The Australian legal market continues to thrive because of recent intense demand and beneficial conditions, but greater uncertainty looms on the horizon
The Australian legal market has sustained its impressive performance into the first half of the 2025 fiscal year (FY 2025), building on the remarkable growth seen in FY 2024. Despite the lofty benchmarks set last year, Australian law firms have managed to maintain strong results, showcasing the underlying structural strength of the region.
Growth on top of growth
The 2024 fiscal year ended with Australian law firms increasing their profits at the fastest rate since at least FY 2015, according to the Thomson Reuters Institute’s just-released 2025 Australia: Midyear Legal Market Update report. Firm profits at these rarified heights were always going to be a challenge to replicate, but through the first half of FY 2025, Australian firms have managed to go even further, continuing to see growth on top of growth.
While there has been a bit of moderation in the pace of recent growth, the current pace — despite measuring against historically high baselines — suggests some institutional strength. Firms’ revenues continue to expand, and economic forecasts for Australia are largely positive. Broad-based demand growth, elevated worked rate growth, and improvements in utilisation despite rapid headcount expansion were some of the Australian legal market’s defining features in FY 2024. And so far in FY 2025, the average firm in the region has either seen a continuation of these trends or held on to the gains of last year.
However, there are some less positive developments worth mentioning as well. A major challenge relates to the variety of demand sources that are diminishing. In FY 2024, all major practice areas and office locations enjoyed one of the best demand growth years since we began tracking the region. Now, the Australian legal market is seeing several areas of demand contractions, and growth is starting to be more concentrated within a smaller number of practices and office locations.
While overall demand growth is still very strong, especially when taking the previous fiscal year’s results into consideration, the sustainability of overall growth may be slightly weaker than it was last year. That aside, the increase in worked rates among Australian firms, along with strong demand, has once again driven revenue growth significantly beyond historical averages. This is fortunate, as this continued strength has so far offset the rise many firms saw in their total expense growth.
Challenges on the horizon
Even amid these strong results, however, current challenges are growing. As said, expense growth is accelerating, driven by higher direct expenses, including larger bonus distributions, which has led to a noticeable increase in per-lawyer costs. Additionally, as also mentioned, there are concerns about the sustainability of demand growth as it becomes more concentrated among fewer practice areas and office locations.
And while the economic outlook for Australia remains mostly positive, with GDP growth projected to rebound to approximately 2% in 2025 and 2026, client sentiment regarding legal spending is mixed.
For example, the net spend anticipation (NSA) score for Australian general counsel (GCs) reflects a more cautious outlook. Interestingly, Australian GCs have expressed a more favourable sentiment towards spending on international law firms, potentially signaling added difficulties for domestic law firms which have been so successful over the last few years.
Conclusion
As the industry looks towards the latter half of FY 2025, the Australian legal market remains robust, characterised by strong overall demand and impressive profit margins. However, vigilance will be key to navigating the potential challenges ahead. With the right strategies, Australian law firms can well-position themselves to finish the year on a strong note. Yet as further difficulties emerge on the horizon, the current period of prosperity is appearing more and more transient.
For a comprehensive outlook on the Australian legal market and its preparation for the future, you can download the Thomson Reuters Institute’s newly published 2025 Australia: Midyear Legal Market Update report here
