The Turnaround Is Real — And Broad
New Zealand law firms have delivered their strongest financial performance since before the pandemic, with FY2025 data from the Thomson Reuters Institute painting a picture of an industry that has methodically rebuilt its economic foundations after years of disruption.
Profits surged 16.5% overall — the first double-digit growth figure since 2021 — while profit per equity partner climbed 13.7%. Revenue growth hit 10.3%, more than double the prior year's 4.3% and back to pre-COVID levels. These are not marginal improvements. They represent a genuine inflection point.
The Unexpected Driver: Disputes Boom
While the conventional narrative positioned transactional recovery as the story of 2025, the real surprise was the explosive rise of counter-cyclical work. Disputes, employment, insolvency, and insurance defence practices all surged — and by Q4 2025, counter-cyclical demand was growing at 13.1% year-over-year.
Workplace relations led all practice areas at 14.3% growth, while dispute resolution expanded to represent one quarter of all legal demand. This is significant: it means growth was not solely dependent on the health of the deals market. Even as economic uncertainty persists globally, NZ firms have practices that thrive precisely because of that uncertainty.
Banking & finance (+5.8%) and corporate general work (+6.5%) also returned toward pre-pandemic demand levels, meaning firms benefited from both sides of the growth equation simultaneously — a rare and fortunate alignment.
How NZ Compares to Australia and Beyond
| Metric | New Zealand | Australia / Peers |
|---|---|---|
| Rate Growth Strategy | Steady: 4.7% | Aggressive: higher, but stratifying market |
| Profit Margins | 43.7% (above regional avg) | Lower — due to heavier overhead structures |
| Counter-cyclical demand | Strong: 7.9% growth | Weaker counter-cyclical contribution |
| Transactional reliance | High: 51.2% of total demand | Similarly exposed in major markets |
| AI Adoption | 44% have org-wide GenAI tools | Comparable levels in major AU firms |
New Zealand firms have resisted the temptation to chase Australian and US peers on rate increases. While some offshore firms pushed rates aggressively and generated short-term gains, this approach is increasingly creating winners and losers within those markets. NZ's 4.7% rate growth is measured — but it has been delivered year after year with consistency, building revenue without triggering client pushback.
More striking is the profit margin story. At 43.7%, NZ firms outperform regional counterparts. The reason is structural: leaner operations, tighter overhead management, and a workforce model that doesn't carry the same indirect expense burden as larger offshore competitors.
The Three Risks Firm Leaders Must Watch
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Transactional Over-Reliance Transactional work now accounts for 51.2% of total demand — up 3.3 percentage points in a year. If global deal activity cools, as some signals suggest, NZ firms face a familiar cliff. The 2022–23 downturn demonstrated how quickly this can hit the bottom line.
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AI Pressure From Clients 44% of NZ firms now have organisation-wide generative AI tools. But the more significant pressure comes from the client side: more than half of corporate legal teams say they want their outside firms to be using AI. Firms that lag on AI adoption risk losing mandates to more tech-forward competitors.
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Expense Creep Returning After a painful lesson in 2022–23 when indirect expenses rose 14.4%, firms clawed back control. But 2025 data shows reinvestment beginning: technology spend up 7%, knowledge management up 10%. Indirect expenses grew 4.1%. This may be healthy investment — or the first step in a new cycle of cost inflation.
The Bottom Line for NZ Legal Professionals
The 2026 Thomson Reuters report is the best news NZ law firms have received in years — and it's earned. Firm leaders navigated post-pandemic demand collapse, a talent war, expense blowouts, and economic recessions, and still delivered double-digit profit growth.
But the report is equally clear that this moment shouldn't breed complacency. The same conditions that drove counter-cyclical growth — economic stress, insolvencies, employment disputes — could just as easily reverse if the economy stabilises. And the AI revolution is arriving whether firms are ready or not.
For NZ lawyers, the message is clear: the foundation is solid, the conditions are favourable, but the firms that will define the next decade are the ones investing now — in technology, in practice diversity, and in the adaptability to weather whatever comes next.