A new report shows that the Australian large law firm industry has made great strides in the last six months, but it still faces challenges in the coming year
Despite economic concerns involving labor shortages and continual supply chain interruptions, the market for legal services in Australia remained robust, even as new clouds on the horizon — in the shape of higher compensation costs — threatened.
Indeed, the legal market for large law firms in Australia achieved strong results for the first half of the 2022 financial year, according to a new midyear market report from the Thomson Reuters Institute.
The Australian Legal Market Midyear Update showed that average demand for law firm services grew by 6.4% in the first half of FY 2022, a solid showing considering that Australia hasn’t suffered the severe demand contraction which was reflected as elevated results in the United States market throughout much of 2021.
The industry’s demand growth has been driven by forces familiar to those watching both the Australian and North American large law firm industries: the strong growth in transactional practices. Mergers & acquisitions (M&A), tax, banking & finance, and general corporate work all posted average growth in excess of 10% on a year-to-date basis throughout the midpoint of FY 2022. Australia’s M&A growth has been fueled by merger schemes and takeovers, with a large amount of that fuel coming from mining concerns registered in Western Australia.
The talent question
The surge in demand for legal services has resulted in solid performance in terms of agreed-upon, or worked, rates. The average law firms saw their worked rates grow at a far faster pace than what they averaged in each year since 2014.
In addition, data collected from the client side indicates that demand in unlikely to decline. A survey of corporate general counsels (GCs) compiled by Thomson Reuters found that the only major practice area expected to decline, according to GCs, was banking & financing, while firms’ regulatory practice was the most heavily favored for future growth.
With all of this potential demand growth, Australian law firms are moving to increase their lawyer headcount. Year-to-date, the ranks of qualified fee earners at the average law firm grew 4.5%, with the possibility of further growth as demand continues to increase.
While it may be useful for law firms to bring on more legal professionals to handle the higher demand, law firms should be cautious about falling into the trap of relying on salary increases alone to protect against attrition.
You can download the full “Australian Legal Market Midyear Update” from Thomson Reuters Institute here.