Since the onset of the Covid-19 pandemic, Philadelphia’s largest law firms have been on a downsizing tear in Center City.

Blank Rome cut 41% of its office space at One Logan Square, Stradley Ronon Stevens & Young trimmed 25% off its space at One Commerce Square, and Dechert lopped off 43% at Cira Centre.

Morgan Lewis & Bockius reduced its footprint by 29% in the move to its new headquarters at 2222 Market St., Rawle & Henderson trimmed 48% when it relocated from the Widener Building to 1500 Market, and BakerHostetler sawed off 44% after relocating from Cira Centre to 1735 Market.

Post & Schell recently reduced its office space by 40% when relocating to Three Logan Square, and Fox Rothschild is up next with plans to chop off 41% in a move to Two Commerce Square later this year.

Those eight law firms will have cut their combined Center City footprint by almost 500,000 square feet, taking 36% less space in new lease agreements, according to data collected by JLL. An additional 1.9 million square feet occupied by 13 other law firms across Center City will come up for renewal by 2032, with most of those firms assuredly taking significantly less space in their new leases.

Being that law firms are among the largest, if not the largest, consumers of Center City office space, there is a question about how this accelerated move toward efficiency will impact both the legal industry and an already shaky office market.

Tony Rossi, head of the Philadelphia law firm practice at CBRE, said much of the movement is motivated by a perceived flight to higher quality, often newer buildings that are more adaptable to modern law firm space. For example, had Fox Rothschild chosen to stay at its longtime home at 2000 Market St. instead of relocating to 2001 Market, he said it would have required completely gutting what had become outdated space and that would have caused a major disruption to work. With that construction being done in stages by necessity, it would have added 25% to 30% to costs.

“There’s an incentive to relocate at that point,” Rossi said. “When it’s 25- to 30-year-old space, it’s just not going to be efficient and it’s going to be very dated. And for firms right now, I would say their biggest priority when they’re looking at their real estate is the attraction and retention of attorneys.”

Thanksgiving Day problem

Law firms are trying to remain competitive both in how they consume office space and recruit and retain talent by making the space as compelling as possible. Real estate is the second largest line item expense behind personnel. Existing strategies to cut space due to technology eliminating the need for paper files, law libraries and large pools of administrative assistants has been accelerated by the post-pandemic hybrid work arrangements.

Most firms say they expect lawyers and staff to work from the office three days a week. Glenn Blumenfeld, CEO of Tactix Real Estate Advisors, which represents law firms in lease negotiations, said few are actually enforcing those policies — meaning there are no ramifications for those not complying. As a result, firms need to make their space both compelling and cost-effective.

Blumenfeld said midsize and large full-service firms are focused on driving their space-per-lawyer ratio to 500 to 550 square feet, compared to 650 to 750 square feet per lawyer a decade ago and roughly 750 to 850 square feet in the early 2000s. Much of that has come from changing to single-size lawyer offices, which Blumenfeld said gives them a 10% to 15% gain in space efficiency. The interior of floor plans that were once filled with secretarial stations, paper storage areas and word processing departments is now available for other uses, creating an inefficiency that Blumenfeld said has partly resolved by moving offices for professional staff and even some lawyers to the interior. That is a revolutionary idea for law firms that traditionally set their space needs by counting the number of lawyers with the available windows in an office.

“It took a couple of firms to do it first, because no one wants to be the first firm to put associates inside,” said Blumenfeld, a former partner at Dechert. “But now it’s becoming more common.”

Blumenfeld said hoteling arrangements have not caught fire in many law firms. Some firms will have 10% or more of their offices designed for hybrid workers who don’t have assigned offices and share one with others. Those are now reserved for a small percentage of lawyers who are never coming back into an office on a regular basis.

“This efficiency game that you’re seeing really is being done without a lot of hoteling concepts that the accounting firms have done for years,” Blumenfeld said. “That might become more prevalent over the years, but that’s still not a big factor for law firms.”

The rub for most law firms with hoteling is that the more you take away from lawyers in an office environment, the less attractive you make it for them to come into that office, Blumenfeld said. If you shrink individual lawyer office sizes or make someone share an office, it could wind up being counterproductive to the goal of getting them to work from the office more frequently. Firm managers want attorneys in the office so younger lawyers can be mentored by more seasoned colleagues who will pass down their professional and institutional knowledge.

Blumenfeld said law firms are defaulting to giving attorneys everything — flexibility to work remotely and a dedicated office even though they’re not coming into the office much.

“I think they’re hedging their bets right now,” he said. “They don’t want to put mandates in place that their peers are not putting in place, which drives their people away. So they have to give them some flexibility. But on the other hand, they don’t want to make it unattractive to come to the office.”

That has left firm managers somewhat frustrated with paying for space that some lawyers are not using all of the time. When firms do ask lawyers to work from the office, Blumenfeld said it is usually on the same days — frequently Tuesdays, Wednesdays and Thursdays. That makes offices ghost towns on Mondays and Fridays.

“I call it the Thanksgiving Day problem,” Blumenfeld said. “When your kids leave home, the parents often think they should sell their house and downsize because they don’t need all the space. And then someone says, ‘But if we do that, we can’t have the kids for Thanksgiving and Christmas.’ So you end up keeping the big house for those five days a year when everyone’s home.”

Read the full article from the Philadelphia Business Journal here.