U.S. law firms are entering 2025 with confidence, buoyed by strong financial performances in 2024 and growing opportunities in emerging practice areas. Legal industry analysts from Citigroup’s Citi Global Wealth at Work Law Firm Group and Hildebrandt Consulting, in their latest annual client advisory, highlighted law firms’ positive outlook, driven by revenue growth and strategic positioning in high-demand industries.
Law Firms Record Strong Revenue Growth in 2024
Law firms increased their revenue by an average of 11.9% in the first three quarters of 2024, thanks to a 3.2% rise in demand and a 9% hike in billing rates. A projected resurgence in mergers and acquisitions (M&A) and transactional work, supported by recent interest rate cuts, promises continued momentum in 2025. Firms plan to capitalize on high-demand sectors such as litigation, regulatory, antitrust, private equity, and funds, with technology, healthcare, life sciences, and energy leading as key industries for expansion.
Geographic Shifts and Strategic Office Investments
Law firms are focusing their investments in lucrative U.S. markets, including New York, Washington, D.C., Northern California, and Texas. Internationally, firms are turning to London, Singapore, and the United Arab Emirates for expansion opportunities. At the same time, firms have closed offices in less profitable regions, such as China and parts of Europe, to enhance profitability and attract top talent. Brad Hildebrandt, chairman of Hildebrandt Consulting, emphasized the ongoing need for firms to balance expansion with profitability in the competitive legal talent market.
Generative AI Reshapes Legal Practice
Law firm leaders express enthusiasm about generative AI’s potential to revolutionize legal service delivery. Firms view AI as a game-changer but acknowledge the significant costs of implementing these technologies. In 2023, firms spent less than 1% of their revenue on AI adoption, but analysts expect that number to rise sharply. Gretta Rusanow, head of advisory services for Citi’s law firm group, underscored the long-term financial implications, noting that firms must determine how to finance and recover the substantial investments in AI.
While firms embrace AI, they face critical challenges, including training junior lawyers as AI assumes tasks traditionally performed by entry-level professionals. Leaders plan to invest time and resources to understand AI’s impact on their operations and mitigate associated risks.
Challenges Ahead
Despite the optimism, law firms recognize ongoing challenges. Firms must navigate geopolitical and macroeconomic uncertainties while addressing lawyer retention in a fiercely competitive talent market. Analysts predict that firms will continue adapting their strategies to ensure sustained growth and resilience in 2025.
