Australian Legal Market Navigates Slower Growth and the Rise of GenAI

The Australian legal market remains robust, but a shift is underway. Although firms continue to experience solid demand and rate growth, the pace is moderating, and a more nuanced landscape is emerging. A recent report from Thomson Reuters Institute identifies diverging strategies and early indications of structural change, particularly with the integration of generative artificial intelligence (GenAI).

Solid Footing, Harder-Won Gains

Australian law firms have demonstrated strong performance in the post-pandemic era, and the first half of fiscal year 2026 indicates this trend is continuing, albeit with evolving characteristics. Demand growth reached 4.8% year-to-date, exceeding the average quarterly pace since fiscal year 2022. Worked rates increased by 4.7%, a respectable figure, but a slight decrease from the 5.4% average growth experienced since fiscal year 2022. Thomson Reuters Institute’s 2026 Australia: Midyear Legal Market Update

Practice Area Divergence

At the practice level, both transactional and counter-cyclical groups are showing acceleration. Workplace relations leads with 9.9% year-to-date growth, followed closely by corporate general at 7.7%. However, a potential concern lies in the contrasting performance within these macro-categories: insolvency & restructuring is surging at 7.9%, while mergers & acquisitions is experiencing a contraction of -2.1%. A continued slowdown in dealmaking coupled with rising restructuring activity could present challenges for transactional practices in the coming quarters.

Three Distinct Market Segments

The Australian legal market is no longer monolithic, but rather comprised of three distinct segments: Large firms aggressively investing for growth, the Big 8 prioritizing pricing power and cost discipline, and Midsize firms pursuing a more balanced, moderate approach. Best Law Firms™ – Australia Rankings

• Large Firms: These firms are leading demand growth, posting nearly 7% year-to-date, fueled by aggressive investment and expansion.
• Big 8 Firms: These firms are focusing on pricing power and cost discipline, achieving a more measured 2.7% demand growth.
• Midsize Firms: These firms are charting a balanced course with 2.4% demand growth.

Profitability also diverges significantly. Since fiscal year 2022, firms now classified as Large have grown profits per lawyer by 27.4%, while Midsize firms have seen a more modest 3.1% increase – closer to the Big 8’s 7.1%.

Early Signs of AI-Driven Change

The report highlights a potentially significant development in law firm productivity. While overall hours worked per month have slightly increased for qualified fee earners, the distribution is uneven. Non-equity partners and junior/mid-level associates are logging fewer hours, while senior associates and equity partners are working more. This pattern may indicate the early impact of GenAI, with firms deploying these tools for tasks traditionally handled by junior and mid-level associates, such as research, drafting, and document review.

Client Spending Outlook

Data from Thomson Reuters Market Insights reveals a growing conservatism among Australian general counsel regarding their spending outlook. Net spend anticipation for overall legal work has dropped to 0 points, indicating an equal number of GCs expecting increased and decreased legal spending. However, Australia-based GCs are increasingly looking outward, with the Asia-Pacific and Latin American regions emerging as areas of activity, while interest in Europe has cooled. 2026 Best Lawyers® in Australia

Looking Ahead

As the Australian legal market enters the second half of fiscal year 2026, adaptability will be key. The market is no longer characterized by uniform prosperity but by strategic differentiation. Firms that understand their position within the evolving landscape and can adjust their strategies accordingly will be best positioned for success.