CHICAGO—Among the slowest to recover from the downturn, the office market kept powering ahead in the third quarter. Vacancy nationwide reached its lowest level since Q2 2008, according to CBRE, while Cushman & Wakefield says rental growth posted the strongest quarterly increase since before the recession. Helping drive gains in these metrics was the fastest quarterly economic growth of the current cycle, says JLL.

“We are seeing widespread job growth in the US, and it's being led in particular by companies in the technology, financial and professional and business services sectors, especially those firms located in the dense, urban markets to which talent is migrating,” says Julia Georgules, VP of US office research for JLL. “With supply remaining constrained in lots of these urban areas as well as some suburban ones, many landlords are more aggressively thinking about repositioning dated and obsolete office product to meet the growing demand.” That's the case even with a construction pipeline that C&W puts at 107.5 million square feet during the quarter.

At C&W, chief economist Kevin Thorpe notes broad-based gains. “Tech markets are absolutely soaring, and they continue to drive the overall gains,” he says. “But one emerging trend is the increasingly impressive performance of secondary and tertiary markets. If you look at office-using job growth in these cities, compared to the size of the labor force, it's the secondary markets that are now at the top of the list.”

C&W expects the coming months will continue this narrative “as an increasing number of firms are drawn towards more affordable markets, and that will be reflected in the leasing fundamentals,” Thorpe adds. “We know we are reaching a strong place in the cycle when we see that both gateway cities and secondary cities are benefitting more evenly in the expansion, which is what we are now observing.”

On both a quarter-over-quarter and year-over-year basis, though, leasing velocity showed some deceleration. C&W says that US office markets absorbed 19.2 million square feet of office space in Q3, down 12.6% Y-O-Y. JLL reports that leasing activity declined 3.1% from Q2 to 62.3 million square feet, although the firm says net absorption was up by 200,000 square feet from Q2 in the markets it tracks, to 14.6 million square feet.

Even amid the moderately slower pace, demand outpaced new stock, with vacancies nationwide declining by 10 basis points during Q3. The vacancy rate at quarter's end depends on whom you ask; C&W measures it as 14.1%, while CBRE puts it at 13.4%.

Moreover, dovetailing with economic growth is the nature of leasing activity during Q3. Expansions accounted for more than 57.9% of leases of 20,000 square feet or more during Q3, JLL says; the quarter marked the fifth one in a row in which the majority of larger deals stemmed from expansions.

Also in expansionary mode was rental growth nationwide: C&W pegs it at 3.1% Y-O-Y for the strongest quarterly gain since '08. Rents increased in 60 out of the 80 metro areas C&W tracks, while JLL says office rents grew by an average of 1.6% during Q3 for a cumulative 4.3% rise since 2015 began. Faring best are class A properties in CBDs, which have seen cumulative gains of 9.1% since the start of the year.