Because of the high costs associated with leased office space, unless a firm has multiple attorneys and support staff, it will be better off in shared office space such as subleased office space or executive suites.
This is the fifth day of our Finding the Perfect Law Office month. And we’re going to keep the ball rolling with how big your law firm should get before you consider your own leased office space.
- Tuesday: A free eBook “The Insider’s Guide: How to Rent the Perfect Law Office”– (52 page, full color PDF)
- Thursday: 5 Things Attorneys Must Consider Before Renting NYC Law Firm Office Space
- Saturday: Sublet Office Space: Why NYC Law Firms Don’t Make Good Landlords
- Sunday: (Attention Lawyers) Don’t Rent from Executive Suites Until You Read This
- Saturday (today): How Big Should a Law Firm Get Before Considering their Own Leased Office Space?
Renting your own leased office space directly from a commercial landlord has its perks. Seeing your firm’s name displayed in the marquis spot on the door is good for your ego. Decorating the office exactly how you want it is rewarding. Being able to make up all the rules isn’t bad either.
That is, of course, if your firm is willing and able to pay for the privilege.
There’s a pretty significant expense associated with leasing an office directly from a landlord; particularly if your practice is located in a major metropolitan area like New York, Los Angeles, Boston or DC where rents are high.
Plus, your firm will need to acquire all the services, equipment and technology necessary to run a law office, and whether your firm is 4 lawyers or 40, the fixed costs for these services are largely the same.
Very small firms are better off in sublet office space or executive suites.
For these reasons, until a firm reaches a certain size, from an economic perspective, it makes no sense for a firm to acquire its own leased office space. Shared office space, where these fixed costs can be leveraged across many attorneys, such as sublet office space or offices in executive suites, is a better choice for small firms in urban areas plagued with high rents.
At Law Firm Suites, we’ve incubated a number of law firms from one man armies to 8-person + firms. Fairly consistently, we’ve see that a firm grows to a certain point where their own lease office space may better fit their needs than in our executive suite for law firms.
Other firms end up staying put, because we handle all the hassles of keeping their office space up and running, and do it at a much lower cost than if they had to manage office space on their own.
So, the big question: How big should a firm be before it makes sense to lease their own office space?
As a rule of thumb, only when a small firm reaches four full-time lawyers and one administrative assistant does it really make financial sense to consider leasing an office space directly from a landlord.
At four attorneys, a firm should be financially stable enough to justify the risk of taking on the long-term commitment required by most commercial landlords. Plus, the administrative person on staff can handle most of the administrative burden of running an office space minimizing an attorney’s billable time lost to office management.
Even when a firm grows to four attorneys and one assistant, it will still be less expensive to sublet office space or rent from an executive suite. However, the firm may comparatively get more space by leasing directly from the landlord.
And that extra space may be beneficial for a firm that is expanding rapidly. It may allow them to take on additional staff without necessarily incurring incremental expense for additional space (as long as they have the extra space in the office) as they would have in sublet office space or an executive suite.
The problem with leased office space: The equipment needed for 5 can support 50.
Of course, as the firm gets even bigger in size, the economies of scale get better. The same equipment that was purchased for four attorneys (copy machines, phone systems, high speed internet, file server, networking switch, mailroom equipment, reception furnishings) can support 50. So the cost of operating the leased office space, when calculated per attorney, goes down as additional attorneys are added to the firm.
Next to cost, the biggest consideration for the four-lawyer/one admin firm should be whether it wants to deal with the hassles of building out and managing an office space, or whether it’s just easier to continue to rent from someone else who does it for them so they can continue doing what they do best: practicing law.
The firms that typically stay in shared office space, even at four or more attorneys.
At Law Firm Suites, we see both situations. Newer firms that are still growing tend to move on as soon as their financials stabilize a bit. While on the other hand, older, stable multi-lawyer firms that, at one time had their own leased office space, tend to truly understand the value of renting an office in shared office space.
From our perspective, this seems to be the natural evolution of law firm office rentals.
An additional caveat about firm size.
Incidentally, depending on your location, it may require more than four attorneys to justify leased office space. The 4/1 number assumes availability of smaller commercial office spaces (1,200 sq. ft. to 2,500 sq. ft.) at prices that range from between $40 – $60 per sq. ft. In Downtown Manhattan, smaller office spaces in that price range are still readily available. However, if you go 40 blocks uptown to the Grand Central area, smaller spaces are harder to come by and rents start at $60 sq ft. In that case, a move to Midtown may not be justified unless the firm has eight or more attorneys.
So, that’s the end of the Finding the Perfect Law Office series!
We’ve reached the end of our article series about Finding the Perfect Law Office. Thank you for reading!
If an office move is in your near future, download our eBook, The Insider’s Guide to Renting the Perfect Law Office for an insider’s perspective about law office rentals.
