Fueled by technology, necessity and crisis, Australian law firms are a “beacon of innovation” according to findings of the 2021 Australia: State of the Legal Market report by Thomson Reuters Institute. The new report explored how Australian law firms saw demand and profitability grow in fiscal year (FY) 2021 as they successfully navigated the turbulence of the past year, but noted firms now must make “big strategic decisions” on how to deploy technology to ensure future growth.

In coverage of the report findings, The Australian Financial Review noted: “Australia’s top law firms chalked up profit margins of almost 37 per cent over the past year as they worked longer hours and slashed expenses during the pandemic.”

Firm profits grew to record highs in FY 2021 – with average profit as a percent of revenue over the last 12 months rising to 36.8% – through a combination of demand growth, slightly higher rates, and reduced expenses. The report shows results for FY 2021, which ended June 30 – a period that covers both the downturn during the depths of the pandemic in 2020, and the emerging recovery in 2021.

“Australian law firms have proven themselves extremely resilient in managing through the tremendous ups and downs encountered over the past year,” said Jackie Rhodes, managing director of Asia & Emerging Markets, Thomson Reuters. “In particular, the sudden shift to remote working can be considered a success for the Australian legal market, enabling firms to uncover new efficiencies while providing their legal talent the flexibility and balance they had craved.”

Australian law firms saw an average 2.2% increase in legal demand in FY 2021. Demand for regulatory, M&A, banking & finance, and general corporate work drove much of the growth. Conversely, demand for real estate, construction, and insolvency & restructuring declined. The overall increase in demand was a major achievement amidst the challenges of the pandemic.

In addition, the average firm managed a modest 1.6% increase in worked rates, along with a significant 3.5% reduction in expenses. Together with the higher demand, this created a favorable scenario for firm profitability.

The Australian Financial Review’s coverage noted how Australian firms compare to their counterparts around the world: “The State of the Market report for 2020-21 also showed Australian firms out-performed those in the US, Britain and Asia on the key measures of lawyer growth and demand.”

For more details on the Australian legal market, download the report at bit.ly/2021Aus.