New York: Major U.S. law firms saw a notable surge in client demand during the third quarter of 2025, signaling robust profitability prospects but also raising cautionary notes about sustainability. According to the latest Thomson Reuters Institute Law Firm Financial Index, demand across large and midsized firms rose 3.9% year-on-year, marking one of the strongest quarterly gains outside the post-pandemic rebound period.
Transactional legal services were the primary driver of the uptick. Midsized firms reported a 6.1% increase in transactional work, with mergers and acquisitions climbing approximately 6.7% and corporate legal services rising 4.4%. Real estate and tax-related legal work also recorded steady growth of 4.2% and 3.7%, respectively. Analysts attribute this demand to a combination of ongoing corporate restructuring, deal-making activity, and heightened compliance requirements in an increasingly complex regulatory environment.
Litigation also registered growth, with demand rising roughly 4.9% across the sector. Labor and employment cases increased about 4.0%, while bankruptcy and restructuring work edged down slightly by 0.4%. Observers note that while cyclical demand in litigation and bankruptcy remains sensitive to broader economic conditions, firms with diversified practice portfolios have been able to offset potential slowdowns with gains in transactional and advisory services.
Alongside demand growth, overall billing rates climbed approximately 7.4% year-on-year, bolstering revenue prospects for firms across the board. Rising rates reflect not only market demand but also increased investment in technology, compliance, and other infrastructure that enables firms to deliver complex legal services efficiently. However, higher operational costs may temper net gains if demand growth moderates in future quarters.
The report highlights a notable shift in client behavior. While the largest U.S. firms (top 100 by revenue) experienced modest gains in cyclical practices at 1.6%, firms ranked 101–200 saw significantly stronger demand at 6.3%. Analysts suggest that clients are increasingly outsourcing work to lower-cost providers without compromising quality, benefiting midsized and specialized firms positioned to capture this market.
Despite strong performance, the report underscores lingering risks. Rising overhead expenses, including technology investments, pushed operational costs higher by roughly 7.5%. Combined with macroeconomic uncertainties and geopolitical volatility, these factors could dampen demand if corporate activity slows. Law firms are being urged to maintain agility, monitor client budgets closely, and prepare for potential shifts in the market.
For law firm leadership, the third-quarter results are both promising and cautionary. Transactional and advisory services remain a reliable revenue driver, but rising costs and potential demand volatility necessitate careful strategic planning. Meanwhile, corporate clients are increasingly cost-conscious, favoring midsized firms or alternative legal-service providers for routine or specialized work.
The Q3 surge positions U.S. law firms for a potentially profitable year, but sustainability remains uncertain. Analysts stress that the true test will be the first half of 2026, when client activity, regulatory developments, and economic conditions will determine whether growth momentum continues or slows.