Australian Law Firms Continue to Grow and Outperform Global Counterparts
Despite challenging conditions, Australian law firms continue to grow and outperform their global counterparts. These are among the findings of the 2022 Australia: State of the Legal Market Report, released today by the Thomson Reuters Institute.
The report found Australian law firms performed so well in fiscal year (FY) 2022 that the market may serve as a beacon for other firms globally who are similarly managing against recession fears, rising costs, and competition for talent. Legal Current shares three takeaways from the new report.
- The year represents a “tale of two halves.” In FY 2022, Australian law firms demand rising a strong 6.4% in the first half but declining 2.1% in the second half. Corporate work, including mergers & acquisitions (M&A), which led much of the demand growth in the first half of the year, has since cooled. However, much of the recent success of the Australian law firm market has been a result of no single practice area being the sole driver of growth. In fact, most practice areas saw demand grow in FY 2022, while several major practice areas including tax, real estate, and regulatory saw particularly strong growth of 5 to 6%.
- Firms achieved near record-level revenue growth. Australian law firms saw robust worked rate growth, averaging 6.5% compared to just 1.6% in FY 2021. The strong rate growth, coupled with the rise in demand, resulted in an average 8.7% increase in fees worked, a considerable jump over the previous year. Firms also saw significant improvement in billing realization. While expenses rose, indirect expenses were at a level that is favorable compared with the period prior to the onset of the pandemic. With direct expenses, Australian law firms aren’t exempt from the growing competition for talent; yet they have largely managed to keep associate salaries in check. The culmination of these factors was overall revenue growth of 10.0% for the average Australian law firm, a near record-setting level but below that of U.S. law firms. And profits grew by an even stronger 12.6%.
- Firms upped their investment in technology. Australian firms’ tech spend grew by 5.3% in FY 2022, following flat growth in FY 2021. Those investments could further help firms in dealing with competition for talent. According a recent Thomson Reuters survey, nearly a third of lawyers (29%) said they would leave their firm for a more innovative firm. Clearly, current technology investment is no longer just about responding to the pandemic or driving client value through improved efficiencies.
Download the report for more insights on the Australian legal market.