By Herbert Lash

NEW YORK (Reuters) - The cost of renting office space in Manhattan set new records in the third quarter amid strong leasing activity that was driven by a job creation rate in New York that exceeds the nationwide average, according to brokerage Colliers International .

Leasing activity across Manhattan is 13.8 percent above the city's 10-year average, and year-to-date is 11.1 percent better than 2015, a banner year for commercial real estate in New York, the brokerage said on Thursday.

New York has created 89,000 new private sector jobs in the 12 months ended August, a 2.4 percent increase that tops the U.S. job gains rate of 1.9 percent, Colliers said.

If leasing activity maintains pace in the fourth quarter, traditionally a strong period as deals rush to close, 2016 will surpass last year to post the second-highest leasing volume in a decade, said Craig Caggiano, a Colliers' executive director.

Demand is keeping up with supply but that could soon change, he said. Some 10 million square feet of new office space, the largest glut to hit Manhattan in at least 30 years, will begin to come online over the next few years in late 2017, he said.

"What's going to happen when that comes on the market? Will that supply overwhelm demand, that is a big unknown," Caggiano said.

Asking rents rose to a record average of $73.85 a square foot in Manhattan even though rents in Midtown, the largest U.S. office market, were 9.3 percent lower at $83.49 a square foot than their pre-recession peak in 2008, the brokerage said.

In downtown, which is the third-largest U.S. office market, asking rents set a new record of $58.83 a square foot, while asking rents in the smaller but trendy Midtown South market also posted a new record at $67.54 a square foot.

Overall leasing activity edged slightly higher from the second quarter, but rose 16.7 percent from the third quarter of 2015, a banner year for New York commercial real estate.

Leasing volume picked up almost 25 percent quarter-over-quarter and 30.2 percent year-over-year in Midtown South. Leasing activity surged 26.5 percent from a year ago in Midtown, though it was down 10.2 percent from the previous quarter, Colliers said.

(Reporting by Herbert Lash; Editing by Bernard Orr)