Office tower illustration

The future of the Bay Street office tower

Will Toronto’s largest law firms continue to shell out millions on lavish office space?
Will Toronto’s largest law firms continue to shell out millions on lavish office space?

The well-appointed law offices on Bay Street are, in a word, stunning. These corporate compounds feature sparkling lobbies, boardrooms that overlook Lake Ontario and hundreds of offices that span multiple floors. None of this comes cheap. But the legal profession has long considered downtown office space to be an essential part of the law-firm business model.

Other industries have been more open to change. Accounting firms and tech companies have, in recent years, expanded their work-from-home policies and added shared workspaces to their floorplans. The largest law firms have sat on the sidelines. “They have this image of themselves that is very hard to change,” says Norm Bacal, a former managing partner at the now-defunct Heenan Blaikie LLP who has become a consultant on law-firm management. The robust legal market, he points out, has provided little incentive to reform long-held business practices. “If you’re a big firm and your lawyers are consistently billing anywhere from $700 to $1,200 an hour, you’re not going to be too worried about rent.”

Illustration of three office towersThe coronavirus pandemic might shock the profession out of its complacency. The legal economy has taken a hit, which has made some cuts inevitable. Law firms are also learning that it is, in fact, possible to work productively at home. “It sometimes takes a calamity to cause major change,” says Bacal. “Suddenly, all your sacred cows are out the window.”

Before the pandemic, the Toronto real estate market was at a record high. In the financial district, the average commercial rental rate sat at about $69 per square foot. At the most exclusive buildings, such as the Bay Adelaide Centre, that figure rose into the eighties. “The highest watermark was $90,” says Allen Brusilow, a senior vice-president at the commercial real-estate giant JLL. “Leading into this year, we were in very much a landlord’s market.”

What does that mean in real terms? At the market’s peak, a single floor of top-tier office space could have cost $2.25 million. If a law firm leased, say, six floors at that price, the annual rental bill would have been $13 million. There are, of course, additional expenses: renovations, furniture, artwork. The total cost, therefore, would almost certainly have been much higher.

Today, the real-estate industry is feeling a bit of pain. According to Stefan Teague, an executive managing director at the commercial real-estate and professional-services firm Cushman & Wakefield, some small companies that were hit hardest by the lockdown are trying to renegotiate their leases or downsize their space. “Businesses are evaluating what cost-containment measures they can implement,” he says. “Clearly, real estate is one of the highest cost items for any business.”

Bacal predicts that change in the legal profession will take time. Many large firms sign 10- or even 15-year leases, so they may be locked into high rates. But he thinks the pandemic will serve as an impetus to implement long-overdue reforms. Those include cutting down on lavish office space: “If my lease was coming up three years from now, I’d be thinking, How do I not lose the momentum from this and rethink entirely the way our firm is going to practise law?

This is a story from our Fall 2020 Issue.

Illustration by Doug Panton