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Hourly billing rates rose modestly for large law firms in Atlanta this year, narrowly beating a nationwide average increase of just under 4 percent. But in line with industry trends, the biggest, most profitable firms are driving much of that growth.

That’s according to national surveys of large firms for the first nine months of the year conducted by Wells Fargo Private Bank and Citi Private Bank’s law firm groups.

“I feel Atlanta—outside of the largest, most profitable firms—is under the same rate pressure that we’re seeing across the country,” said Jeff Grossman, senior director of banking for Wells Fargo Private Bank.

“Everybody is raising rates, but they’re stuck in that three to four percent range, with the nonpartner rates increasing a little faster than the partner rates,” Grossman said.

In what he dubbed the “wake effect,” Grossman said the largest, most profitable firms are raising rates at a greater pace, allowing those in their wake to raise theirs as well. He added that, for other firms, “it’s not at as great a pace, but they are able to raise them.”

“The more-profitable firms are pulling away from the pack,” agreed Gretta Rusanow, the head of advisory services for Citi Private Bank’s law firm group.

“They have been able to push through higher published rate increases on brand over price,” she said, because they do work that is less price-sensitive.

The eight Atlanta firms in the Wells Fargo survey reported raising hourly attorney rates by 4.6 percent for the first nine months of 2017—above the 3.9 percent national average for the 135 large firms who responded. The respondents included 70 Am Law 100 firms, as well as Am Law 200 and regional firms with revenue of at least $100 million.

Grossman noted that the largest Atlanta-based firms in the survey have significant numbers of lawyers in offices elsewhere, including higher-rate markets such as New York and California, which boosts the rate increases for those firms. (The bank does not identify the firms by name.)

The broader basket of 20 Southeastern firms in the Wells Fargo survey reported lower hourly rate increases than for the Atlanta or national cohorts—3.3 percent on average.

Coping With Flat Demand

Nationally, firms in the Citi survey reported raising listed hourly rates by an average of 4.1 percent for the first nine months of 2017, similar to the Wells Fargo basket.

For the nine-month Citi survey, 183 large firms participated, including 80 Am Law 100 firms, 49 Second Hundred firms and 54 niche or boutique firms.

“This is an industry where demand growth has been essentially flat for a long period of time, so rate increases are the primary driver of revenue growth,” Rusanow said, noting the Citi cohort of firms averaged 3.6 percent revenue growth for the nine months.

“Behind the averages, we are seeing a widening dispersion” in market segments, Rusanow said, adding that this goes for the Am Law 50 compared with other Am Law 200 firms—and particularly for the Am Law Second Hundred.

For that cohort, Rusanow said, her team at Citi is seeing declining demand and weaker rate increases. On a related note for Second Hundred firms, she added, “We are seeing the regular announcements of mergers and acquisitions—the consolidation going on in that segment of the market.”

Citi does not break out the Atlanta firms in its survey. For the Southeast as a whole, 18 firms reported raising listed hourly rates by 3.1 percent for the first nine months of the year, Rusanow said, a slower pace than the national 4.1 percent average.

Rusanow said markets reporting higher rate increases include New York (4.7 percent) and California (6 percent). “A market like New York contains a large swath of some of the most-profitable firms in the market,” she noted.

But firms based in Pennsylvania reported only a 2.4 percent increase on average for the nine-month period, the same figure as for the Midwest market, Rusanow said.

Northern California firms, generally a strong rate-growth area that includes San Francisco and Silicon Valley, reported only a 3.2 hourly rate increase on average for the period, and Chicago firms reported an increase of 3.5 percent.

Higher Associate Increases

Firms are generally able to raise rates at a greater pace for associates than higher-priced senior lawyers, Grossman said.

Atlanta firms in the Wells Fargo survey reported raising rates for associates by 4.7 percent, compared with only 3.8 percent for equity partners.

By contrast, the Southeastern firms in the survey were able to raise rates on average by only 4 percent for associates and 2.6 percent for equity partners.

Only the largest and most-profitable firms nationally are able to command larger rate increases for their equity partners, Grossman said.

“For the rest of the world, though, there are smaller increases for equity partners than associates,” he said, based on what clients are willing to pay.

2018 Forecast

Nationally, the Wells Fargo Private Bank cohort of firms projected increasing hourly rates by 5 percent on average for 2018. Grossman said Wells Fargo asks firms for that information in the nine-month survey because that is when they are budgeting for the next year.

The Atlanta cohort projected increasing the overall blended rate by the same 5 percent average, with a 3.8 percent increase in equity partner rates and a higher 6.5 percent increase for associates.

Nationally, firms projected an equity partner rate increase of 4.8 percent and an associate rate increase of 5.9 percent.