Since 2010, commercial real estate markets have continued their broad recovery around the world, although at different speeds and different levels of strength, and with some disruptions in countries and regions that have had political or economic challenges such as Brazil, Russia, China, and the Middle East. As indicated by the Property Clocks (sm) published by JLL's research team and provided below, commercial values in most markets continued to rise through 2016, though at varying rates of growth.
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Despite political turbulence during 2016 and against a tough comparable, global transaction volumes for the year were only 6% below 2015. Historically favorable interest rates and a substantial pipeline of investment opportunities around the world helped fuel an increase in momentum during the fourth quarter as attention turns to 2017. The following table quantifies percentage changes in market volume by geographical region, comparing 2016 to 2015.
Leasing markets continued to maintain resilience in the face of the recent global economic and political uncertainty, reflecting a modest decrease in global absorption as compared to a robust 2015. At year end, the global office vacancy rate fell to its lowest level since 2008 despite occupiers focusing on space optimization. The following table quantifies percentage changes in market leasing gross absorption by geographical region, comparing 2016 to 2015.
We define market volumes for Leasing as gross absorption of office real estate space in square meters for the United States, Europe and selected markets in Asia Pacific. We define market volumes for Capital Markets as the U.S. dollar equivalent value of investment sales transactions globally in the office, retail, industrial, hotels, mixed-use and certain other asset classes (excluding entity-level transactions, development deals and multifamily residential investment), for individual property assets or portfolios of assets with a value above $5 million. Our research professionals aggregate this market volume information from a number of sources globally and make it publicly available through the quarterly publication of our Global Market Perspective reports. In assessing our market share performance, we compare our own Leasing and Capital Markets revenue performance to the market volume performance in a region or globally to determine whether we are growing faster than the overall market.
Although the urbanization trend and continued low interest rates globally kept the real estate markets in many of the world’s largest cities strong, which has continued to benefit JLL, 2016 resulted in significant political and economic changes that have added uncertainty to business prospects, including the vote in the United Kingdom to leave the European Union (“Brexit”), the results of the United States presidential election, increases in U.S. interest rates at the end of 2016, and the relative strength of the U.S. dollar compared to other currencies. Global economies are also being affected by volatility in oil and commodity prices, a slowdown in the China economy, continued hostilities in the Middle East, the increase of nationalist and anti-globalization sentiments being voiced as part of political campaigns in Europe and the Americas, immigration pressures on Europe, as well as the occurrence of random acts of terrorism in urban centers both within and outside the Middle East. Additionally, emerging technologies that are potentially disruptive and the risks from potential cyber-security events will remain important influencers and concerns for all business entities, particularly those like ours that are global in nature.
Increasing Demand for Global Services and Globalization of Capital Flows. Many corporations have continued to pursue growth opportunities in international markets. Many are striving to control costs by outsourcing or off-shoring non-core business activities. Both trends have increased the demand for global real estate services, including facility management, tenant representation and leasing, and property and energy management services. We believe that these trends will favor real estate service providers with the capability to provide services - and consistently high service levels - in multiple markets around the world. The highly competitive marketplace for the services we provide has, however, continued to put negative pressure on fees within some of our service lines.
Additionally, real estate capital flows have become ever more global, as more assets are marketed internationally and as more investors seek real estate investment opportunities beyond their own borders. This trend has created new opportunities for investment managers equipped to source and facilitate international real estate capital flows and execute cross-border real estate transactions. One example we have seen in particular is that high-end residential real estate in major mature markets such as London and New York has become a type of "reserve currency" for wealthy individuals from other countries who are seeking stability in their investment holdings. We expect this trend to continue should uncertainty increase within Russia, China, the Middle East and other countries and regions, although during 2016 we have also seen volume declines and price moderations in London as the result of the Brexit vote.
Growth of Outsourcing. In recent years, outsourcing of professional real estate services has increased substantially, as corporations focused corporate resources on core competencies. Although some continue to unbundle and separate the sources of their real estate services, large users of commercial real estate services continue to demonstrate an overall preference for working with single-source service providers able to operate locally, regionally and globally. The ability to offer a full range of services on this scale requires significant infrastructure investment, including information technology applications and personnel training. Smaller regional and local real estate service firms, with limited resources, are less able to make such investments. In addition, public and other non-corporate users of real estate, including government agencies and health and educational institutions, have begun to outsource real estate activities as a means of reducing costs. As a result, we believe there continue to be significant growth opportunities for companies like ours that can provide integrated real estate services across many geographic markets and types of clients.
Alignment of Interests of Investors and Investment Managers. Institutional investors continue to allocate significant portions of their investment capital to real estate. Many investors have shown a desire to commit their capital to investment managers willing to co-invest their own capital in specific real estate investments or real estate funds. In addition, investors are increasingly requiring that fees paid to investment managers be more closely aligned with investment performance. As a result, we believe that investment managers with co-investment capital, such as LaSalle, will have an advantage in attracting real estate investment capital. In addition, co-investment may bring the opportunity to provide additional services related to the acquisition, financing, property management, leasing, and disposition of such investments.
We expect institutional capital to continue to flow into real estate as interest rates remain at historically low levels, albeit moving somewhat higher toward the end of 2016 in the aftermath of the U.S. presidential election. We are also seeing institutional investors consolidate their real estate portfolios, moving away from the spread of smaller managers assembled over the last cycle to larger managers such as LaSalle.
Industry Consolidation and Other Trends. We believe that consolidation in our industry will continue as the larger, more financially and operationally stable companies gain market share and become increasingly capable of servicing the needs of global clients. We also believe that developed countries will be favored for new investment as the risk appetite of investors remains conservative. Additionally, selecting service providers with the best reputation for sustainability leadership, governance, enterprise risk management, and ethics will become increasingly important. Operators and investors seeking efficiencies from developing their supply chains will want to avoid the significant potential costs and reputational issues associated with compliance missteps, such as violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or anti-money laundering regulations.
Historically, our quarterly revenue and profits have tended to increase from quarter to quarter as the year progresses. This is a result of a general focus in the real estate industry on completing or documenting transactions by calendar year-end and the fact that certain expenses are constant through the year. Historically, we have reported a relatively smaller profit in the first quarter and then increasingly larger profits during each of the following three quarters, excluding the recognition of investment-generated performance fees and realized and unrealized co-investment equity earnings and losses (each of which can be unpredictable). We generally recognize such performance fees and realized co-investment equity earnings or losses when assets are sold, the timing of which is geared toward the benefit of our clients. Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis.