The Best and Worst U.S. Cities for Renting Office Space

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As the U.S. economy improves, rent prices for office space are on the rise. If you're looking for a cost-effective spot to set up shop, recent analysis by real-estate research firm Reis Inc. breaks down the costs of renting in major cities around the country.

Nationally, the average rate for office space in the second quarter of 2013 was $23.23 per square foot, a 2.1 percent increase from $22.75 at this time last year, according to Reis. For a business owner renting an average 1,500-square-foot office, the increase amounts to paying $60 more per month. The numbers are based on the effective rate, which includes landlord concessions such as free rent for the first month.

Despite rising prices, businesses are slowly beginning to rent more office space. In the second quarter, the office vacancy rate dropped to 17 percent, compared with 17.3 percent one year ago, amounting to a total of 3.4 billion square feet of office space now occupied.

Renters beware: According to Reis's analysis, office-space rates are rising most rapidly in San Francisco, San Jose -- which includes Silicon Valley in its metro area -- and New York. The price growth is driven primarily by companies in the energy and technology industries, according to Reis. Houston and Dallas, the major urban hubs of oil-rich Texas, are also among the five cities where office rents are rising the fastest.

Because energy and tech are globalized industries that aren't tethered as closely to the U.S. economy as many other sectors, they weren't hit as hard by the recession, and can afford to shell out more money for attractive office space, says Ryan Severino, senior economist at Reis. "The U.S. economy is growing at 2 percent these days, if we're lucky, but if you're Facebook or Google or Apple or Amazon, you have a much broader, more diverse pool of people that form your customer base," he says.

Related: Apps Aim to Satisfy Real-Estate Lust

What follows is a snapshot of office-space price trends in major U.S. cities over the past year.

Cities Where Office Rents Are Rising the Fastest

No. 1: San Francisco, Calif.
Cost increase: 7.2 percent
Average price per square foot: $35.99

No. 2: San Jose, Calif.
Cost increase: 4.6 percent
Average price per square foot: $25.05

No. 3: New York, N.Y.
Cost increase: 4.4 percent
Average price per square foot: $49.98

No. 4: Houston, Texas
Cost increase: 4 percent
Average price per square foot: $21.35

No. 5: Dallas, Texas
Cost increase: 3.2 percent
Average price per square foot: $15.62

Cities Where Office Rents Are Falling the Most

No. 1: Chattanooga, Tenn.
Cost increase: -0.6 percent
Average price per square foot: $10.80

No. 2: Long Island, N.Y.
Cost increase: -0.5 percent
Average price per square foot: $21.99

No. 3: Las Vegas, Nev.
Cost increase: -0.2 percent
Average price per square foot: $18.05

No. 4: Columbia, S.C.
Cost increase: -0.2 percent
Average price per square foot: $12.43

No. 5: San Bernardino/Riverside, Calif.
Cost increase: -0.2 percent
Average price per square foot: $17.04

An earlier version of this story misstated the increase in monthly rent that would be paid on a 1,500-square-foot office based on a recent uptick in average rent price. The correct increase is $60 per month.

Related: 5 Things Entrepreneurs Should Know About Real Estate

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