Growth in demand for law firm work hit highs in 2021, report says

(Reuters) – Law firms experienced rate and demand increases in 2021 at levels not seen in over a decade, but should moderate their expectations somewhat for next year, according to a report released on Thursday.

Lawyer rates grew 6.5% and demand increased 6.6%, in the first three quarters of the year over 2020, according to Citi Private Bank Law Firm Group and Hildebrandt Consulting’s latest annual client advisory.

The report said the leap in rates and demand is still akin to pre-2007 increases for law firms, even when measured against 2019, before COVID-19 first hit the economy.

Average revenue grew 14.7% in the first nine months of 2021 over the same period of 2020, the advisory said.

While firms saw higher demand and revenue, the delay in returning to the office meant that many didn’t face as much pressure from operating expenses, according to the report.

Law firms pushed off plans to more fully reopen offices across the country this year as the pandemic continued.

The expected operating expense increase as lawyers go back to work in-person will “put pressure on margins” and “make the whole focus on revenue growth an imperative,” said Gretta Rusanow, head of advisory services for Citi’s law firm group and a co-author of the report.

That will make firms home in on getting more work and making sure they are collecting, she said.

Rusanow said firms will likely see “softer growth results,” next year than they did in 2021, but added Citi still has a “positive” outlook about 2022.

While operating expenses only ticked up by 3% in the first nine months of the year, compensation expenses grew 14%, according to the report.

Firms have been battling for talent to handle the demand growth, particularly in transactional practices. They’ve used tactics like hiking pay and handing out extra bonuses to recruit and retain associates.

Another “huge challenge” firms face is how to develop and retain their valuable associates in a hybrid work model, the advisory said.

Many firms plan to their have their lawyers combine in-person and remote work in 2022.

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