MELBOURNE –   The Australian legal market continues to suffer from declining demand, although there are some potential signs the long downward trend might be abating. These are among the findings from a new report issued by Thomson Reuters Peer Monitor and Melbourne Law School, “2015 Australia: State of the Legal Market”.

The report is based on financial data drawn from the Australian offices of 23 major law firms, with analysis undertaken by Thomson Reuters Peer Monitor.

Demand for law firm services, as measured by total billable hours, dropped 2.0% in FY 2015, continuing a relatively steady downward trajectory seen over the past five years. However, Q4 of FY 2015 saw a slight increase in demand, marking the first positive quarter in the last three years. 

The report attributes the overall drop in demand to weakness in the three biggest practice areas: dispute resolution, banking & finance, and corporate general.  Combined, these three practices account for nearly half of all legal services provided.

At the same time, firms have managed to steadily increase their billing rates over the past three years, although this has been slightly offset by a small decrease in realisation rates.  Firms also cut their expenses during FY 2015, with direct costs falling by 1.4% and indirect costs by 1.5%.

Firm profitability has been somewhat uneven. Global and national firms, as well as the top-tier group known as the “Big 8” firms have managed to increase their profitability over the last three years. However, the large law firm segment has seen a sharp drop in profits.

“The Australian legal market has seen dramatic changes that could scarcely have been imagined only a few years ago,” said Michael Abbott, vice president, Client Management and Thought Leadership, Thomson Reuters. ”Client demands for greater value and lower costs, and the impact of the collapse of the natural resource boom and economic uncertainty in China, among other factors, have brought new pressures and challenges. But firms that deploy forward-looking strategic planning and increased investment in innovations may be poised to not just survive, but flourish in this challenging environment.”

“The Australian legal market is dealing with declining demand, increased price-based competition, worktype decomposition, entry of market disruptors, technology substitution, and growth in both consolidators and niche players ,” said Joel Barolsky, lead author of the report, and senior fellow at Melbourne Law School and principal at Barolsky Advisors. “While there are some potential signs of improving conditions, it is still far too early to say whether the market has bottomed.”

To get a copy of the “2015 Australia: State of the Legal Market”, go to:  https://peermonitor.thomsonreuters.com/wp-content/uploads/2015/08/2015-AU-Report-FINAL.pdf

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