CHICAGO—The American economy continues to expand and the national office market grew along with it in the second quarter, according to a new report from JLL. The Chicago-based firm found that leasing activity increased from 54 million square feet in the first quarter to 64 million square feet in the second, an uptick of 17%. In addition, 40% of second quarter office transactions of more than 20,000 square feet were occupier expansions. This was the fourth consecutive quarter that saw expansions in 40% to 50% of such leases.

“This is a shift away the years following the recession in which tenants were largely renewing, and in many cases downsizing, in place,” Julia Georgules, vice president of US office research for JLL, tells GlobeSt.com. “Now, tenants are increasing their headcount and occupancy as the economy continues to grow.”

“We now have the largest pipeline of development underway in eight years,” she adds, largely driven by the significant rise in leasing activity. The current pipeline will eventually produce about 35 million square feet. “However, the bulk of that won't come online until 2016, so tenants will continue to feel supply constraints through the remainder of 2015, leading to further tightening of vacancy across markets.”

Occupiers absorbed a relatively small amount in the first quarter, but net absorption more than doubled in the second to reach 14.4 million square feet. Washington DC, Los Angeles, Dallas and New York led the nation in occupancy gains, all posting more than one million square feet in absorption.

The collapse in oil prices may have dulled the economic outlook for Houston, but it has yet to cause occupancy losses in the office market. “However, sublease space continues to trend upward and coupled with more than 3.5 million square feet of new supply this year, conditions will continue moving in tenants' favor,” the report says.

But until projects start emerging from the development pipeline, the majority of US markets will favor landlords and rents will continue to rise as available space declines.

The average national rental rate registered at nearly $30 per-square-foot, a 1.1% increase in the quarter. Landlords in Chicago, San Francisco, Oakland-East Bay and Tampa all pushed rents higher as demand for office space in these markets continued to grow.

At 6.9%, Salt Lake City had the lowest vacancy rate in the country, and Portland, San Francisco and New York all had rates below 10%.

“Salt Lake City's unemployment rate is one of the lowest in the country and its shift toward a vibrant, liveable city where today's workforce wants to be,” says Barry Dorfman, international director and market director for JLL's Rocky Mountain region. “A diverse economy, led by high-tech and finance, and increased amenities and access to public transportation, a low cost of living and high quality of life is driving leasing activity.”

The second quarter results proves “tenants are confident in the economy,” Georgules concludes. “Strong growth in scientific and technical industries of tech, telecom as well as banking and finance will continue to drive expansion into new markets, especially where workplace and lifestyle come together nicely.”