John Sikaitis of JLL<@SM>Google will soon take over much of this former cold storage building in Chicago

CHICAGO—During the second quarter, the US office sector reached a milestone on its road to a true recovery, according to a new research by JLL. Although office users and landlords reported a lot of activity, it was perhaps more significant that increased velocity was seen in markets far beyond the gateway cities and areas like New York, San Francisco and Silicon Valley.

“First and foremost, we saw in the second quarter about 14-million-square-feet of net absorption,” John Sikaitis, JLL’s managing director for local markets and office research, tells, a boost of about 38% from the second quarter of last year. Overall, tenants leased 61.9-million-square-feet of space during the second quarter.

“A year ago, we were seeing the tech-heavy areas and energy-dependent cities like Houston generating most of the absorption,” he adds. But even though these areas have continued to soar, “the overall geographic diversity has greatly improved, with many other markets making contributions.”

“Even Phoenix is seeing a lot of growth lately,” he adds. And other Sunbelt cities like Las Vegas and Miami that also had housing markets cratered by the recession have started climbing out of the hole. “For decades, these markets had significant positive migration,” but between 2009 and 2011, that trend reversed, and demand dropped across all sectors including office. But in 2012, new residents started trickling in again, and that flow has increased, “once again creating opportunities and economic benefits.”

“Across the Midwest, we’ve seen positive growth in the past three or four quarters,” he says. Cincinnati, Cleveland, Columbus, Indianapolis and even Detroit, for example, have all taken part in the recovery.

Although Detroit usually appears at the bottom of any list of US metro areas that measures economic vitality, Sikaitis says such lists don’t truly capture what is happening there. “Detroit has seen hefty growth, at least from a regional perspective,” especially the downtown, which he calls “an immature market that has a lot of opportunity for growth.” Health care, tech and creative companies, among others, have set up shop in the CBD seeking to attract all the millennials that want to live and play downtown. Similar transformations have occurred across the US, but “there is no better example of that turnaround than the urban area of Detroit.”

“We’re also seeing cities with highly diverse economies such as Chicago and Los Angeles kick in,” Sikaitis says. “Their economies are starting to move at a faster clip than the rest of the nation.”

A set of big second quarter leases from a diverse collection of companies demonstrated the depth of Chicago’s office market. AbbVie, a pharmaceutical research and development company, subleased 490,000-square-feet at 26525 N. Riverwoods Blvd. in the northern suburbs, according to JLL. William Blair, an investment banking firm, signed a prelease for 318,000-square-feet in the proposed development at 150 N. Riverside Dr. in the CBD. And in perhaps the best sign of the market’s future direction, Google expanded by 105,000-square-feet at 1000 W. Fulton in the city’s old meatpacking district, bringing its footprint in this new high-tech center to 357,000-square-feet.

Tenants leased about 8.9-million-square-feet of space in New York this quarter, much of it for large leases, JLL found. And tech firms continue to drive the San Francisco market, which saw 2.7-million-square-feet of leasing. In “the largest lease in the city’s history,” Salesforce recently preleased 714,000-square-feet at 415 Mission St., “which will be the tallest building on the West Coast upon its completion in 2017.”

Among the major markets, Washington, DC remains a bit of an outlier. Its office market continues to suffer from the slump in demand from government and government contractors. However, Sikaitis says “we’ve seen a little bit more stability in the last four to five months than we have in the last couple of years.”

And there are signs that the acceleration of leasing will continue across most of the country. For example, many brokers surveyed by JLL report that they have taken an increasing number of companies considering future moves on tours of office space. Nearly half of those surveyed reported an increase, and “there is no market showing a down tick in touring velocity,” Sikaitis says.

But accelerated leasing is not the only sign of the office market’s recovery.

“We’ve seen a significant uptick in construction activity since the end of 2013.” Developers have about 65-million-square-feet under construction, a 38.4% increase from the end of 2013. However, unlike the pickup in leasing, the expansion in office construction is more geographically limited. For example, developers have about 15-million-square-feet under construction in Houston alone, or about 23% of the national total. And the top ten markets account for roughly 69% of all development activity.

“Consistent rent growth is likely to persist through 2016, when the majority of markets will reach the peaking phase of their cycle,” the new JLL study concludes. “However, leading markets such as Houston, San Francisco, Silicon Valley and Dallas will peak earlier due to significant construction underway, while a few lagging markets will reach that point in 2017 or later.”