Oct. 14 (Bloomberg) -- Office vacancies in U.S. downtowns rose to 10.6 percent in the third quarter as employment fell nationwide and companies put office space up for sublease, real estate broker Cushman & Wakefield said.

The national office vacancy rate was up from 10.2 percent in the previous quarter and 9.8 percent a year earlier, New York- based Cushman said today in a statement. The third quarter's rate was the highest since the fourth quarter of 2006, when it also was 10.6 percent. The rise in vacancies coincided with a drop in the amount of space newly leased, which fell 14 percent from a year earlier to 53.4 million square feet.

The most significant cause of the vacancy increase was space put up for sublease, Cushman said. About 51 million square feet of sublease space was available in the third quarter, an increase of 1 million square feet from the previous quarter. The rise came as U.S. employers cut the most jobs in five years in September, according to the Labor Department.

``Some of the increase is definitely attributable to the fact that sublease space is growing,'' Maria Sicola, executive managing director and head of research for Cushman, said in an interview. Vacancies will rise for the rest of the year as banks and insurance companies cut more workers, she said. ``We haven't seen the full impact of the layoffs in the financial sector.''

Financial firms decreased payrolls by 17,000, the most since November of last year, and service industries, which include banks and insurance companies, cut 82,000 workers, the Labor Department said earlier this month. The unemployment rate in September was 6.1 percent, a climb of 1.4 percentage points from a year earlier.

Florida, Maryland

Nineteen of 30 U.S. downtowns tracked by Cushman had vacancy increases in the third quarter. The largest rises from the previous three months were in Palm Beach, Florida, where vacancies rose to 18.8 percent from 16.2 percent; Baltimore, where they grew to 13.5 percent from 11 percent; and Bellevue, Washington, where they increased to 9.5 percent from 7.1 percent.

The average annual asking rent for U.S. office space rose to $40.95 per square foot at the end of the third quarter from $40.19 in the previous three months and $31.97 a year earlier, Cushman said.

In midtown Manhattan, the country's largest office market with more than 241 million square feet of space, rents rose 13 percent to $84.48 a square foot, the highest in the U.S. While midtown Manhattan remains a ``strong landlords market,'' with office owners having more power over prices than have tenants, that dynamic will soon change, Sicola said.

``We haven't seen the complete transformation to a complete tenants market, though we are in the throes of it,'' she said. ``Through 2009, we'll see further price declines and softening.''

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.

Last Updated: October 14, 2008 10:00 EDT