While many major Los Angeles-based firms have shrunk in size in recent years, an increase in lawyers employed by out-of-town firms indicates that the city's legal market has gradually recovered from the financial downturn a decade ago, according to a new study.

The Lowell Milken Institute for Business Law and Policy at the University of California, Los Angeles, School of Law released a report this month stating that as of January 2017, large law firms employed about as many attorneys in Los Angeles as they did prior to 2008.

Focusing on the period from 2007 to 2017, the UCLA study analyzed data for the Los Angeles offices of law firms large enough to be listed in The National Law Journal's rankings of the nation's 250 top firms by head count. (That annual list has since been expanded to 500 firms.)

“I think that the market is recovered in many respects from 2008,” said James Park, a law professor at UCLA and a faculty director at the Lowell Milken Institute. “In terms of the number of lawyers, the largest firms seem to be getting smaller for a number of reasons. One, firms are becoming more national. They might be allocating resources to offices in other cities. Secondly, the business of law has become more efficient as technology improves and there is greater pressure to reduce legal costs. Many of the largest law firms have gotten smaller in their home cities—it's a nationwide trend.”

According to the UCLA report, major firms founded in Los Angeles have reduced their total head count in the city by about 20 percent, within the past 10 years. During that timeframe, non-local law firms that opened and expanded new offices in Los Angeles have added about 1,000 lawyers to the market.

Park said the structure of the Los Angeles legal market has significantly changed within the last decade, which helps explain the declining size of local firms. His study shows that the Los Angeles offices of large local firms have gotten significantly smaller, dropping from an average of 70 lawyers in 2007, to 50 lawyers in 2017.

That downsizing, Park said, is also part of a national trend occurring in other major legal markets. As large firms expand their horizons nationally and overseas, their home offices often tend to dwindle in size.

Park's research looked at the home offices of the largest law firms founded in five other metropolitan areas: Atlanta, Chicago, New York, San Francisco/Silicon Valley and Washington, D.C. He found that Chicago and Los Angeles have experienced similar declines in head count in the home offices of their leading local firms. Even stronger markets such as New York and the nation's capital have seen substantial reductions since 2007.

Other national trends influencing the Los Angeles legal market include a drop in the leverage ratio of associates to partners that firms often use to generate revenue, as well as the tendency of some firms to act as profit-maximizing entities by maintaining their profits per partner.

Park suggested that the general decline of public companies and large corporations headquartered in Los Angeles could also reduce the demand for local legal services. However, Park and his team did not have sufficient evidence to determine whether there is a causal link between such trends.

As more Los Angeles-based firms having expanded their presence in other cities and regions, that has created room for new market entrants, as more non-local firms move into Southern California in order to capture new forms of legal work.

Los Angeles' Century City neighborhood has been a particularly frequent destination for both out-of-town firms and local mainstays. Paul Hastings, a firm whose very name is often synonymous with the Los Angeles skyline, recently set up shop in Century City after landing 10 entertainment industry lawyers from Loeb & Loeb. Earlier this month, Baker McKenzie, a global legal giant that left Los Angeles in 1993, returned with a Century City office of its own after hiring a handful of partners from Hogan Lovells.

“L.A. is very attractive for firms who are extending to California or exploring opportunities to add to their West Coast presence,” Park said. “There is a good base of businesses here in L.A., and there are a lot of opportunities to build here.”