The office market around South Station had the lowest vacancy rate in downtown Boston in this year’s third quarter, with 92,900 square feet of available office space.

Greater Boston’s office market continued to improve in the third quarter, as vacancy rates fell and rents increased, according to data from Jones Lang LaSalle.

“The trend is continuing and the market is very healthy right now,” said Debra Gould, managing director at Jones Lang LaSalle, a global real estate services and money management firm with offices in Boston. “We’re seeing lots of expansion from mid-level companies seeking 20,000 [square feet] to 40,000 square feet of space as venture capital and money management firms grow. We even went from 40,000 square feet to 58,000 [square feet] ourselves.”

Offices in the Back Bay, Financial District, North Station, South Boston’s waterfront and South Station had more tenants as Boston’s vacancy rate fell to 8.8 percent from July through September compared to 10.8 percent for the same period a year ago. In keeping with the laws of supply and demand, the average rent increased to $36.45 per square foot, up from $33.79 – an 8 percent hike compared to last year.

In the third quarter of 2005, lessees had lots more choices in Boston, as nearly 9 million square feet of office space was available from a supply of more than 57 million square feet. At the time, average rents were about $33 per square foot. This year, 8 million square feet of space is on hand and average rents are at $36.45.

At 5.1 percent, South Station had the lowest vacancy rate in downtown Boston with 92,900 square feet of available office space. South Boston’s waterfront saw the biggest decline as vacancies fell to 10.9 percent, down from 17.5 percent for the third quarter of 2005. In the Back Bay, vacancies slipped to 5.7 percent from 7 percent last year. North Station stayed about the same while the Financial District’s vacancy rate dropped to 8.8 percent from 11.4 percent in 2005.

Gould said companies such as Eaton Vance Corp., which took 40,000 square feet of space at 255 State St., are growing while suburban tenants are looking to move downtown.

The only Boston district to buck the trend was Charlestown where the vacancy rate was nearly 19 percent, up from a more modest 10 percent for the third quarter of 2005. Still, while vacancies increased, so did rents. The average rent in Charlestown swelled to $25.40 per square foot, up from $22.63 – a 12 percent hike.

Commercial brokers say that the quarter’s Charlestown numbers could reflect the fact that a number of companies and at least one state agency gave up nearly 300,000 square feet of space in Charlestown including Manulife Financial, Partners Healthcare and the Massachusetts Water Resources Authority.

‘Lots of Growth’
The most striking falloff in available space was in Cambridge where the overall rate fell to 7.5 percent from 12.5 percent last year. East Cambridge saw the biggest drop to 7.2 percent in the third quarter from 13.4 percent in 2005. Brokers said the increase stems from companies who are growing.

“Cambridge’s office market has tightened up dramatically,” said Ellen Fantini, a senior advisor at Grubb & Ellis, a global commercial real estate advisory firm with offices in Boston. “There has been lots of growth in the biotech and software industries, especially in East Cambridge where buildings have been converted to office [use]. There’s very little space available. I’m headed for a tour with a group looking for 15,000 to 20,000 square feet of space, and last year there was a list of 12 buildings. Today there are four.”

While vacancies are scarce, prices have risen, Fantini noted.

“At the high end, tenants can expect to pay in the $40 range in East Cambridge at One Memorial Drive and there have been deals achieved in the $30 price range,” she said. “We haven’t seen those kinds of numbers since 1999 and 2000.”

For the two other areas of Cambridge, the vacancy rate continued to fall. In the Alewife area, vacancies dipped to 13.2 percent in the third quarter, down from 15.3 percent last year. In Harvard Square and along Massachusetts Avenue, only 130,416 square feet of space, or 2.7 percent, was available – down from 4.4 percent last year

With only a few exceptions, the suburban markets continued to see vacancy rates dwindle slightly. Overall, the suburbs had a vacancy rate of 15.4 percent during the third quarter of 2006 compared to 16.3 percent for the same period in 2005.

Route 128/Massachusetts Turnpike saw the vacancy rate fall to 10 percent from 13.4 percent, Interstate 495/Mass. Pike was 14.8 percent this year compared to 15.8 percent and offices north of Boston slipped to 14.3 percent from 16 percent. I-495 South and Northwest of Boston stayed about the same.

Rents in the suburban market increased to $20 per square foot in the third quarter, up from $18.54 in 2005 – a nearly 8 percent hike.

The only suburban area to see a rise in the vacancy rate was I-495 North where available office space reached 25 percent, up from 22.4 percent in 20056.

CB Richard Ellis New England, one of the nation’s largest commercial real estate firms with offices in Boston, said the third-quarter numbers demonstrate the lowest vacancy rate in four years, according to its just-released Market View publication. While overall availability was unchanged from the second quarter, the demand for Class A office space continued through the third quarter, the report said.

“This marks the fifth consecutive quarter that vacancy rates have dropped in the overall Boston market, suggesting continued tightening market conditions and projected rent growth in the months ahead,” the study said.

Boston’s improving office market is reflected nationwide as vacancy rates continue to fall in most markets. With a slowdown in speculative construction, office market vacancy rates are expected to drop in major U.S. cities to an average of 13 percent by year-end from 13.6 percent during the same quarter of last year – the lowest since 2001, according to the Commercial Real Estate Outlook of the National Association of Realtors. Office rents are likely to rise 5.5 percent for all of 2006, the report said.

David Lereah, NAR’s chief economist, said most commercial market fundamentals are solid. “Commercial real estate markets move in response to changes in fundamental demand, which remains solid as a result of sustained job creation and economic growth,” he said. “Except for some weakness in the retail sector, the commercial market is benefiting from lower vacancies and higher rents.”