Issues & Trends
Law Firm Survey Shows Revenue Growth, Workplace & Technology Shifts in 2021
June 22, 2022
Despite pandemic disruptions, the legal sector had its “best year ever” in 2021, according to Sherry Cushman of the global real estate services firm Cushman & Wakefield, which recently released its ninth annual Bright Insight: 2022 National Legal Sector Benchmark Survey results.
The report, which analyzed data collected from a broad range of firms across the country, illustrates the biggest risks and opportunities that firms perceive in today’s marketplace. Survey authors Cushman and Margaret Poster, co-leaders of Cushman & Wakefield’s Legal Sector Advisory Group, discussed trends in law firm business, including its brick-and-mortar footprints, and changes that have taken place since the pandemic began.
Cushman noted that law firms’ gross revenue grew globally from $690 billion in 2020 to $713 billion in 2021. “We have never seen revenue produced like this by the legal sector ever,” she said. “In fact, in the U.S. alone, the sector revenue was at $350 billion, close to half of the global revenue.”
Also illustrating the growing legal market was the record $6 billion revenue reported by the top Am Law 100 firm in 2021. All of the firms experienced revenue growth, Cushman said, with more than a quarter of them reporting increases of at least 20 percent. Billing rates increased more than 5 percent, while overall operating expenses dropped. Although hiring expenses went up, Cushman said they were not big enough to impact the legal sector’s revenue expansion. “The real question is, can this be maintained?” she said.
Asked about the pandemic’s impact on their firms, 85 percent of poll respondents said it had a favorable effect, 80 percent indicated that the pandemic provided an opportunity to rethink firm practices, and 88 percent noted that they are now more focused on future strategy than they had been previously.
“One thing is for sure: There is no longer a ‘one size fits all’ in the legal sector. These past two years have allowed each and every firm to really evaluate their firm in every aspect and really begin to help decide what is best for them,” Cushman said.
The primary issue facing businesses generally is recruitment and retention, and law firms have not been insulated from this trend. “Talent has always been a top priority for law firms, but 2021 [was] a whole different ballgame,” Poster said. “The pressure to recruit and retain talent was insane, frankly. It was at levels we have never seen before.”
The activity took place at every level, from junior associate to partner, with firms raising associate salaries by an average of 11 percent. But Poster said that issues like work–life balance have taken on increased importance under pandemic and post-pandemic conditions.
The survey also shows that retirement is the single greatest reason for attorneys’ departure from firms, leading to increased focus on law firm succession planning, according to Poster. Approximately 63 percent of the firms polled had a succession plan in place to address potential issues with the loss of senior staff.
Diversity, equity, and inclusion is another area of growing interest among firms, driven by consumer demand for diverse representation. More than 82 percent of the firms polled said that enhanced diversity was an important component of their overall strategy.
Poster said that there has been progress, but it has been slow. For example, only 28 percent of respondents said that their firms are diverse when it comes to race, sexual orientation, or gender identity. Figures did show growth in women’s representation at the partner level.
Technology spend has seen rapid growth in recent years. More than 40 percent of firms indicated they spent more than 7 percent of gross revenue on technology, up from 30 percent of respondents last year. Technology is rapidly overtaking real estate as the second-largest law firm expense after employee compensation, Poster said, and 66 percent of firms polled said they will spend more to support remote work.
These factors have all contributed to changes in firms’ real estate needs. Approximately 60 percent of respondents anticipated that in five years they will “hotel,” or maintain an alternative workspace for desk sharing rather than centralized private offices. Cushman said that 58 percent of respondents plan to decrease their real estate square footage by more than 10 percent.
“Taken together, the combination of these issues has created a lot of uncertainty in the marketplace,” Poster said. “The office is not going away, but it is changing.”
Comparing legal sector leasing between 2020 and 2021, Cushman saw fewer lease renewals but an increase in new leases in the D.C. metro area, suggesting that firms are actively adjusting their environments with post-pandemic changes in mind.
