Tuesday, April 23, 2024
Monday, April 22, 2024
Law Firms Cutting Space, Philadelphia Office Market is getting Hammered
By Jeff Blumenthal – Senior Reporter, Philadelphia Business Journal
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. 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2000 Market St. instead of relocating to 2001 Market, he said it would have required completely gutting what had become outdated space and that would have caused a major disruption to work.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. 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.
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. But now it’s becoming more common.”
Full story: https://tinyurl.com/3vzj8d6j
Friday, April 19, 2024
High-Profile Philadelphia Office Tower Faces Deepening Vacancy Woes With Tenant Exodus
By Katie Burke CoStar News
An iconic downtown Philadelphia office tower is bracing for the loss of another anchor tenant with a law firm's plans to ditch its 111,000-square-foot space and relocate elsewhere in the city.
Saul Ewing, which has been based in the Centre Square complex at 1500 Market St. for half a century and is the property's fourth-largest tenant, confirmed it would be leaving its multifloor space at the property within the next couple of years as it prepares to move to another office tower just a couple blocks away. The decision will help align the company's space to meet the needs of its hybrid work policy, a spokesperson with the law firm said in a statement, adding it plans to make the shift sometime in 2026.
The firm's relocation means it will considerably shrink its corporate footprint in the city. Saul Ewing leased about 53,330 square feet for its future office at 1735 Market St., according to an Avison Young market report, roughly half of its existing headquarters space in Centre Square. The company's post-pandemic work policy allows most of its lawyers to commute to an office every Wednesday and four other days each month, a plan it has maintained since 2022 that "encourages" employees to venture into physical space but doesn't formally mandate it.
The move coincides with an ongoing trend across the national office market in which companies are adjusting, and often dramatically downsizing, their real estate portfolios to adapt to the declining use of their physical spaces. While there are companies still signing deals, they are now typically for smaller spaces in nicer properties.
Tenants collectively signed on for about 395 million square feet last year, according to CoStar data, about 13% below the annual average reported in the years leading up to the pandemic's 2020 outbreak. What's more, those deals are about 16% smaller on average than those signed between 2015 and 2019, exacerbating the vacancy challenges and onslaught of available space littered across the country's largest office markets.
The looming Saul Ewing vacancy is the latest blow for the two-building Centre Square complex, which spans more than 2.2 million square feet and — without factoring in Saul Ewing's pending relocation — is now less than 70% occupied, according to CoStar data. It fell into receivership a year ago when landlords Nightingale Properties and Wafra Capital Partners failed to pay off a $368 million loan.
The owners acquired the Market Street properties as part of a $328 million portfolio deal that closed in mid-2017. Wafra at the time was named InterVest Capital Partners.
The departure extends a string of other occupancy losses the Centre Square complex has faced in recent months. Dilworth Paxson, another law firm, is expected to relocate from its 83,100-square-foot office to about 50,000 square feet at One Liberty Place. Conrad O’Brien last November opted not to renew its lease for 40,000 square feet of Centre Square space, instead consolidating its Philadelphia office footprint as a result of a merger with fellow law firm Clark Hill.
Those departures compounded large vacancies by international insurance company Willis Towers Watson, investment management company Berwind and Comcast, which combined ditched more than 380,000 square feet from mid-2020 to August 2021.
Neither Nightingale Properties nor Wafra Capital Partners responded to CoStar News' emailed requests for comment.
