Texas State Capitol and flag in Austin (Photo: Shutterstock.com)
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Demand at Texas firms declined during the first nine months of the year, a stark contrast to strong demand for the legal industry throughout most of the country.

Demand during the first three quarters of 2018 declined by 3.6 percent at firms headquartered in Texas, compared with a 2.5 percent increase nationally, according to a new flash survey from Citi Private Bank's Law Firm Group.

“When we look at Texas results, it's pretty objectively the most challenged region we are tracking,” David Altuna, client adviser and senior vice president at City Private Bank's Law Firm Group, said on Thursday.

Texas is one of only two regions that posted a decline in demand for the first nine months of the year, Altuna said. The other is the Washington, D.C., region, where demand declined by 1.5 percent, he said.

Altuna points out that the overall survey results are based on a sample of 190 firms, but the statistics for Texas are based on nine firms headquartered in the state. The results are affected by the growing number of out-of-state firms that launched offices in Texas during 2018 or expanded their lawyer head counts in the state.

“Firms are looking for growth,” he said. “Texas is a place where firms think they can get that growth.”

He said the Texas region's total demand would be stronger if it included activity in the market by firms headquartered outside of Texas. And the region's relative performance during the nine-month period should not be surprising, he noted. Texas also lagged behind national trends at the half-year mark in most areas tracked by Citi Private Bank's Law Firm Group.

The Texas region fared better in some metrics. Blended billing rates at the Texas firms improved by 4.4 percent through the first nine months of the year, which is slightly better than the industry billing growth rate of 4.3 percent. And expenses increased in the Texas region by only 1.6 percent, compared with a 5.9 percent increase for the industry overall during the nine-month period.

Revenue for the Texas firms grew by 2.1 percent for the period, compared with a 6.3 percent industry growth rate nationally. Altuna said that despite the lower demand in Texas, revenue grew because of the strong growth in billing rates and a reduction in lawyer head count.

Lawyer head count declined by 3 percent in Texas during the first nine months of the year, the largest shrinkage among the 11 regions tracked by Citi. This compares to a 1.6 percent increase in head count for the industry overall.

The report confirms the fact that due to the influx of firms into the Lone Star State, and a heated lateral hiring market, legacy Texas firms are losing lawyers in Texas.

“We know there's a war for talent. We think these numbers are giving you an indication of that,” Altuna said.

Another worrisome factor is the lack of inventory growth in Texas, Altuna said. This will be a factor in the fourth-quarter performance for the firms headquartered in Texas. Inventory grew by only 0.6 percent in Texas during the period, Altuna said, due to low demand.

To compensate for that, he said Texas firms will either have to work aggressively to finish work that might normally spill over into 2019 or find a “rush in demand” over the last three months of 2018.

“It's going to be tough,” he said.

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Further Reading:

Citi Survey: Revenue, Demand Down at Texas Firms in First Half of 2018