The anticipated rental rate increase is based on a variety of factors such as the positive absorption of more than 55 million sf of office space last year and the less than 18 million sf of new office construction-completions. "An imbalance in the near-term between office-space demand and office development will lead to a spike in average rents of more than $2 per sf in several major downtown markets over the next two years," says Maria Sicola, senior managing director of research for Cushman.

Four regions that are doing particularly well are Northern California, Phoenix, the Washington, DC/Northern Virginia corridor and the New York City metro area. "San Francisco is building on momentum which began in 2003," Sicola says. For three consecutive years, leasing and absorption have improved as a result of moderate and employment growth and in-migration. Traditional office users in the financial and legal services industry have led this charge along with business services and technology companies. "Rents are now catching up with the demand and are rising dramatically, especially for class A space. Activity has also begun to spillover throughout the Bay Area, particularly to Oakland."

Sicola says Midtown Manhattan is also experiencing tight market conditions--most notably for large blocks of space--as construction has been very limited. "Currently, there are only five blocks of space over 200,000 sf available in the market. Rents are rising both on an asking and a taking basis."