Law firms recovering better in Phila. than other cities

Philadelphia law firms financially outperformed peers in other regions for the first six months of 2013, signifying a slow and, in many instances, painful recovery from the downturn in law office revenue during the recession, a new survey has found.

The survey, by Wells Fargo Bank, which is a major lender to law firms, covered 120 firms nationally and included most of the large firms in Philadelphia.

Despite the finding of more favorable conditions, the survey confirmed the impression of law firm leaders that the market remains exceptionally tight.

Mary Ashenbrenner, regional director of Wells Fargo's legal specialty group, said firms in Philadelphia saw revenue increases of 3 percent over the same period last year while firms nationally saw growth of only 1.5 percent.

One reason Philadelphia firms outperformed competitors is that hourly charges tend to be lower than those of firms in New York and Washington, and clients are more cost-sensitive than ever, Ashenbrenner said.

Gross revenue for firms in New York was up 1 percent, while in Washington, it had declined 2 percent, she said. Revenue for firms in Southern California was up 3 percent, while revenue for firms in the San Francisco region was flat.

"There is a value play there," Ashenbrenner said of firms based in Philadelphia. "We are seeing Philadelphia-based firms outperforming [competitors]."

The economic fate of firms in Philadelphia and nationally bears important economic implications. Nearly a million people are employed in the legal industry nationwide and tens of thousands in Philadelphia and its Pennsylvania and New Jersey suburbs. The firms pay high salaries and support a number of related services, everything from messenger services to management consulting firms to companies that assist with data storage and technology.

Ashenbrenner declined to release the names of the firms included in the survey, saying that it was proprietary. She did say, however, that most of the region's high-profile firms participated.

Results track roughly with what Philadelphia law firm leaders and analysts said they were seeing in the legal market regionally and nationally.

"Philadelphia firms cut back significantly during the recession, and now they do not have armies of associates like firms in New York and elsewhere," said Ward Bower, an analyst at Newtown Square-based Altman Weil, a legal consulting firm

Some Philadelphia firms have shifted some work to lower-cost offices outside the city, such as Harrisburg or Pittsburgh, and that has helped reduce rates and make them more attractive, Bower said. Overall, though, revenue growth is anemic, and that will change only when businesses decide it is safe to start spending the enormous piles of cash they have set aside as a kind of corporate safety net.

"If corporations open their coffers and begin doing the kinds of investments they are capable of doing, I think it will blow the lid off," Bower said.

Mark Stewart, chairman of Center City's Ballard Spahr, said he expects revenue growth to be flat this year. While the Wells Fargo survey found that firms nationally have been able to push through modest rate increases, Stewart said the dominant theme for many has been rate discounting and competition for a declining amount of business. He said Ballard's office in New York has attracted significant business by keeping its rates below those of New York competitors.

"It's going to be a flat year, and I think 3 percent would fall within that range," Stewart said.

Michael Heller, chief executive officer of Cozen O'Connor, said he, too, has seen an ongoing reluctance by companies to spend on legal services.

"I still think that this is a consolidating legal market, meaning that the demand for legal services is down year over year," Heller said. "Corporations are continuing to reduce spending, and consolidating the number of law firms that they are using."

Paul Fires, managing partner of Center City's Weber, Gallagher, Simpson, Stapleton, Fires & Newby L.L.P., which is growing, said that with such challenging market conditions, his firm was focused on keeping costs low and increasing market share.

"The pie is shrinking, and the strategy is to increase market share," he said.