CHICAGO—The US industrial vacancy rate dropped to its lowest level in more than a decade during the third quarter of 2014, according to new research from Cushman & Wakefield. The data show significant space absorption, which coupled with historically low supply, is driving strong rent growth in most major industrial hubs.

During the third quarter, the overall national industrial vacancy rate dropped to 7.0%, 80 bps lower than one year ago. Three of the 38 markets tracked by Cushman & Wakefield recorded vacancy rates under 4.0%, including California’s San Francisco Peninsula, which hit 3.5%, and Greater Los Angeles and Orange County, both at 3.8%.

“Robust demand has led to 255.2-million-square-feet of leasing activity year-to-date, which is about the same level as a year ago and on track to surpass last year’s total,” Cushman & Wakefield’s John Morris, leader of the company’s Rosemont, IL-based national industrial group, tells Sixteen markets posted increased activity year-over-year. Eleven markets showed double-digit gains, led by Atlanta and Central New Jersey, where leasing volume was up 32.3% and 25.2% year-over-year, respectively.

Morris notes that the resulting occupancy gains, totaling 108-million-square feet at the end of September, represent five consecutive years of positive absorption. “We are on pace to easily surpass last year’s absorption total. Demand from both traditional and online retailers is putting a strain on the supply of available class A logistics product. This, in turn, is resulting in substantial rental growth. Average industrial direct asking rent in the US is up 6.2% from a year ago to $6.21-per-square-foot.”

However, this recovery is quite dissimilar from the previous expansionary period. “The construction pipeline is not nearly as significant,” he says. In fact, on average, developers in the years 2002 to roughly 2008 delivered about twice the annual amount of industrial space than they have in the past three years.

Furthermore, Morris adds, “in the last few quarters we’ve seen a greater focus of capital on the top ten markets,” which could have long-term implications. In the previous decade, developers spread themselves out more, building in both core and secondary markets as the recovery gathered strength. But today, even though this recovery is several years old, the high-density core markets like Orange County still attract a lion’s share of the activity. “I think that shows that developers have become more specialized and focused.”

This was a somewhat unexpected finding. Typically, these cycles follow a familiar pattern: developers concentrate on the safe, core markets at first, and then as cap rates in these cities fall, they seek out higher returns by building in secondary cities. And when that occurs, it’s a sign that the business cycle is approaching a peak, the prelude to a possible downturn.

Therefore, “the fact that capital is still finding the returns it needs working in core cities is a good sign for the economy as a whole,” Morris says. This could extend the recovery since developers won’t unleash a wave of new construction throughout a wider array of markets for some time.

“We thought we were in the 5th or 6th inning of this recovery,” he says. But with capital being more disciplined “it will extend this game beyond the 9th inning.”