CHICAGO—For office markets with strong concentrations of energyor tech tenants, the recovery in demand has been equally strong.Outside of those markets, however, it's considerably less robust,Albert Lindeman, SVP with Sperry VanNess, tells GlobeSt.com.

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“The coasts are doing very well,” says Lindeman, citing New YorkCity and San Francisco. “When you get into the energy sector,Denver and the Texas markets are growing dramatically.” Insecondary markets such as Charlotte as well as Lindeman's home baseof Chicago, the expansion of tech tenants is contributing togrowth. “So there are some very good high points, but overall it'spretty much lackluster.”

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How quickly those lackluster markets will acquire some luster isvery much dependent ion the local employment numbers, Lindemansays. “If you see the office employment rates increasing inindividual markets, you'll see an increase in absorption” as wellas greater appeal to investors.

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Although development has been muted, New York City has been anotable exception, given the World Trade Centerredevelopment and Related Oxford's HudsonYards mega-project along with construction of individualproperties. And there are a few other markets dotted with cranes.“I was in Houston a week ago, and driving by I saw three brand-new,glass office buildings coming out of the ground,” says Lindeman. Bycontrast, Chicago at the moment has just one large-scale projectunder development, Hines' 45-story tower at 444 W.Lake St. that's scheduled for completion in 2017.

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“Across the tech sector, you're going to see development in whatI would almost call the Smile Belt,” Lindeman says. “It starts inChattanooga and Raleigh and runs like a smile through Texas andDenver. In that area, you're going to see some growth. Everywhereelse is going to stabilize slowly.”

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That rule of thumb will apply to pricing, as well. “Right now,it's what I would call a top-to-bottom market,” says Lindeman. “Youhave a lot of quality stuff at the top, and those assets aretrading very well. I've even heard of cap rates in the 4% or 5%range on the West Coast,” San Francisco in particular.

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“Then you've got the middle tier: B buildings with high vacancyand not a lot of potential for rent growth,” he says. “And then youhave the bottom of the market, where people are buying a vacantbuilding and deciding whether to go for adaptive reuse or rehab itso that when the market comes back, they'll be properlypositioned.” The supply of such assets may be on the rise in localmarkets, he adds.

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SVN's 10 office markets to watch make that list for a variety ofreasons. Charlotte andChattanooga make the cut for, respectively, aresurgence of the financial services sector there and theChattanooga government's proactive investment in a taxpayer-ownedfiber-optic infrastructure. Chicago's CBD isdrawing tenants from the suburbs—a trend that GlobeSt.com hasreported in the past couple of years—whileIndianapolis benefits from a growing techcluster.

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Milwaukee's story is mixed:Northwestern Mutual Life Insurance Co.'s upcominglakefront development of one million square feet on the one hand,and a high vacancy rate outside of class A on the other.Richmond's absorption rate and rising class Arents bear watching, as does the relatively slow recovery ofSacramento, where investment opportunitiesfrequently come with higher cap rates than in other Californiamarkets.

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Salt Lake City has been a leader in job growthsince the recession ended, and that's being met with a rapidlyfilling development pipeline that SVN thinks warrants some cautionby investors. Stamford, CT landlords have foundthat tech firms like the mix of advantages this New England marketoffers, while San Antonio is benefiting fromproximity to the Eagle Ford Shale deposits, although its growth islagging the performance of Dallas and Houston to the north.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.