New Report Examines How Law Firms in New Zealand Navigated Volatile Market Dynamics and Returned to Profit Growth in 2024
Thomson Reuters Institute, today published the inaugural State of the New Zealand Legal Market report, providing a comprehensive analysis of the recent trends impacting the sector and a market outlook for the year ahead. While the past five years have been a turbulent period for law firms in New Zealand, marked by significant fluctuations in financial performance, momentum began to shift in 2024. The report explores the influential factors that led to stabilizing profit positions.
Key things to note:
- Historical Context: In 2020 and 2021, NZ law firms experienced average quarterly demand growth of 7.1% YoY, outpacing demand and profit growth of other regions such as Australia, the US, and the UK by a substantial margin. However, the following period saw demand fall nearly as quickly as it rose, primarily influenced by the performance of transactional practices. Unlike other regions, New Zealand did not see a corresponding growth in counter-cyclical practices that buoyed other legal markets.
- Stabilizing Economy: After a period of high volatility, the New Zealand economy is stabilizing, with GDP growth projected to average around 2.3% in the coming years and interest rates expected to settle between 2% and 3%.
Key statistical highlights:
- Demand growth was flat compared to 2023:In 2024, the momentum shift for law firms was neither immediate nor consistent. In Q1, the New Zealand legal market faced a broad downturn, then performance improved dramatically in Q2/3 resulting in an improved profit position by the end of 2024.
- Firms increased their worked rates by 6.4%:Another relatively strong year for worked rate growth following the rapid increase of 7% in the previous year. While it was technically a slowdown, this growth-on-top-of-growth suggests the region’s law firms are in a healthy position regarding their pricing power.
- Expense control driving the return to profit growth: Direct and indirect expenses increased by 3.0% and 1.6%, respectively, which was the first time since at least 2019 when both categories grew by less than 5%.
- Back in profit growth mode: Law firms in the region saw an average 3.4% increase in profits and a 3.3% increase in profits per equity partner (PPEP) by the end of the year.
This report indicates a welcome return to stability for New Zealand’s legal market, with improved demand and cost management suggesting a positive outlook for 2025. However, firms are advised to remain cautious of potential volatility due to heavy reliance on transactional demand and macroeconomic factors.
