L.A. County’s office market continued to strengthen in the third quarter, as vacancies fell and lease rates began to perk up.

Countywide vacancy rates for Class-A office space dropped to 12.1 percent in the July-August period from 12.9 percent in the second quarter and 15 percent for the like period a year earlier, according to Grubb & Ellis Co.

Asking rents rose to $2.52 per square foot, up 4 cents from the second quarter and 10 cents from a year earlier.

The improvement, still tentative in some submarkets, is in full force on the Westside, where vacancies fell below 10 percent.

The county’s worst market, the South Bay, appeared to benefit from Westside overflow. Rough spots also remained in Glendale and downtown L.A., where tenants balked at higher asking rates, slowing progress toward lower vacancies.

Institutional investors like pension funds and real estate investment trusts remained bullish. Buyers looking for places to park their cash proved willing to pay premiums to buy buildings in more sluggish markets like Glendale. A dwindling supply of developable land, combined with job growth and a glut of institutional investors, helped propel the market.

Compared with other assets such as stocks and bonds, real estate has been delivering higher returns. “REITS and pensions are very interested in California real estate,” said Delores Conway, director of the Casden Forecast at USC Marshall School of Business’s Lusk Center for Real Estate. “There have been huge amounts of investment coming in.”

L.A.’s office market is doing better than others around the country because companies are hiring and expanding their office space. With rents expected to rise and vacancies to fall, many tenants are seeking to lock in available space.

Such was the case in Santa Monica, where Yahoo Inc. agreed to an $80 million deal for 214,000 square feet at Colorado Center, adding to the 256,000 square feet it already leases.

Automotive research firm Edmunds.com moved to the Water Garden from Colorado Center, leasing 70,000 square feet.

One reason office space is being seen as scarce: residential development, which is converting some former office or industrial properties to residential use.

“There’s an insatiable demand for residential, so a lot of properties are being bid up and picked up by developers,” said J.C. Casillas, research services manager for Grubb & Ellis. He added that with few large parcels of land left, buyers are more accepting of apartment or condo living, and residential developers are willing to build high-rises in places like the San Fernando Valley and the Westside, not only downtown L.A.

“It’s all infill activity,” Casillas said. “We’ve hit critical mass.”

On the Westside, high demand for office space from technology and entertainment industry tenants drove vacancy rates down to 9.8 percent from 11.6 percent in the second quarter and 15.3 percent a year earlier. Asking rents for Class-A space rose to $2.88 a square foot, up from $2.68 one year earlier.

Demand was so high in West Los Angeles that brokers said activity spilled over to the ailing South Bay, where vacancy rates fell to 18.5 percent from 20.1 percent in the previous quarter.

El Segundo benefited from one large lease. Defense contractor Northrop Grumman Corp. leased 216,000 square feet of office and high-tech light industrial space from Overton Moore Properties in the Douglas Technology Center, in a deal that accounted for nearly half the net absorption in the South Bay.

The Tri-Cities market of Burbank, Glendale and Pasadena showed mixed results. Glendale’s vacancy rate rose to 15 percent in the third quarter from 14.4 percent; Pasadena and Burbank remain well below 10 percent vacant. Casillas, like others, expects Glendale to rebound.

“They’ve had a giant exodus with some big tenants moving out a couple of quarters ago. But rents have held steady,” he said. “The market is so tight people will be forced to look at Glendale.”

Countywide, the already hot industrial market got hotter, fed by warehousing and logistics companies handling a surge of imported goods from China.

The third quarter industrial vacancy rate of 1.8 percent was down from 2.1 percent in the previous three months and 2.5 percent for the like period a year earlier. The 7.7 million square feet of industrial space under construction would add less than 1 percent to the existing industrial stock, so users are seeking space in the Inland Empire.

How long will the county’s commercial and industrial markets keep rising? As long as the economy holds up. “Certainly, rent levels will be surprising people,” Casillas said. “I think there will be some sticker shock out there.”