CHICAGO—As the US economy and overall office market continue to improve, more cities have approached the tipping point between a landlord's market and a tenant's market, according to CBRE's latest quarterly OccupierView report, which analyzes the nation's office markets from the tenant perspective. Tenants in most downtown markets have begun to experience tightening conditions that have curtailed availability and boosted costs, the report finds, though suburban office markets have experienced little change.

“There has been gradually improving demand,” Colin Yasukochi, director of research and analysis for CBRE, tells GlobeSt.com. “Healthy job growth means that companies need more space to put these employees.” In fact, “by virtually all metrics, the second quarter of 2014 was one of the most robust in years in the office market with more than 15-million-square-feet of positive net absorption—the highest quarterly figure since 2007.”

“And outside of the hot markets,” Yasukochi says, such as New York, San Francisco and Silicon Valley, “developers are not creating any new supply.” Therefore, “we're now seeing a supply-demand imbalance in many key markets. This is very positive for landlords, but challenging for tenants.”

The US vacancy rate has declined over the past three years, and in the second quarter it hit 14.5%, the mid-point between its pre-recession low and recessionary peak. Downtown markets in cities with a big focus on energy such as Denver and Houston, and coastal cities such as San Francisco, Manhattan, Boston and Seattle have already hit the tipping point and become landlord-favorable. But CBRE found a geographically diverse set of cities including Dallas-Ft. Worth, Los Angeles, Philadelphia, Chicago and Washington, DC, that, although still tenant-favorable, have moved up to that tipping point.

And in the short-term, Yasukochi expects the tightening to continue. “By and large we're not expecting to see the ramp-up in new construction until 2015.”

The high-tech sector has led leasing activity in almost every market, CBRE found. Its portion of the nation's office business “has steadily increased since 2010,” Yasukochi says. “That is when the tech industry started its current expansion.” In 2013, the tech sector comprised 14% of the major office leasing activity in the top 57 markets, but in 2014, that number increased to 19.9%. “It's a big jump; it ramped up sharply.”

All of this activity has changed the office markets in many cities, especially tech-heavy ones like San Francisco, New York, Boston and Chicago. “Tech firms have tended to be more attracted to historic or creative-type buildings, primarily low-rises with larger floor plates,” Yasukochi says. But those spaces, once plentiful in neighbourhoods like Chicago's River North or Midtown South in Manhattan, have become scarce. Tech firms “have responded by adapting to the high-rise format,” further increasing competition in downtown areas, especially the prime locations with easy access to great transportation and desirable amenities.

The shift toward landlords and rising rents has tenants putting more emphasis on cost-cutting. This can include using space more efficiently and cutting down on their footprints, he says. In addition, “we're seeing more tenants look at markets from a cost perspective.” Some may even decide to relocate from the increasingly expensive CBDs to the suburbs. Or as an alternative, some could break off sections or activities such as finance and “stick it in Phoenix or similarly low-cost market.”