“It’s a pretty narrow scope that’s getting the ferocious equity attention by investors, such as institutions and REITs, it’s not an across the board phenomenon,” Pontius says. “Looking past those markets, there’s only interest in secondary markets, and then it becomes asset specific. If the acquisition cost is below replacement cost, and there’s no construction environment than that asset can become hot.”

He says he knows formerly excited owners in secondary markets that are pulling back properties because the attention just isn’t there. He says demand can be traced back to expected job growth, which explains why the San Francisco market is so hot. “There’s a certain chic-ness to being in that city now,” Pontius says.

Gerry Trainor, EVP and investment sales specialist in Transwestern’s Washington, DC office, says his city’s jobs ensure it stays a top office market. He says DC is expected to add 45,000 new jobs per year for the next five years, greater than the previous average of 38,000 per year. “With deals this year such as 1101 K Street selling for $200 million, USAA buying Waterfront Station for $356 million, 700 Sixth St. being snatched up for $190 million and AEW buying the National Press Club building for $167 million, it’s obvious that there’s no lack of money here,” Trainor says.

There’s so much attention in Washington that rents are rising in the CBD and close suburbs. Institutions will likely turn attention soon to class B and outlying suburb properties for better yields, Trainor says.

Russell Ingrum, a managing director with CBRE Investment Properties in Houston, tells GlobeSt.com that the core markets are starting to experience “yield fatigue,” as cap rates get aggressive. Capital should start migrating to places such as Denver, Chicago and Houston, where prices are lower for the same class of property.

“But no matter what happens, there’s still going to be people who want to be in New York City, DC and San Francisco,” Ingrum says. “You just might start to see properties with a bit of a nit on them, such as rollover in three years versus seven years, making a differentiation on the assets. So far, we’re seeing pricing hold on both coasts. We’ve had an incredible spike in activity the past 30 days, and we should see how things clear out once these properties clear the market.”

Total transaction volume is on pace to hit 2004 levels, he says, which does indicate a belief in the recovery of the overall market, Ingrum says. Last year saw about $40 billion of office traded, and about double that is expected this year.

However, Trainor says there’s still a long way to go to hit the highs of 2006-2007, the Portfolio Era of office deals when Blackstone bought Equity Office Properties and Lehman purchased Archstone-Smith. “Then you had deal after deal of $3 billion or more. We’ve had a number of large deals, but we haven’t seen portfolios take hold.”

Andy Davidson, EVP and managing director with Chicago-based MB Real Estate, tells GlobeSt.com that the bifurcation between true class A buildings and the rest of the market can be seen a few different ways. Locally, for example, class A office downtown is now showing about 9.9% vacancy, whereas the rest of the market is at about 16.1%. “That’s the biggest spread we’ve seen since December 2008,” he says.

He also says he’s seen the split in action, such as examples such as the 95%-leased 300 N. LaSalle selling for its high price, whereas just two blocks away, 353 N. Clark, leased at about 80%, sold for a little less than construction costs at $380 million to Tishman Speyer Properties. Both buildings were completed in 2009.

Davidson says many CBD markets should gain from another unanticipated office market split, as corporations look to move headquarters from the suburbs. “We underestimated the tremendous amount of migration to the cities,” he says. “It’s a real push to get closer to this younger generation of labor. This shift can really help improve the downtown markets across the country.”

Steve Kohn, president of Cushman & Wakefield Sonnenblick Goldman, tells GlobeSt.com that future office supply remains limited--even in markets where conditions are beginning to tighten and rents might justify new development--by the lack of sufficient construction financing. In the near- to mid-term, this is good news for existing building owners, he says.

“Whether or not fundamentals improve in the secondary markets will of course depend on the creation of demand drivers, i.e. jobs.” With respect to the timing of recovery in secondary markets, the resurgence of the CMBS market will bring more debt liquidity to the better properties in these markets, which will then attract equity capital at a price,” Kohn says.