Work from home or lease commercial real estate? For lawyers, it’s a complicated choice. Here are some decision-making tips.
For individuals, families, and businesses, a lot has changed in 2020. And while change can be hard, it also has its bright spots: upheaval can encourage us to reexamine our priorities, and sometimes the result is the realization that our needs aren’t exactly what we thought they were.
One priority that is currently being reevaluated by many law firms is the necessity of a physical space. A major learning of the pandemic has been just how effectively remote collaboration can substitute for in-person interaction, and with many firms having been remote for over six months, some are wondering whether the operational cost of reopening or keeping a physical space is justified by its benefits.
To Office or Not to Office
Before renewing a lease, it’s important to get in touch with whether you need a physical space at all. To determine this, ask yourself what purpose your office space is serving. Remote work is a great time to perform this type of audit.
What is working just as well, or even better? What is more difficult? Getting in touch with the operational benefits of your physical space can help you decide when and why reporting to the office matters.
When evaluating this decision, it’s important to take employee preferences into account. It’s also important not to assume that employees prefer an office—and those who do might not want to be there all the time. In fact, younger employees are increasingly eager to work remotely, valuing the time saved on commuting and the additional flexibility of results-oriented work.
If you simply look at short term ROI on a physical space, you might find significant savings by forgoing your space entirely. After all, remote work requires negligible overhead—if your office space costs 30k a year, you are looking at significant potential short-term savings.
Of course, this doesn’t take into account the potential benefits of a physical space for clients and employees, as well as the marketing potential of a physical building with your name on it. Although it can come with a hefty price tag, a swanky office in a prime location can considerably affect your reputation.
The Space You Need
Remote versus in-person work doesn’t need to be an all or nothing proposition. Instead, evaluating why you need space can help you gain clarity about the type of space you need.
For example, perhaps you determine that 20% of your employees really appreciate company-provided office space, and the other 80% prefer to work remotely. You can save money and boost morale by downsizing your physical offices.
Alternately, some companies find that while all employees prefer remote work, there is value in maintaining a physical space for weekly or monthly meetings, retreats, and serving clients. Either way, this can result in downsizing and cost savings. And if relocating your office to a more convenient zip code (or splurging on that modern design) is on your wishlist, you may be able to trade up in quality by trading down in size.
Once you’ve determined the type of office space you need, you’re ready to approach lease negotiations. Because businesses everywhere are making similar calculations, tenants can expect significant market shifts.
This might mean more of a renters’ market for office spaces, allowing for tenants to have increased negotiating power. One easy variable to adjust is the length of tenancy. Instead of signing a 5-10 year lease, firms can look into twelve (or even six) month leases. This allows for a change of plans (or a renegotiation or rates) based on current circumstances.
Of course, a shorter lease cuts both ways. If a practice has decided that it is absolutely in its best interests to have an in-person office, it might make more sense to try and score a long-term lease at a favorable rate in the current market.
Another option involves tying rents to gross revenue or income. Although this might not make the most sense for law firms (whose revenues can vary considerably by month), it’s something to consider.
In general, remember that nothing in a lease is decided until it has been signed by both parties. This includes termination clauses. Most leases specify that an agreement is valid for a certain amount of time and contain a penalty for terminating the lease early, or “breaking” the lease. Consider asking about a COVID-19 addendum for early termination, or inquire about changes that would allow you to continue to fulfill your financial obligations during a rough economy.
The World? Your Oyster
Force of habit is a powerful thing. And as hard as this year has been, one of its gifts has been the jarring out of routine—and all of the clarification that this kind of shock can bring.
Reevaluating your needs (both personal and professional) empowers you to focus on what matters most—and to make sound financial decisions along the way.