As U.S. law firms look ahead to 2025, industry analysts are expressing optimism about growth prospects, underpinned by strong financial performance in 2024 and the ongoing impact of artificial intelligence (AI) on the legal sector. According to the latest annual client advisory from Citigroup’s Citi Global Wealth at Work Law Firm Group and Hildebrandt Consulting, released Thursday, law firms are poised to capitalize on a range of opportunities, despite challenges posed by a competitive talent market and global economic uncertainties.
In the first three quarters of 2024, U.S. law firms saw a robust 11.9% increase in revenue, driven by a 3.2% uptick in demand and a 9% rise in billing rates. This growth sets the stage for a positive outlook for 2025, with an expected rebound in mergers and acquisitions (M&A) and transactional work, particularly as interest rates are anticipated to decrease.
The report highlights key areas where firms foresee growth, including litigation, regulatory, antitrust, transactional, private equity, and funds. Sectors such as technology, healthcare, life sciences, and energy are also expected to lead the charge in industry-specific expansion.
A major driver of optimism is the forecasted impact of generative AI. Law firm leaders are increasingly confident about the transformative potential of AI in legal service delivery. While challenges exist in adapting to this technology—particularly in training junior lawyers whose roles may evolve—firms are actively exploring how to integrate AI into their operations. Analysts predict a significant rise in AI-related investments, which, though currently under 1% of revenue, are expected to grow as firms seek to stay competitive.
However, the implementation of AI comes with financial implications. “We haven’t even begun to see the true cost of generative AI,” says Gretta Rusanow, head of advisory services for Citi’s law firm group. As law firms invest in AI infrastructure and training, they will also need to figure out how to recover these costs and ensure a return on investment.
The report also touches on the broader geopolitical and economic factors shaping the legal landscape. Law firms are focusing their investments on key U.S. markets such as New York, Washington, D.C., Northern California, and Texas, with London expected to attract the most international interest. Meanwhile, some firms have closed or reduced operations in less-profitable regions, including China and Europe.
As the industry adjusts to a rapidly changing environment, retaining top talent remains a top priority for firms, with competition intensifying in an increasingly aggressive hiring market. Despite these challenges, legal experts remain confident that U.S. law firms will continue to thrive by leveraging new technologies, embracing regulatory changes, and positioning themselves strategically in both domestic and international markets.
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