_UK consolidation activity driving occupational demand from law firms
In our Legal Services Sector profile, we asserted that mid-tier law firms would find their market share threatened by dual pressures from top-tier law firms who have capital to invest in technology and will increase their focus on high-end work, and from more agile market entrants able to offer process driven work at a lower cost.
Struggling to compete on fees and differentiation, the mid-tier will have little choice but to further consolidate. It is perhaps unsurprising therefore that a monitor of recent UK law firm activity points to an uptick in mergers and acquisitions.
H1 2017 deals involving UK regional law firms were up 27% on H1 2016. In July, alone we saw London law firm Gordon Dadds announce an ambitious acquisition strategy to double its £25m revenue over the next three years by becoming a “major consolidator” of both top 200 law firms and smaller practices, while Dentons announced plans to merge with Scottish firm Maclay Murray & Spens. Kennedys have recently acquired Manchester legal practice Berg & Co.
A ranking of UK cities shows Manchester dominated accounting for over a quarter of deals. Manchester has a thriving and highly evolved legal services sector, with growth in the North West a key driver of expansion activity. There is also a large and highly qualified talent pool, which is highly appealing to firms looking to grow.
Consolidation is driving law firm activity in real estate markets across the UK. Merged law firms are consolidating into single offices and acquiring expansion space. Examples of this include TLT who took a further 27,000 sq ft in February 2017 at its existing offices in Bristol to accommodate its expansionary activity and Clyde & Co signing a lease at Central South Square, Newcastle in December 2016 following their 2015 merger with Simpson Marwick. They are now looking to take additional space in Manchester.
Consolidation is also creating large-scale, regionally focused law firms, resulting in fewer players competing for the same pool of talent. In this environment, the role an office plays in attracting and retaining the best people is placed in sharper focus.
This means a flight to quality space in locations where talent wants to live, work and play and office design that reflects modern ways of working.
It is clear from a monitor of law firm activity that consolidation, particularly in the mid-tier, is going to continue. We believe that it is a trend that will accelerate markedly as firms struggle to stay competitive in the emerging legal services landscape.
The real estate market implications of this are clear - continued healthy occupational demand from law firms.