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Strategically Manage Occupancy Costs to Increase Law Firm Profitability

By Andrew Lechter
November 05, 2004

Aside from payroll, real estate costs are a large law firm's most significant expense. Even under the best circumstances, such expenditures ' sometimes called occupancy costs ' consume 8% to 10% of the typical large firm's annual revenue. These costs are not confined to rent; many firms finance millions of dollars worth of expenses associated with the construction of their space.

The real estate market in most cities is described as weak, soft or just plain bad. Such adjectives describe a market in which rents are low and concessions are high. Though this is no doubt a bad situation for landlords, times are very good for tenants who have an opportunity to enhance profitability, remove unfavorable lease language and improve the quality and efficiency of their offices. This environment will not last forever – markets ebb and flow; at the beginning of the decade, most markets were quite tight and large blocks of space were especially difficult to come by. Regardless of market conditions, law firms that expect to maintain or even reduce their occupancy costs will need to adopt creative strategies. By paying special attention to financing, efficiency and flexibility, a firm can develop a real estate strategy that supports rapid changes in its business plan, while positioning itself to compete effectively.

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