solutions to their legal service requirements.
Law firms with a significant international focus have been under pressure to think strategically about their clients’ current and future needs in order to continue to provide a compelling service offering. This might mean extending geographical footprint to be located near core clients or concentrating certain functions into lower cost, more efficient global legal service centres. Strategy will revolve around rationalising but also diversifying and building new service offerings and situating them in the right locations that align with front line offices. What is clear from our interviews is that no ‘one size fits all’ model exists. The right approach will vary from one firm to another according to the nature of existing resources and the nature of client requirements.
For smaller domestic law firms who do not have the same scalability as magic circle or silver circle firms, but who also service international clients, the same pressures will apply but the solutions will look different. For example, one firm interviewed was headquartered an hour and a half by train from London and so already benefitted from being in a lower cost location. It kept a small satellite office in London which was used almost exclusively to host international
client meetings. It was engrained in company culture that fee earners would travel regularly to the London office to meet and interact with core clients. If a project required them to be temporarily based near an overseas client, they would either mobilize temporary serviced office space, work from a client’s building or make use of an informal ‘best friends’ network developed in co-operation with similar sized law firms to share office space when needed for mutual benefit.
Clearly this type of model and arrangements are effective strategies for smaller firms. In this scenario, technology solutions that enable the right mobile working tools so people can work anytime anywhere around the world feature highly on law firm agendas.
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Overseas and UK magic / silver circle firms establishing ‘global legal service centres’ in lower cost regional cities
UK, traditionally London-based, firms seeking efficiencies by locating back office or legal functions in the regions
Traditional regional law firms looking to expand their businesses nationwide
Global approach
Nearshore to London
Local regional expansion
Image courtesy of Osborne Clarke
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Nearshore to London approach
The rationale for the big London-based law firms of moving back office or routine document and people intensive legal work outside of the capital but remaining in the UK is clear. Clients will not expect to pay front office ‘city rates’ for this type of work.
By choosing a UK regional location, firms not only benefit from lower-cost real estate and lower labour costs, but also from proximity to London, same exchange rate, same government, same legal and education systems. From an international perspective, there are also the advantages of being in a country where English is the mother tongue and a globally central time zone.
One firm explained that a lower cost but ‘nearshore’ office to London works well with both external clients and internal associates, who are able to ‘jump on a plane, visit for the day and then fly back’. The offices are accessible enough that stakeholders can still meet the teams they are working with or who are doing the work for them.
‘Nearshore’ lower cost, regional offices are also being used as an opportunity to pitch and win more business for front line teams. Firms are able to pitch it as a differentiator to clients who have realized the increased value of what they are buying.
Nearshoring of functions or expansion of activities from London has been accomplished by firms either setting up new offices in regional locations or by using mergers or acquisitions to achieve objectives. Recent examples include Trowers & Hamlins merger and acquisition with Exeter based Stones Solicitors, Clyde & Co with Edinburgh based Simpson & Marwick and Slater & Gordon with Chester based Walker Smith Way and Cardiff based Leo Abse & Cohen.
‘If you talk to a client about the fact we’re opening an office in the regions, it’s refreshing to them but it’s not surprising because our clients have been doing this kind of thing for a decade or more.’
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Local regional expansion
It is not just magic circle or silver circle firms taking space in the regions. A number of smaller domestic firms originating from regional locations are also in expansion mode – looking to extend their offering and reach, particularly by providing coverage in core ‘Big 6’ locations (or beyond if they need ‘feet on the ground’ in specific locations). As with the nearshoring from London approach, some of these plans will be achieved through organic growth, whilst others may involve merger and acquisition activity to plug geographical or business line gaps. A recent example was the merger of Shakespeares with SGH Martineau creating the new entity, Shakespeare Martineau.
WHICH LOCATION?
A number of the law firms interviewed had applied a cost / quality / risk matrix to assist them in making location decisions. Factors such as cost of real estate, cost of wages, quality of talent, plus availability of suitable buildings, local amenities and transport infrastructure all came into play.
The weighting of these criteria and therefore the ultimate location choice varied from one firm to another depending on whether business strategy was part of a global, nearshore or local expansion approach. If the purpose was to open a global or nearshore legal service centre or back office function, for example, low rent and labour costs plus availability of suitable talent were often the clinching criteria, with cities such as Belfast scoring highly, often in the context of a global competition for the right location. For those conducting global location searches, these factors were also overlaid with a consideration of risk factors such as national legal systems, regulation, political stability, connectivity to internal and external clients and so on. For other firms looking to move or expand the inside trigger was the ability to practice English law, thus cities such as Manchester and Birmingham had taken preference, offering significant discounts to London as well as opportunities to co-mingle support services with lawyers providing legal advice under English law to clients.
KEY TREND:
To choose the right location, firms are applying a cost / quality / risk matrix to assess locations weighted according to the context of their overall business strategy.
‘We are in aggressive expansion mode and opening up offices in new regional locations where we think our clients need us to be. ‘
‘We did a location analysis of 14 cities using a cost / quality / risk matrix and then balanced this with our business objectives’
Graham Interior Fit-Out
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CHASING THE TALENT
KEY TRENDS:
Firms taking space in locations offering sufficient university presence, supplying enough of the right quality of talent whether legal or professional services, for intended operation.
Firms asking themselves – are there benefits of cross fertilization from a location close to other similar-sized law firms or are there too many competitors in the local market competing for a limited talent pool?
Potential challenges include recruitment, such as recruitment of older, more specialised staff in non-traditional legal locations.
CASE STUDY: BELFAST
The three law firms interviewed by CBRE in Belfast all acknowledged the quality of the talent pool in the city was a critical ‘pull factor’ in their final location decisions. One firm commented ‘We chose Belfast as much for quality of talent as we did for cost.’ All those interviewed were aware difficulty might arise in recruiting staff from England and therefore needed to be convinced at an early stage that the talent pool was deep enough to supply key staff requirements.
The strong provision of both legal and professional services talent proved a powerful combination for Belfast, which won out over a number of international locations (for two of three law firms interviewed). Firms were impressed by the reputation and standard of the two universities: University of Ulster and Queen’s University, Belfast which deliver between 500 and 600 law graduates to the market each year, a sufficiently large talent pool to draw on without compromising on quality. The strong general standard and reputation of education in Northern Ireland was also valued. As well as legal talent, there was confidence of an ample supply of high calibre professional services staff from which to cherry pick. Belfast offers more than 4,000 graduates in business and technology-related disciplines each year and there are 13,000 students currently taking finance-related courses at undergraduate level.
Availability of fresh legal graduates was further enhanced by cross fertilization benefits of locating close to other similar sized law firms that had moved into the area (since 2011). These firms, between them were developing a growing pool of relatively ‘experienced’ talent with wider skillsets. The only significant challenge any of the firms interviewed had found was in recruitment of older, more specialised staff: ‘Young payroll clerks are available in armfuls. But if you want an experienced solicitor then all of a sudden you are fishing in an extremely tight market’.
‘One of the main drivers for selecting Belfast was the availability of legal talent in Northern Ireland and, notably, the fact our two universities produce an abundance of talented and ambitious legal graduates every year’
The ongoing provision of suitable talent unsurprisingly features very highly in location selection criteria for law firms when looking to set up new regional offices or expand an existing regional base.
Over and above choosing cities with lowest labour costs, firms need to be convinced a chosen location will provide a ‘critical mass of talent’ that will sustain and push their businesses forward. The quality of the workforce, availability of educational facilities (such as internationally respected universities) and ability of the area to attract growing and young populations are all crucial factors underpinning location decisions.
Legal graduates by region
Source: HESA
London
Northern Ireland
North East
Wales
Yorkshire & Humber
East of England
South West
West Midlands
East Midlands
North West
Scotland
South East
6,805
670
1,645
1,685
1,960
2,085
2,140
2,170
2,565
3,000
3,295
3,870
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GETTING THE SPACE RIGHT
‘We are looking for light, bright, technologically enabled, open plan, collaborative and modern workspace’
‘Our entire reputation and success here is based on being an employer of choice. We have to be a great place to work and the physical premises is essential to that.’
KEY TRENDS
Moving to new office space seen as a chance to take more modern style, collaborative space with a higher technical specification and environmentally friendly credentials.
Regional ‘global legal service centres’ require fewer partners present and therefore have less need for traditional cellular layouts. Approach to fit out becoming more comparable to the wider professional service sector.
Investment in amenities such as staff restaurant or coffee bars considered vitally important
Regional offices required to be brand consistent with other commercial space occupied by firms - to look, feel and speak the same ‘visual design language’ even if fitted out using cheaper materials.
Where rents, in some regional cities, do not support fit-outs of the same standard as firms may be used to in London, some firms requiring landlords to increase the specification.
Most, though not all law firms confirmed that, similar to the trend seen in other sectors, they are starting to aspire to achieve greater economy of space by accommodating higher ratios of staff within a smaller real estate footprint. However, an issue of greater concern than space economy, identified by all, was the need to get the right quality of space. There was acute awareness of the need for high quality office space that would strike the right chord in terms of branding and reputation with clients but perhaps more importantly in terms of attracting and retaining the best talent.
What is right quality?
One interviewee summarized their ideal office space as ‘high tech, high spec, high density’. By and large the law firms interviewed said they were seeking more ‘light, bright, technologically enabled, open plan, collaborative and modern workspace’ with conducive layouts to the type of work being done. This might involve provision of quiet rooms, collaborative space, high-tech training rooms, or data rooms which host large numbers of double screen computers to enable the processing of large volumes of e-documents or the provision of secure ‘lock down’ environments with swipe security which could be used as confidential project rooms. Firms were also concerned with environmentally friendly space which would enhance their sustainability credentials with clients and appeal as an employer of choice. In order to allow for this myriad of office layouts, floor plates in modern buildings, aimed at law firms, need to provide maximum flexibility.
Although firms are looking for modern space, their concern is clearly to provide appropriate space layout to the type of work being done. Those interviewed appeared realistic about how far to push the design envelope, given practical considerations.
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‘If you consolidate a lot of people doing the same thing into one office then you just need fewer people to do it.’
Image courtesy of Burges Salmon
Image courtesy of Wragge Lawrence Graham & Co.
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DRIVING INNOVATION AND EFFICIENCY:
Some of the law firms interviewed for this study viewed office moves to the regions as an opportunity to innovate, to experiment and do things differently both in terms of their property and in terms of processes.
Process innovation
Some interviewees expressed desire to develop their lower cost regional hubs into ‘centres of excellence’. The aggregation of resources for certain sets of activities into a single location was viewed as an opportunity to innovate processes and service offerings in order to provide increased efficiency and value to clients. This could involve employing specialist document review experts at a lower cost than lawyers and utilizing new technology to speed up workflows, standardize and improve processes. One firm, for example had adapted and applied methodologies and technology used in litigation disclosure exercises to the transactional environment and developed their own systems to manage and coordinate the outputs of lawyers from different geographies all over the world, significantly enhancing time and cost efficiency.
As well as innovating processes, some law firms are viewing global legal service centres as an opportunity to provide a wider and more complete service offering to clients through combining lower-end document review services alongside high-end legal work. Complex transactions requiring a full range of legal work can be catered for by the same legal advisor, allowing for a joined up ‘quality’ legal solution which carries less risk for the client (than disaggregating tasks and outsourcing them to a number of different legal service providers).
Real estate innovation
A number of law firms occupying space in regional cities for the first time are taking the opportunity to be more experimental and innovative in terms of layout, working practices and specifications. They are starting to emulate other industry sectors by thinking about economy of space and adopting higher levels of open plan office space (whilst also incorporating a number of quiet rooms), as opposed to traditional cellular layouts. Most, but not all, of the firms interviewed in this study still had allocated seating, although hot-desking was starting to be trialled where space constraints had been felt. Some interviewees acknowledged that as well as hot desking they were actively considering homeworking, flexible working and smaller desk sizes as possible future space saving strategies.
Remote working was being encouraged by some, but seemed to be dependent on the level of seniority of the team member. It was judged not applicable to many in the workforce who perhaps would need two screens to work on if doing high levels of document work and to be able to communicate with colleagues on a daily basis about the tasks they were working on.
In some cases, firms were also using regional office openings to push technological boundaries, increase their ability to connect and work together effectively and collaboratively without so much need for travel. One firm interviewed had fitted out all of their conference rooms with high-end video conferencing capabilities and installed directional ceiling mounted microphones, with the objective of increasing connectivity for their teams and clients. The new technology enabled them to host training sessions from their offices, which could be attended by people around the world.
KEY TRENDS:
Many legal firms taking space in the regions for the first time are driving Innovation in processes, office layout and technology
Increasing adoption of modern technology solutions in response to client pressure to increase connectivity and provide capability for instant remote meetings anytime and anywhere in the world.
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FUTURE TRENDS
Looking forwards, we are likely to see a continuation of the narrative already witnessed in recent law firm regional office openings. Permanently increased corporate client pressure, post-GFC, combined with improving technology will lead to ongoing reinvention of the traditional law firm into the law firm of the future.
Traditional law firms will also need to be responsive to the threat posed by Alternative Business Structures, examples of which include the likes of: Riverview Law, Axiom, Obelisk and Keystone Law. These recent entrants to the legal market are stimulating appetite for new legal service models, offering increased choice and new ways of accessing legal advice for clients. Traditional law firms will be under pressure to adapt their business models and explore fundamental changes in their service delivery models in order to fit into and maintain position in the new look market.
To stay competitive, firms must concentrate on offering a cost effective, efficient, quality service. This will be achieved by positioning the right people with the right skillsets for particular parts of a project in optimum locations.
Firms will need to take advantage of technology innovations and will need to focus on talent retention and foregrounding the needs and changing expectations of future generations of staff. Ultimately firms will lose competitive advantage if they cannot attract the right talent and give them the type of space they wish to work in.
KEY TRENDS
Ongoing focus on quality of office space as talent retention and branding tool
Increasing focus on technology to improve process efficiency and connectivity with clients
Ongoing evolution of location strategy based on ‘best fit’ with overall business strategy, client needs and talent pool (which is growing in the regions as more regional graduates opt to stay rather than move to costlier London)
‘The generation of lawyers we hire at the end of the decade are 17 years old today. It will be their relationship with technology and with the workplace which I think will drive agile working’
‘Some people want to sit and work listening to music and things like that which I find extraordinary..!’
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Image courtesy of Burges SalmonImage courtesy of Wragge Lawrence Graham & Co.
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Benchmarking AnalysisThis section provides a snapshot of some key benchmarks for law firm occupation. We present our analysis for the ten largest cities by legal floorspace, as shown in the map on page 9.
As this is the first year we have carried out this analysis, we are unable to show how these metrics have changed over the past twelve months, however we show the average across the whole of our sample to put each city into context.
AVERAGE RENT PER FEE EARNER (£ PER ANNUM)Bristol12,482
Birmingham11,066
Manchester7,964
Edinburgh8,678
Liverpool8,411
Glasgow7,616
Cardiff6,947
Nottingham11,250
Newcastle-upon-T8,682
Leeds9,506
AVERAGE AREA PER FEE EARNER(SQ FT)Bristol530
Birmingham428
Manchester342
Edinburgh321
Liverpool457
Glasgow316
Cardiff471
Nottingham452
Newcastle-upon-T324
Leeds381
TOP 10 CITIES BY TOTAL LEGAL FLOORSPACE (SQ FT)Bristol874,000
Birmingham782,000
Manchester775,000
Leeds476,000
Liverpool350,000
Glasgow322,000
Cardiff226,000
Nottingham220,000
Newcastle-upon-T203,000
Edinburgh486,000
AVERAGE RENT PAID (£ PER SQ FT)Bristol21.89
Birmingham25.62
Manchester22.60
Edinburgh24.29
Liverpool17.43
Glasgow24.12
Cardiff14.75
Nottingham15.58 / 19.50
Newcastle-upon-T18.17
Leeds23.02
UK Regional Average206,000
UK Regional Average408.6
UK Regional Average21.62
UK Regional Average9,056
London (£ per sq ft)
City £68.50West End £117.50Midtown (Holborn) £69.50Docklands £45.00Southbank £62.50Kings Cross £80.00
Regions (£ per sq ft)
Belfast £16.00Birmingham £30.00Bristol £28.50Edinburgh £31.00Glasgow £29.50Leeds £26.50Manchester £34.00South East £35.00
Source: CBRE Q4 2015
London v UK regional cities, prime office rent comparison, Q4 2015UK regional city office locations offer cost effective opportunities compared to London….
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• Property• Labour
• Political stability• Transparency of regulations• Legal system
• Location quality of life: proximity to London, international access, infrastructure
• Quality of talent
Cost:
Risk:
Quality
PRE-EXISTING REAL ESTATE FOOTPRINT
Notes Analysis is based on the office space outside Central London occupied by the Top 100 UK law firms.
It was not possible to obtain full occupational details for every office occupied. However, all benchmarks have been calculated with records where data for all relevant variables was available. Rents are based on achieved rents at time of lease signing; they do not account for rent reviews that may have subsequently taken place.
For some of the smaller cities, including Liverpool, Newcastle upon Tyne, Nottingham and Cardiff, sample sizes are small, so city averages can be influenced by single large local firms.
Graham Interior Fit-Out
The Cost / Quality / Risk Matrix of location selection
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ConclusionFor the first time in this report we have sought to capture the nature of legal office occupiers across the UK’s regional cities. London can often dominate any analysis of legal occupation across the country due to its sheer size and the concentration of firms in the capital. But, as this report has demonstrated, law firms are an intrinsic part of the occupier base of our largest cities, and those cities are of increasing importance within the global office networks of the largest law firms.
This report has touched on the current competitive landscape of the UK legal sector, provided an assessment of law firm real estate activity in the UK regions and shared insight from some of the country’s top law firms into their location and real estate strategies.
Key to our findings is that one size does not fit all when it comes to real estate strategy. Different business models and location starting points will require different real estate strategies, and as a result we are seeing very different uses of regional cities between firms. Indeed we have found significant variation in the average area per fee earner. Generally firms in the main Scottish cities of Glasgow and Edinburgh are occupying space at a higher density than counterparts in other UK cities.
Within our analysis we have identified three core business models in the regions, the most recent emerging over the last four to five years in the form of ‘global legal service centres.’ Many of these occupiers have chosen a UK regional centre after considering a number of worldwide locations from a cost, quality and risk perspective. More broadly our benchmarking analysis has shown that, on average, law firms are paying rents at a significant discount to the prevailing prime headline rent in each city.
Looking ahead, the future looks bright for this sector. However, it is clear that pressure from corporate clients will continue to drive innovation and change amongst law firms. There will be no room for complacency. To operate successfully in the new competitive landscape law firms must be clear about their business models and look to align their real estate in support of these objectives. Anecdotal evidence suggests law firms are developing more sophisticated approaches to real estate, aligning it with their use of technology, their approach to workplace design and resulting working practices that are enabled when these forces come together.
They have taken note of increasing client expectations and are becoming ever more strategic in the way they view, plan and utilize their real estate. As a result we are likely to see further churn within the sector as legal occupiers seek the optimum property solution for their individual circumstances.
We have identified a top tier of three cities that dominate their respective regions in terms of legal floorspace occupied, namely Bristol, Birmingham and Manchester. A second tier of cities sits below these three: Leeds, Edinburgh, Glasgow and Liverpool.
More firms are asking the questions – is the quality of space right?
Is the location right?
Are we technologically enabled to drive our business forwards?
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To find out more about potential real estate strategy or any of the areas outlined in this paper please contact:
National Tenant AdvisoryJames McLean+44 20 7182 [email protected]
National Office AgencyRob Madden+44 20 7182 [email protected]
Ashley Hancox+44 12 1616 5503 [email protected]
EMEACris Tollast+44 20 7182 [email protected]
UK ResearchAndrew Marston+44 20 7182 [email protected]
Emma Jackson+44 20 7182 [email protected]
CBRE have also published a new Law In London report for 2016. To download a copy visitwww.cbre.co.uk
Global Research and ConsultingThis report was prepared by the CBRE UKResearch Team which forms part of CBREGlobal Research and Consulting – a networkof preeminent researchers and consultantswho collaborate to provide real estatemarket research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.
CBRE Disclaimer 2016CBRE Limited confirms that informationcontained herein, including projections,has been obtained from sources believedto be reliable. While we do not doubt theiraccuracy, we have not verified them and makeno guarantee, warranty or representationabout them. It is your responsibility toconfirm independently their accuracy andcompleteness. This information is presentedexclusively for use by CBRE clients andprofessionals and all rights to the material arereserved and cannot be reproduced withoutprior written permission of CBRE.
About CBRE Group, Inc.CBRE Group, Inc. (NYSE:CBG), a Fortune 500and S&P 500 company headquartered in LosAngeles, is the world’s largest commercialreal estate services and investment firm (interms of 2013 revenue). The Company hasapproximately 44,000 employees (excludingaffiliates), and serves real estate owners,investors and occupiers through approximately350 offices (excluding affiliates) worldwide.CBRE offers strategic advice and execution forproperty sales and leasing; corporate services;property, facilities and project management;mortgage banking; appraisal andvaluation; development services; investmentmanagement; and research and consulting.Please visit our website at www.cbre.com.
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