According to a new report by Colliers International, the U.S. office market entered the year on a relatively strong note after the fourth quarter, with a sharp drop in vacancy and a healthy increase in occupied space.

But rents continue to languish, according to Ross Moore, chief economist at Colliers International and author of the report.

The fourth quarter marked a key turning point toward recovery, he says. “With the economy now posting robust growth, all that is needed for a full recovery is a surge in employment.” 

With the economy making strides, and the addition of private sector jobs, leasing markets are expected to continue improving as 2011 unfolds.

The fourth quarter data confirms his view that the U.S. office market has entered the recovery stage and will likely make continued progress, assuming the economy stays on the current path, says Moore.

Most encouraging is the 12-month-long gain in private sector employment, he adds.

During the October-December period, professional and business employment was up 2.2% year-over-year, the report says. Widespread rent increases are still unlikely anytime soon, according to Colliers International.

The U.S. national office vacancy rate moved substantially lower during the fourth quarter, dropping 29 basis points, with 100 basis points equal to 1%.  

This represented the first drop after 12 quarters of rising vacancy. Office vacancies finished the quarter at 16.11%. Moore expects that to mark the beginning of a long decline in vacancy.

During the fourth quarter, downtown vacancies decreased 23 basis points to 14.81%, while suburban vacancy rates fell 32 basis points to register 16.69%.For the year, the U.S. national office vacancy rate fell 12 basis points after peaking in the third quarter.