Neil Sands
New Zealand’s legal market appears to have weathered the worst of a downturn as the overall economy recovers, with stronger profit growth forecast if current trends persist, a report from the Thomson Reuters Institute says.
The business information provider’s 2025 report on New Zealand’s legal market heralds “a welcome return to stability” after five years of volatility for local law firms, marked by significant fluctuations in financial performance.
Thomson Reuters said its financial insights data showed New Zealand’s economy was finding its footing after the global pandemic and the financial performance of law firms was also improving, with moderate cost growth and expanding top lines.
“A resurgence in transactional demand, coupled with this overall stabilisation, and an underlying improvement of key macroeconomic indicators, suggests that the legal services industry may be trending towards normalisation,” it said.
The report said New Zealand law firms experienced two years of strong demand growth in 2020 and 2021, outpacing the US, UK and Australia, followed by a sharp decline which continued until 2024, when profits began to improve dramatically mid-year.
“If current trends continue, 2025 may see an even stronger return to profit growth and an increase in profits per equity partner (PPEP) more in line with pre-downturn levels as firms capitalise on their practice leverage,” the report said.
But while 2025 was looking promising, Thomson Reuters warned New Zealand law firms remained vulnerable to volatility in their financial results due to their reliance on transactional demand to drive performance.
“Transactional practice work constitutes nearly half of the average New Zealand firm’s worked hours, which is noticeably higher than other global regions such as Australia or the United States,” it said.
“More importantly, more than half of New Zealand’s lawyers operate in transactional practice areas, which suggests that the region’s focus on these practices is essentially built in rather than cyclical.
“This higher concentration of hours and capacity in these areas magnifies New Zealand firms’ performance during favourable conditions, but also exacerbates their underperformance when times are tough.”
The report can be downloaded here.
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