ALM | Law.com Pro
Executive Briefing
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Strategic Guidance for Law Firm Management
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Welcome to the Law.com Pro Executive Briefing with Patrick Fuller and Gina Passarella. This week we bring you the second of a three-part examination of the full Am Law 200 data set, including a look at people, places and profits. Here we explore where firms are focusing their expansion efforts. If you have topics or data you'd like to hear more about, let us know at pfuller@alm.com and gpassarella@alm.com. |
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Where Am Law 200 Firms Are Expanding
In part one of our three-part series looking back on 2022’s “People, Places, & Profit,” we examined partner hires, the continued leverage model shift, and debuted the Professional Staff per Lawyer (PSPL) metric. In part two, we’re looking deeper into the domestic markets where Am Law 200 and NLJ 350 law firms are opening offices.
As mentioned in part one, New York and Washington, D.C., were the most active markets for Am Law 200 partner hires in 2022, which will be the case in most years. But even as law firms continue wrestling with back-to-office policies and initiatives, it didn’t stop expansion into new markets. Houston edged Miami for the most office openings, although if you consider Miami & Fort Lauderdale as one broader market, southeast Florida wins top honors.
The list of markets with the most NLJ 350 openings in 2022 includes the names many would expect to see–Houston, Miami, Washington, D.C., Chicago, Los Angeles, etc. But two markets near the top of the list stand out–Charlotte and San Diego. Over the past 10 years, the number of NLJ 350 firms with Charlotte offices increased by 77%, the tenth-most amongst the 44 largest domestic markets. San Diego’s five new office openings in 2022 doubled California’s southern-most legal market’s total for the previous nine years combined. San Diego is a market similar to North Carolina’s Raleigh-Durham Research Triangle, a secondary legal market with strong ties to innovation and biotech but with additional strengths in national defense, aerospace, and maritime. Like Raleigh Durham, San Diego has ranked anywhere from the top 5 to the top 10 in various publications’ rankings of the best markets for life sciences. Boston and San Francisco remain the top U.S. markets for life sciences and biotech, and in addition to San Diego and Raleigh-Durham, Philadelphia, Orange County, and Minneapolis are strong life sciences markets.
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Regionally, the southern United States, including Texas and Florida, led all regions in office openings, and it wasn’t particularly close. Am Law 200 firms opened 62 offices in 13 of the 17 states (including the District of Columbia and Delaware) included in the Bureau of Labor Statistics south region. While California featured the most office openings, Texas, Florida and North Carolina rounded out the states with double-digit office openings. While North Carolina’s presence in the top 5 may surprise some, both the Raleigh-Durham Research Triangle and Charlotte routinely dot the top 10 of best start-up and innovation markets in the U.S. Charlotte is the second largest U.S. banking center behind New York City. Raleigh-Durham is a top 10-ranked science city and is generally ranked in the top 5 markets to launch a start-up.
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The Am Law 200 expansion into Texas and Florida in 2022 aligns with broader NLJ 350 expansion trends over the past 10 years. Since 2013, more firms have opened offices in Southeast Florida (the Miami-Fort Lauderdale-Palm Beaches metropolitan area) than in any other metro area. Three of the top 7 markets for NLJ 350 expansion since 2013 are in Texas (Dallas, Houston, Austin), home to the most 2023 Fortune 1000 companies, 108. |
Over the past 10 years, Texas and Florida added more NLJ 350 offices than any other market. Both states feature multiple markets with niche industries and major U.S. ports, no state personal income taxes, and generally lower billing rates and prime rent & total occupancy costs. While SE Florida (112% office growth) and the Tampa-St. Petersburg (53% office growth) area represents the prime Florida legal markets, Orlando (31%) and Jacksonville (60%) are emerging as significant legal markets.
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There are roughly 10 NLJ 350 offices in Florida for every Fortune 1000 company headquartered in the state. There are more than four NLJ 350 offices in California for each Fortune 1000 HQ corporation and just under three per company HQ in Texas. Minnesota, with its 25 Fortune 1000 company headquarters, and Ohio, with its 53 headquarters, continue offering firms lower barriers to entry.
Not surprisingly, the growth of new entrants to each market over the last 10 years has reduced the average number of lawyers per office per market, with only New York City and Tampa showing an increase in the number of FTE lawyers per office location. As firms continue confronting back-to-office challenges, expansion reduces the average NLJ 350 headcount per office in most U.S. markets. |
Interestingly, as many NLJ firms supplement their existing office footprint in key markets with additional offices (Northern California, Southern California, and Southeast Florida), the firms with single office locations in markets are producing moderately better profitability. While many factors influence profit margin, direct expenses such as occupancy and payroll are significant. |
Finally, certain markets exhibited significantly more NLJ 350 firm and office growth over the past 10 years than NLJ lawyer growth, indicating that when firms expand into those markets, they do so via group/team lift-out or lateral hiring from existing NLJ 350 firms. While Salt Lake City is a glaring example (170% increase in firms, 52% increase in lawyers), St. Louis, Cleveland, Philadelphia and New Orleans are among the better examples. Firm leaders and talent management professionals with offices in emerging markets already understand the inherent risk of attorney mobility. Still, as law firm mergers and acquisitions continue to escalate, talent volatility will follow.
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Growth Trends in 2023 So far, the trends for 2023 are largely mirroring growth patterns of the last several years. In looking at new office openings in just the last three months, the Southeast, Southwest and Midwest dominate among the headlines.
Dallas, Houston and Denver were growth targets for Am Law 100/200 and boutique firms alike. California was also a popular location, with Orange County, LA and San Francisco seeing new firms move in. And in a related trend, existing firms in Los Angeles are moving their offices to Century City from DTLA.
Other markets that saw new office openings in the last three months include San Antonio, Indianapolis, Austin, Knoxville, Fort Myers, Tampa and Atlanta. There are a few notable themes out of the recent office openings: 1) a nexus between California and Texas firms, with those headquartered in one of those places opening in the other, 2) the continued focus on secondary and tertiary markets, and 3) the fact that litigation is driving a lot of the growth, in the secondary and tertiary markets particularly.
As firms are growing, they are also continuing to seek ways to shrink their footprint, particularly in legacy headquarter cities. Fox Rothschild plans to reduce it’s Philadelphia headquarters by 40%, while firms like Crowell & Moring, Katten Muchin Rosenman and Kilpatrick Townsend & Stockton are reportedly looking to downsize in D.C.
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In the Know Join Us for the October Law.com Pro Webinar: Law Firm Financial Planning for 2024
In this webinar, we will be joined by law firm financial and pricing professionals as well as strategy consultants to walk through navigating the budget process in uncertain economic times. Register for the Oct 12th webinar here. The 2023 Global 200 Report: For all of our rankings and analysis of the 200 largest law firms in the world, head here.
All Things Legal Tech and Gen AI: Our team at Legaltech News has made it a point to learn the tech behind generative AI and the business applications ahead of it. For any firm wondering where to start or what their peers and clients are doing with the technology, look no further than right here. And a glossary of AI terms can be found here.
Law.com Radar State Courts: For any firm looking for competitive intelligence on which companies are being sued where and by which law firms, Law.com Radar now also includes summaries of the latest complaints from more than 1,000 courts across all 50 states. Set up your feed here.
Law Firm Strategy: Here are links to some of our latest pieces across Law.com on law firm strategy. All of our Pro content, including past briefings and webinars, can be accessed here. |
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