CHICAGO—In recent years, the recovery of the US office market spread through much of the country, but in the first quarter net absorption slowed, according to new research from DTZ. Still, the company says demand for office space remained strong enough to push rents upwards in over 70% of the country.

Office markets absorbed 10.6 million square feet of space in the first three months of 2015, down 5% from the same quarter one year ago. Despite the slowdown, net absorption has been positive now for 20 consecutive quarters. And vacancy tightened by 10 bps from the previous quarter to 14.4%. DTZ tracked 80 metro areas and 60 reported occupancy gains, while 20 reported losses.

But Kevin Thorpe, DTZ's chief economist, Americas, says that seasonal factors explain the slowdown. "For six years in a row, absorption levels have been weakest in the first quarter of the year. The weakness is simply a function of weather, budget cycles, and other seasonal data quirks - it has never amounted to a sustained downtrend. Looking past seasonal volatility, job growth in most office-using sectors is as robust as nearly ever, which points to stronger occupancy gains and more aggressive rent growth in the coming months for the majority of the country."

US office rents did increase by 2.3% in the first quarter compared to a year-ago – the strongest quarterly gain since 2008. And office rents rose in 58 out of the 80 metros tracked by DTZ. Furthermore, developers have picked up the pace of construction. In the first quarter there was 98.5 million square feet of new office construction, up 51% compared to the same quarter one year ago.

"If one takes a moving average of absorption trends, it suggests that if all of the new supply currently under construction delivered today, most of it would be occupied in a little over a year,” Thorpe says.

The top 10 strongest markets in terms of demand for office space were Houston, with 1.7 million square feet; San Jose, with 1.6 million square feet; San Mateo, CA, with 980,000 square feet; Oakland, with 859,000 square feet; Dallas, with 777,000 square feet; Boston, with 675,000 square feet; Atlanta, with 507,000 square feet; Minneapolis, with 400,000 square feet; Memphis, with 353,000 square feet; and Austin, TX, with 312,000 square feet.

The top 10 strongest markets in terms of rent growth were San Francisco, with a 16.6% year-over-year gain; San Mateo County, CA, with 11.2%; Atlanta, with 9.5%; Orange County, CA, with 6.8%; San Jose, CA, with 6.4%; Denver, with 6.1%; Portland, with 5.4%; Oakland, with 5.2%; Louisville, with 5.2%; and Dallas with 4.9%.

“Barring a negative economic shock, there does not appear to be any danger of overbuilding in the current cycle,” Thorpe concludes. “If anything, it appears as though the industry is underestimating future demand levels."