If the legal industry had a global stage – all eyes would be on the Australian market. The newly launched 2020 Australia: State of the Legal Market Report has revealed that law firms in this part of the southern hemisphere are star performers.
According to Thomson Reuters Peer Monitor, the dynamic benchmarking platform, Australia recorded strong demand growth over the last three months. The same cannot be said for the US, UK and Asian legal markets, where contractions ensued.
When will the lucky country’s good fortune end? As the nation claws through an economic downturn and the health crisis rages on, it seems logical that demand for legal services will tumble once again.
To inform our assessment of the future, let’s hear from a Peer Monitor expert, Joe Blackwood. Joe is Senior Thought Leadership Analyst at Peer Monitor in the US and spoke with Legal Insight to highlight four market developments that law firm leaders should be following during this unique period.
4 Legal Market Trends
Trend 1: Australia surpassing major global markets
If you’ve read the 2020 Australia: State of the Legal Market Report, you’ll know that the overall demand for legal services during the pandemic did not take a hit. Overall, the market is benefiting from a 6.2% spike in demand activity. To compare the country with larger legal markets such as the US, let’s consider Joe’s summation:
“US firms in the Peer Monitor program not only saw demand contraction at home to the tune of 5.9% on average, but they also saw contraction in their UK and Asian offices as well. Asian offices for US-based firms have fared worse, in particular with demand that was down over the period of the pandemic of around 14% compared to the same period the year prior.”
As it turns out, the trend of decline was to be expected for the US market. Peer Monitor data indicates that it has been a long time coming.
“This drop in performance in Asia for US firms – while concerning – was just a continuation of a pre-existing trend of US firms seeing demand in the region contract for quite some time,” explained Joe.
Trend 2: Shift in work between lawyer titles
Probably the most surprising trend to emerge from the annual report is the one regarding the rise of *worked rates, as law firm Partners are taking up more client work than their colleagues in the associate ranks.
“What we’re seeing is a shift in the number of hours per month undertaken by Partners compared to all associates. Partners worked six more hours per month in the fourth quarter of 2020 in compared to the same quarter last year, while associates’ hours per lawyer was flat” said Joe. “As Partners charge much more than associates, the shift in work proportions has lead to a higher average worked rate in the market.”
“Clients are facing a great deal of uncertainty during this shaky time in history that is the pandemic. Law firm Partners are increasingly being called upon to provide more strategic guidance for clients, leading to an increase in their own workloads relative to less experienced associates, and thus prefer to take this on themselves to support business continuity.”
*What are worked rates? The Peer Monitor definition for worked rates are reflective of the hourly rate after negotiated discounts from the standard or rack rate.
Trend 3: Practice area hot spots
Not everyone is a winner during the legal profession’s current surge in performance. Demand growth in one area of legal expertise is declining, while others are experiencing unprecedented activity, such as insolvency and restructuring and workplace relations.
Unfortunately, demand growth for the construction practice area has taken a hit in the 2020 financial year, understandably so if the decline in building and construction during COVID-19 is anything to go by.
As Joe explained, the primary driver of Australia’s demand growth during the global health crisis was none other than dispute resolution.
“Dispute resolution accounted for 21% of all hours worked and is the largest practice by volume. Over the last couple of financial years, dispute resolution grew by an average of 9.5%.
One reason why it did not slow during the pandemic was due to the innovation of the Australian courts, which fortunately already had virtual capabilities in place,” he said.
Trend 4: Historic demand growth – will it continue?
The final trend among the four in this article is by no means the least important. The Australian legal market has recorded historic demand growth, leaving one to wonder whether it will be short-lived. To allay any concerns you may have, consider Joe’s comments below:
“Historically speaking, the Australian legal Market has enjoyed a period of sustained growth since the beginning of 2015, with only four quarters of demand contraction over that time.”
While we have turned the page to FY 2021, the slight slowdown in demand growth to 4.5% through one month of a new financial year does not yet mean it’s time to panic, as this level of demand growth still sits above the average over the preceding five years. It will, however, be interesting to monitor as the year progresses,” concluded Joe.
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