BOSTON—Although the market was relatively quiet in the third quarter, the office vacancy statistics really don't convey the true nature of the commercial real estate market in Boston, according to Cushman & Wakefield.

The brokerage firm in its third quarter office report notes that the inherent strength of the Boston-Cambridge office markets has had ripple effects on the outlying suburbs because many small companies are being squeezed out of those markets due to tight availabilities. The overall Class A vacancy rate in Boston has fallen from 9.1% at the end of the fourth quarter of 2014 to just 7.1% at the end of the third quarter.

Ashley Lane, vice president of research for Cushman & Wakefield, says the tight market conditions for Class A space in Boston have caused a significant spike in Class B rents in the city. In the past nine months, Class B asking rents have risen nearly 30% in most submarkets of Boston. The Class B rents average rental rate in Boston is up 25% in the third quarter to $42.04-per-square-foot. Class B rents in the Financial District have risen 30% since the fourth quarter of 2014 to $41.23-per-square-foot; the Government Center/North Station district's Class B rents are up 30% to $38.20-per-square-foot and South Station Class B rents have shot up 15%. The average Class A asking rent at the end of the third quarter in Boston was $51.89-per-square-foot.

Another market that saw a nice spike in rents is Cambridge, where vacancy rates in both East Cambridge and the Mass. Ave Corridor are now under 5% while the vacancy rate in Alewife/West Cambridge is just 10%. Tight conditions are leaving very little room for leasing activity and causing rents to rise sharply. The report notes that in the past year, East Cambridge rents have climbed 10% to $63.85-per-square-foot, rents in Alewife/West Cambridge rose 16.6% to $43.83-per-square-foot and the Mass Ave. Corridor rental rate jumped 14.4% to $42.85-per-sqquare-foot.

“Kendall Square is the tightest market of all,” Lane notes. “If you look at East Cambridge holistically there is a 3% vacancy in the office sector.”

Lane adds that another clear indication of the strength of the Boston market is the return of speculative development. Skanska has already broken ground on its 121 Seaport Blvd. project and Tishman Speyer is expected to break ground on the Pier 4 redevelopment project later this month. “We haven't seen speculative development in Boston in years,” she adds.

Another positive for the Boston market is the diversity of its business base. Lane notes that C&W has studied the composition of businesses in Downtown Boston and found that new players have emerged, particularly in the technology sector, consumer services, such as Converse and Wayfair, and shared space-related companies. “These industries never registered before in the downtown and in the past two years they have taken up 12% more space,” she says. In terms of square footage, she says the space taken by these tech, consumer services and shared-space model companies equate to two, 60-story John Hancock towers.

Lane adds that the investment sales market is hot at the moment. Ontario-based Oxford Properties purchased 500 Boylston St. and 222 Berkeley St. in the third quarter for more than $1,000-per-square-foot—the highest price per square foot ever paid for a Boston office building.

C&W also states in its report that new construction is on the rise in suburban Boston. At present there is 1.7 million square feet of space under construction in the suburbs of Boston. While the demand is partially driven by tight market conditions elsewhere, Lane also notes, “A lot of the product out in the suburbs is outdated and employees want amenities, they want on-site access, and the existing product didn't really fit that bill and I think companies are paying attention and are trying to make their employees happy.”

Another trend C&W is tracking is the popularity of the inner suburbs, particularly properties such as 450 Artisan Way in Somerville and in Watertown where the speculative Linx office development broke ground earlier this summer. Smart Bear took the top floor of the Artisan Way building and Avecto and Meditouch have also committed to space at the property.