Elsewhere: US Office Markets Vary Widely With Job Growth

Not so, this time. Though real-estate markets in most large cities are on the upswing, the rates vary widely among locations. The gap between markets illustrates the uneven job growth across the country.

"I think the disparity is as wide as any time that I've been observing real estate," said Raymond Torto, a founder of Boston-based Torto Wheaton Research who began monitoring real estate more than two decades ago.

Job growth generally drives office markets and the current recovery is no exception. Employment has been stronger in the South and West, and office leasing has followed. Moreover, most of the new jobs have been created by smaller companies, a trend that can hurt markets heavy on big corporations. To be sure, almost every market is seeing improvement. Favorable absorption -- the net change in the amount of occupied space -- is pushing down vacancy rates in most markets. That trend is pushing rental rates up, said Lloyd Lynford, chief executive of New York real-estate-research firm Reis Inc.

For the largest 69 markets (excluding New Orleans), absorption is projected to total just below 65 million square feet this year, the highest total since 2000, according to Reis data. The average vacancy rate declined to 15.1% in the third quarter, the sixth consecutive drop. Meanwhile, effective rents -- the total rent less tenant concessions -- rose 0.9% in the third quarter, Reis found.

Disparities can be seen even within the same city. Take Los Angeles, where vacancy rates have dropped for nine consecutive quarters, according to research by Studley, a New York real-estate firm that specializes in tenant representation.

While the vacancy rate for downtown Los Angeles remained high at 18.2% in the third quarter, the rates for the city's west side and Hollywood, dropped to 13.8% and 10.7%, respectively, Studley found. The city's central business district had been hurt by job losses in the financial sector. The metropolitan area of Los Angeles lost 25,000 such jobs from 1994 to 2000 before starting to turn around, according to data provided by the U.S. government's Bureau of Labor Statistics. Since then, the area has gained back about 8,500 of those jobs.

Robust trade with China has led to a growth in service jobs near the port. Meanwhile, companies that support the entertainment industry have ramped up, in part because the dollar has weakened against its Canadian counterpart, reversing the trend of movie production shifting up north, said Jim Costello, a Torto Wheaton senior economist. "Even though it had that huge anchor to pull it down, Los Angeles itself is still recovering. It's just the downtown that isn't," Mr. Costello said.

Using job growth as a top factor, along with business-friendly governments and limits on office-building construction, Reis projects that Austin, Texas, will be the strongest real-estate market over the next five years, with annual gross-revenue growth of 5.6%. Also at or near 5% will be San Francisco; Orange County, Calif.; Phoenix and San Diego, Reis predicts. Conversely, office landlords in Pittsburgh, Dayton, Cincinnati, Rochester, N.Y., and Detroit are projected to have annual gross-revenue growth of less than 2.2%. Those are generally markets that have lost significant numbers of manufacturing jobs over the past few decades.

Cities such as Austin have benefited from a surge in job growth among small and midsize businesses, a 30-year trend that has accelerated in recent years, said Diane Swonk, chief economist for Chicago financial-services firm Mesirow Financial.

Restructuring and downsizing among large companies has reduced space needs, especially in a time of high energy prices when efficiency is valued, Ms. Swonk said. Consequently, office markets that have traditionally been home to large headquarters for Fortune 500 companies, such as Chicago and New Jersey, may continue to struggle, said Robert Bach, national director of market analysis for Grubb & Ellis.

Not surprisingly, these trends have implications for publicly traded real-estate companies. Boston Properties Inc., with more than 77% of its portfolio in New York, Boston and Washington metropolitan areas, is particularly well invested for today's market, said Keven Lindemann, director of the real-estate group for Charlottesville, Va.-based SNL Financial. Merrill Lynch recently praised Trizec Properties Inc. in Chicago for transforming its portfolio by acquiring more than three million square feet of office space in Los Angeles and Washington, D.C., in the past two years, while disposing of some large properties in sluggish markets such as Dallas, St. Louis, Pittsburgh and Atlanta.