courtesy of the Wall Street Journal

The amount of occupied office space in the U.S. continued to inch higher during the first quarter of 2011 as businesses slowly began to expand.

Average effective rents, which include such benefits as free rent and interior work, rose by 0.5% to $22.20 a square foot, according to property-research firm Reis Inc. This marked the second consecutive quarter of rent increases and more evidence the industry has finally turned the corner after more than two years of dramatic rent and occupancy drops.

However, rents are still well below the highs of 2008, when effective rents reached $25 a square foot.

Also the improvement varies among regions. Among the 79 markets tracked by Reis, the nation’s capital continued to boast the lowest vacancy in the first quarter with a 9.2% rate. The district was followed by New York City at 10.7%.

On the other end of the spectrum, Detroit and Phoenix tied for the highest vacancy rates of 26.6%. Detroit continues to suffer from high rates of joblessness and population declines, while Phoenix is still hurting from the housing crisis.

The national vacancy rate inched down slightly to 17.5% from 17.6% in the fourth quarter, which was the highest level in 17 years. “As the overall economy continues on its current path of expansion, we expect that rents and vacancies will continue to improve in 2011,” said Ryan Severino, a Reis senior economist. He noted the potential risks to the recovery include concerns about Europe’s financial woes and unrest in the Middle East and Northern Africa.

Washington is benefitting from rising demand from companies like Sterne, Kessler Goldstein & Fox, which is planning to expand into 120,000 square feet of space. The intellectual property law firm had occupied 88,000 square feet and will make a decision where to lease the new space within a few weeks.

“We’re growing and are looking to stay and expand or grow into a new space,” says Robert Burger, chief operating officer of the firm which employs 310 people. It is being represented byCB Richard Ellis.

The improving office market has begun to resuscitate development in the hottest markets. For instance, Boston Properties Inc. recently said it will likely restart construction this year on a $1 billion 40-floor Manhattan skyscraper that’s been on hold since 2009. In Northern Virginia, developer Monday Properties plans to build a 35-story office tower.