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January 28, 2011 6:28 PM

Bouncing Back? Report Shows Demand for Legal Services Rose at End of 2010

Posted by Tom Huddleston Jr.

The 2011 Client Advisory from consultants Hildebrandt Baker Robbins and Citi Private Bank released earlier this month predicted that this year would bring only modest gains for the legal sector, with most firms needing to get creative in order to avoid losses.

The report, which relied on data current through 2010's third quarter, pointed to slimmer partner ranks, alternative billing models, and outsourcing as potential ways for firms to keep their operations austere in uncertain times. After a two-year lull in demand for legal services, the report's author, James Jones, told The Am Law Daily that the market had stabilized but that firms wouldn't see substantial growth unless the demand for legal service increased to prerecession levels.

On Friday, Hildebrandt issued its latest Peer Monitor Index Report and the picture it paints is a bit rosier.  Examining data from last year's fourth quarter, the report reveals that demand actually rose for the first time since the recession began. Though the increase was small--just 1 percent compared to the same period last year--it was nonetheless an encouraging sign.

"It's a little too early to declare any major tonality shift, though I think the fourth quarter was a much more optimistic casting type of a quarter," says Mark Medice, Hildebrandt's program director for Peer Monitor.

Though demand remains much lower than it was in prerecession times, Medice says that one reason for optimism is that core practice areas, specifically litigation, saw a bump in demand during the fourth quarter after being stagnant for most of the year.

In 2009, bankruptcy practices--which, of course, flourish in bad times--experienced the most growth. Last year, the report issued Friday shows, bankruptcy receded a bit, while such areas as litigation, M&A, and even some real estate practices, finally saw growth. Litigation demand rose by 2 percent in the fourth quarter, while transactional practices saw demand for their services grew by 5 percent, according to the report.

Medice is quick to note that last year naturally looks good compared to 2009 because the practices had "a relatively lower bar to beat." He adds that "the disappointment through much of [2010] was that they weren't beating the bar."

Even with the end-of-year growth, Medice still sees the legal market as being in a "wait-and-see mode" this year. In other words, it's fine for firms to be happy about news of even a modest growth in demand for the first time in more than two years. At the same time, he says, the coming year is still likely to be one of restraint and creative management strategies in what he calls a "buyer's market" for clients.

"I think the fourth quarter simply was, hopefully, the first step of many in a better direction," Medice says. "I think no one is declaring major victory.... I think there is a lot of continued thinking that will have to occur, with regard to what kind of changes that law firms need to take on to be successful going forward."

(Download Q4 PMI Report)

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Most attorneys I know all agree that the worst of the downturn is over.

If you beleive that the worst of the downturn is over for law firms, then you are living in a sheltered world.

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