Demand for legal services rising
The Australian legal market has reached the midyear mark “in stride”, according to new research from Thomson Reuters.
Thomson Reuters has released its first-ever midyear Australian legal update, showing that demand for law firm services has grown by over 6 per cent in the first half of FY 2022.
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According to the inaugural Australian Legal Market Midyear Update, the average law firm working rates have grown by 6.4 per cent since the beginning of FY22, with a number of practice areas growing in demand, too.
The research revealed that the demand for M&A has grown by 19.8 per cent compared to FY21, with tax growing by over 15 per cent and demand for banking and finance practice areas growing by 14.5 per cent.
“Unlike much of the rest of the world’s legal economies, the Australian legal market did not suffer from the shockingly low 2020 baseline economic indicators caused by the pandemic, meaning that the performance of the average law firm in Australia can be judged mostly on its own merits, rather than through the lens of having a relatively low bar to clear to show growth,” according to the update.
“Even absent these low baselines, Australian law firms saw strong performance in nearly every key performance category. Perhaps more encouragingly, the performance of the past six months has the potential to be followed by another period of expansion and growth, at least if the general level of positivity from corporate general counsels in terms of increasing legal spend bears out.”
Additionally, the update shows that “demand for law firm services grew by 6.4 per cent through the first half of FY 2022, a strong jump ahead of the 2.2 per cent growth figure posted for all of FY 2021”.
“This represents a continuation of nearly constant growth in demand for law firm services dating back to FY 2018. As other regions of the globe experienced shortfalls throughout 2020 due to the pandemic, Australian law firms remained largely unaffected, so the figures thus far in FY 2022 demonstrate remarkable organic growth,” Thomson Reuters stated.
The update also observes total mergers by year, IPOs by year, overall and international net anticipated spend, and net anticipated spend among the average Australian legal buyer in the next six months.
Moreover, data collected from corporate law departments shows that a strong demand for legal services is likely to continue over the next six months, as law departments predict their legal spend will increase in most key areas.
However, according to Thomson Reuters, this potential growth could come at a cost for Australian law firms.
“Continuing increased demand for law firm services has the potential to either strain existing lawyers who are likely already feeling stress from their pressured workloads, or compel firms to increase hiring at a greater pace. Year-to-date, the ranks of qualified fee earners at the average law firm have already grown by 4.5 per cent. Competition for talent could tighten much more as demand continues to increase,” the update stated.
“Besides raising costs by hiring more people, increasing competition for talent also brings along increasing pressure for higher associate compensation. While higher wages can be a short-term solution to help recruiting and retention efforts, it has proven to be a relatively weak way to protect against attrition and can certainly pose a challenge to future profits — something which should trigger a sense of caution as the year progresses.”