The office market is recovering as demand sharpens and construction activity continues to slow, a new report says.

National office vacancy declined for the first time since 2019, dropping 5 basis points to 22.5% in Q3, according to JLL. However, leasing activity stood at 82% of prepandemic levels.

New construction continues to decline. Less than 6M SF is in the pipeline, down from 50M SF in 2019.

Due to the lack of new supply, vacancy for Tier 1 office space built since 2000 declined 104 bps over the last year, according to JLL.

"With footprints beginning to expand and little new development, office could be entering an extended period of declining vacancy rates," JLL stated in its report.

Large transactions returned in the third quarter, growing by more than 50% from Q2. Gross leasing volume rose 6.5% to 52.4M SF with 18 markets exceeding prepandemic leasing activity.

Leasing was led by gateway markets in the last year, with Silicon Valley, San Francisco and Chicago leading at 58%, 34% and 28% leasing growth, respectively.

Finance, insurance, real estate and technology tenants preleased 62% of the space under construction in the top fourteen markets last quarter, according to Colliers.

Amazon preleased 1M SF in Puget Sound, marking the largest transaction of the quarter. The second-largest transaction was Goldman Sachs signing a 700K SF lease in Dallas-Fort Worth.

Net absorption soared to 6.1M SF in Q3, almost double the previous postpandemic high in Q4 2021. Rents remained flat in the last quarter but grew in Tier 2 buildings due to the lack of availability in top-tier space, according to JLL.

CORRECTION, OCT. 21, 2:45 P.M. ET: A previous version of this story did not properly contextualize FIRE and tech tenants' preleasing activity. The story has been updated.