CHICAGO—The rate of net absorption in the US office market slowed considerably in the first quarter, but increases in leasing, touring, rents and development suggest the sector's recovery will continue and even strengthen, according to JLL's new US Office Outlook.

The Chicago-based firm pegged net absorption at 6.4 million square feet for the quarter – positive, but the lowest in three years and down from nearly 17 million square feet in the fourth quarter of 2014. But John Sikaitis, managing director of US office research for JLL tells GlobeSt.com that the slowdown was largely seasonal in nature.

“We expect absorption levels to return to where they were in the last two or three quarters,” he says. The company predicts that the sector will have a robust 2015, with about 55 to 60 million square feet of absorption, comparable to the 2014 high watermark of 55 million square feet. For example, even though Seattle saw net absorption of -227,802 square feet in the first quarter, Amazon just agreed to lease another 800,000 square feet in the market. Apple, Comcast, Facebook, Google and Fannie Mae also plan to lease new spaces in markets around the country.

The slower absorption levels kept the US vacancy rate stable at 15.6%. But despite slower occupancy gains, JLL's first quarter research shows that more tenants are choosing to expand. More than 55% of leasing transactions larger than 20,000 square feet were expansions, more than double the rate of one year ago. Only 6.9% of all transactions in this range were contractions.

And tech firms continue to play an outsized role in the recovery of the office market. Scientific and tech firms accounted for 34.1% of leasing activity in the first quarter, and Sikaitis says the sector will continue to have a major impact far beyond the tech-focused cities and regions like San Francisco and Silicon Valley. “We don't see that pulling back anytime soon.”

Furthermore, “we're really starting to see a return of banking and finance, professional business services and healthcare that's having a significant impact across markets. All of that will lead to occupancy gains in the coming quarters.”

Yet another source of confidence is that “the right-sizing movement has largely been completed.” In the past few years, much of the job growth in the nation had only a limited impact on the office market because so many users were shrinking their spaces. But now that most companies have completed that exercise, in the coming months and years new job growth will translate into occupancy gains.

The increasing demand has pushed development to new heights. According to JLL, “80% of markets have space under construction and 18 markets have more than a million square feet underway, including Phoenix, Raleigh-Durham and Seattle.” Developers had 84.2 million square feet underway at the end of March, compared to 56 million at the same time last year.

But perhaps the most significant sign of momentum in the office sector is the growth in rental rates. The overall average asking rate rose to nearly $30.00 per square foot, an increase of 3.1% in a single quarter, the highest quarterly uptick so far in the recovery. “The last time we saw more than a 1% increase in a single quarter was before the recession,” Sikaitis says. “It's a signal that landlords are increasingly confident.” The jump in rents was primarily a downtown phenomenon, with rates in CBDs growing 6.1% compared to 0.9% in the suburbs.

And this boost in rental rates will almost certainly continue since all of the class A space under development will rent out at top prices. Sikaitis expects that average rates will grow about 12% to 15% in the next 18 months. “It's going to be a very different environment for tenants than they have experienced over the last four to five years.”