The inaugural State of the New Zealand Legal Market: 2025 Report (SOTLM NZ) by the Thomson Reuters Institute has revealed a “return to profit growth,” for law firms. Following a period of historical challenges for firms, the first edition of the SOTLM NZ provides a market outlook for the year ahead. Insights and performance metrics are based on results from 11 NZ-based law firms.
“Performance improved dramatically over the second and third quarters of the year which resulted in an improved profit position by the end of 2024,” the SOTLM NZ stated.
NZ experienced a volatile economy from 2020 – 2023 which significantly impacted GDP growth. The SOTLM NZ Report analysed performance metrics that show how NZ firms returned to normal in 2024, taking the economic factors into consideration. The report data also explored the influential factors that led to stability for NZ firms in detail including:
- Demand growth in 2024: Demand growth refers to the increase in the billable hour volume of legal services requested by clients. Transactional work grew by 2.1% for NZ legal firms in 2024 which lifted demand growth. However, demand growth overall contracted slightly in 2024 as other practices dragged down performance.
- Worked rate growth: Worked rate growth is the growth in the average hourly price that a law firm agree or negotiate with clients for legal services. Worked rate amongst participating firms of the study grew by 6.4% in 2024. This result builds on the previous year’s rapid 7.0% increase.
NZ legal market on the rebound
The SOTLM data reports that NZ experienced a “quarterly demand growth of 7.1% year-over-year,” between 2020 and 2021. The rapid growth was short-lived the following year. In 2022, demand fell to an average of an 0.8% contraction per quarter.
According to William Josten, Senior Manager, Enterprise Content Legal at Thomson Reuters Institute, the past year could indicate that law firms in the country have weathered the worst of the post-2021 transactional bust, potentially bottoming out and seeking to rebound.
In the past 12 months, firms experienced their first profit growth since 2021. The NZ GDP growth is set to stabilise to an average of 2.3%, which is expected to contribute to a continued normalised level of growth.
By the end of 2024, these key factors shaped the second and third quarters of the year which resulted in an improved profit position. As 2025 progresses, the economic outlook in NZ presents a positive picture for the legal market. If current trends continue, 2025 may bring an even stronger return to profit growth, however, geopolitical uncertainty could upend the positive trends.
“An improved profit picture for New Zealand law firms in 2025 would provide a welcome springboard to propel these firms to stronger financial footings as well as the money to invest in meeting the challenges a rapidly evolving global legal market will present,” said William.
Transactional demand uplifts performance
Over half of lawyers across NZ work in transactional practice areas, noted the report. This indicates the region’s emphasis on the practices that are built-in, rather than cyclical.
“Economic factors have contributed to a more normalised level of demand growth, particularly in interest rate-sensitive areas like transactional practices which provide the bulk of hours in New Zealand,” said William.
This higher concentration of hours and capacity in transactional practice areas boosts NZ firms’ performance during favorable conditions. However, this also intensifies their underperformance during challenging times.
“Despite the roller-coaster journey of demand over the past four years, rate growth has provided a positive stabilising force within the industry,” William added.
The resurgence in transactional demand, overall stabilisation, and improvements in key macroeconomic indicators have had a key role in the momentum behind the upswing.
“The positive momentum in demand, along with stable growth in rates and expenses, suggests a promising outlook for New Zealand law firms as they head into 2025,” William concluded.
Get exclusive access to the new State of the New Zealand Legal Market: 2025 report here on Legal Insight NZ. This complimentary resource examines the historical context behind the turbulent period for law firms in NZ in recent times. The report also offers valuable insight on how NZ firms can respond to future challenges and thrive amid uncertainty.
