Rates and Revenue Per Lawyer in New & Existing Markets
Recent office openings in “hot” markets like Austin and Salt Lake City have received a lot of attention in the trade press. A report by Wolters Kluwer ELM Solutions suggests which cities will garner interest from BigLaw in the future, using measures of population growth and rate growth (Where Are the Next Markets for BigLaw Expansion? Check Out These Cities, Andrew Maloney, 2/8/22, American Lawyer, citing 2021 Real Rate Report, Wolters Kluwer ELM Solutions “Rate Report”). The Rate Report suggests that population influx creates a spike in demand for legal services, resulting in rate increases; and attorney “supply” to meet demand lags due to bar restrictions and the hassle of relocating for laterals, and the length of education/training for new attorneys.
The Rate Report shows just how much rates can vary by market. Median billing rates for partners in New York and D.C. were $1,015 and $855, respectively; while median rates for partners in the “hot” markets of Salt Lake City & Austin were $495 and $355, respectively. Some analysts suggest the value proposition for law firms opening in smaller markets with lower rates is “enticing talent, being near valuable clients, and adding offices with lower overhead costs” (For BigLaw, Here’s the Value Proposition of Opening in Smaller Markets, Andrew Maloney, 2/11/22, American Lawyer).
Smaller markets do not necessarily equate to smaller offices, but new offices usually start small and many newer offices struggle to achieve critical mass. The number of smaller offices has grown significantly within the AmLaw200 over the last decade (Reassessing Real Estate – The Impact of Smaller Offices, ALM Intelligence Data Strategy, + Insights, 11/23/21, noting that the number of offices with 20 lawyers or less increased 37% between 2011 and 2020 among AmLaw 200 firms, such that 52% of all AmLaw offices in 2020 were smaller offices).
An analysis of Revenue per Lawyer (RPL) growth in firms with a high concentration of small offices tells a cautionary tale on office openings. Those firms with a lower concentration of small offices generated on average $150K more per lawyer in 2011 than higher concentration firms; by 2020, the gap widened to $265K more per lawyer (Reassessing Real Estate, comparing RPL growth among AmLaw 200 firms with a higher concentration of smaller offices (50% or more of firm-wide offices) to those with a lower concentration (less than 50% of firm-wide offices)).
Although a high concentration of smaller offices correlates to relatively lower revenue per lawyer, entering new markets may not drag down profits in the future. The pandemic has ushered in acceptance of remote work; and firms may show more willingness to “open” in new markets without acquiring costly office space. Thus, firms may be able to enter markets with lower rates and still make the venture profitable.
